<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: August 18, 1994
Date of Earliest Event Reported: August 4, 1994
TELE-COMMUNICATIONS, INC.
and
TCI COMMUNICATIONS, INC.
----------------------------------------------------------
(Exact name of Registrants as specified in their charters)
State of Delaware
----------------------------------------------
(State or other jurisdiction of incorporation)
<TABLE>
<S> <C>
0-20421 and 0-5550 84-1260157 and 84-0588868
------------------------- -------------------------------------
(Commission File Numbers) (I.R.S. Employer Identification Nos.)
5619 DTC Parkway
Englewood, Colorado 80111
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrants' telephone number, including area code: (303) 267-5500
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
As of January 27, 1994, TCI Communications, Inc. ("TCI") (formerly
Tele-Communications, Inc. or "Old TCI") and Liberty Media Corporation
("Liberty") entered into a definitive agreement to combine the two companies
(the "Mergers"). The transaction was consummated on August 4, 1994 and was
structured as a tax free exchange of Class A and Class B shares of both
companies and preferred stock of Liberty for like shares of a newly formed
holding company, Tele-Communications, Inc. (formerly TCI/Liberty Holding
Company or "Holding Company"). In connection with the Mergers, Old TCI changed
its name to TCI Communications, Inc. and Holding Company changed its name to
Tele-Communications, Inc. Old TCI common shareholders received one share of
Holding Company for each of their shares. Liberty common shareholders received
0.975 of a share of Holding Company for each of their shares. Holders of
Liberty Class E, 6% Cumulative Redeemable Exchangeable Junior Preferred Stock
("Liberty Class E Preferred Stock") received shares of a new preferred stock of
Holding Company having designations, preferences, rights and qualifications,
limitations and restrictions that are substantially identical to those of the
Liberty Class E Preferred Stock, except that the holders of the new preferred
stock will be entitled to one vote per share in any general election of
directors of Holding Company. The other classes of preferred stock of Liberty
held by Old TCI were converted into the right to receive that number of shares
of a new series of preferred stock of Holding Company having a substantially
equivalent fair market value. Historical and pro forma financial information
reflecting the Mergers is included herein under Item 7 of this Report.
ITEM 5. OTHER EVENTS.
As of August 8, 1994, Holding Company, TCI and TeleCable Corporation
("TeleCable") entered into a merger agreement, whereby TeleCable will be merged
into TCI. The aggregate purchase price of $1.6 billion will be paid with
shares of Holding Company Class A common stock (currently estimated to be
41,666,667 shares), assumption of liabilities amounting to approximately $300
million and shares of a Holding Company convertible preferred stock with an
aggregate initial liquidation value of $300 million. Such preferred stock
shall accrue dividends at 5-1/2% per annum, shall be convertible at the option
of its holders into 10 million shares of Holding Company Class A common stock
and shall be redeemable by Holding Company after 5 years. The merger requires
the approval of the shareholders of TeleCable and various franchise and
government authorities.
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements
Liberty Media Corporation,
Six months ended June 30, 1994:
Consolidated Balance Sheets,
June 30, 1994 and December 31, 1993 (unaudited)
Consolidated Statements of Operations,
Six months ended June 30, 1994 and 1993 (unaudited)
Consolidated Statement of Stockholders' Equity,
Six months ended June 30, 1994 (unaudited)
Consolidated Statement of Cash Flows,
Six months ended June 30, 1994 and 1993 (unaudited)
Notes to Consolidated Financial Statements,
June 30, 1994 (unaudited)
(b) Pro Forma Financial Information
TCI Communications, Inc. and Subsidiaries:
Condensed Pro Forma Balance Sheet,
June 30, 1994 (unaudited)
Condensed Pro Forma Statement of Operations,
Six months ended June 30, 1994 (unaudited)
Condensed Pro Forma Statement of Operations,
Year ended December 31, 1993 (unaudited)
Notes to Condensed Pro Forma Financial Statements,
June 30, 1994 (unaudited)
Liberty Media Corporation and Subsidiaries:
Condensed Pro Forma Balance Sheet,
June 30, 1994 (unaudited)
Condensed Pro Forma Combined Statement of Operations,
Six months ended June 30, 1994 (unaudited)
Condensed Pro Forma Combined Statement of Operations,
Year ended December 31, 1993 (unaudited)
Notes to Condensed Pro Forma Combined Financial Statements,
June 30, 1994 (unaudited)
(continued)
<PAGE> 4
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(CONTINUED).
Tele-Communications, Inc. and Subsidiaries:
Condensed Pro Forma Balance Sheet,
June 30, 1994 (unaudited)
Condensed Pro Forma Combined Statement of Operations,
Six months ended June 30, 1994 (unaudited)
Condensed Pro Forma Statement of Operations,
Year ended December 31, 1993 (unaudited)
Notes to Condensed Pro Forma Financial Statements,
June 30, 1994 (unaudited)
(c) Exhibits
(2.1) Agreement and Plan of Merger, dated as of January 27, 1994,
by and among Tele-Communications, Inc., Liberty Media
Corporation, TCI/Liberty Holding Company, TCI Mergerco,
Inc. and Liberty Mergerco, Inc.*
Incorporated herein by reference to Tele-Communications,
Inc.'s Current Report on Form 8-K dated February 15,
1994 (Commission File No. 0-5550).
(2.2) Amendment No. 1, dated as of March 30, 1994, to Agreement and
Plan of Merger, dated as of January 27, 1994, by and among
Tele-Communications, Inc., Liberty Media Corporation,
TCI/Liberty Holding Company, TCI Mergerco, Inc. and
Liberty Mergerco, Inc.
Incorporated herein by reference to Tele-Communications,
Inc.'s Current Report on Form 8-K dated April 6, 1994
(Commission File No. 0-5550).
(2.3) Amendment No. 2, dated as of August 4, 1994, to Agreement and
Plan of Merger, dated as of January 27, 1994, by and among
Tele-Communications, Inc., Liberty Media Corporation,
TCI/Liberty Holding Company, TCI Mergerco, Inc. and
Liberty Mergerco, Inc.
(2.4) Agreement and Plan of Merger, dated as of August 8, 1994, among
Tele-Communications, Inc., TCI Communications, Inc. and
TeleCable Corporation.
<PAGE> 5
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrants have duly caused this report to be signed on their behalf by the
undersigned hereunto duly authorized.
Date: August 18, 1994
TELE-COMMUNICATIONS, INC.
(Registrant)
By: /s/ STEPHEN M. BRETT
Stephen M. Brett
Senior Vice President and
General Counsel
TCI Communications, Inc.
(Registrant)
By: /s/ STEPHEN M. BRETT
Stephen M. Brett
Senior Vice President and
General Counsel
<PAGE> 6
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
Assets June 30, December 31,
- ------ 1994 1993
------------- -------------
amounts in thousands
<S> <C>
Cash and cash equivalents $ 75,625 91,305
Trade and other receivables 70,551 57,458
Less allowance for doubtful receivables 3,211 3,032
------------- ---------
67,340 54,426
------------- ---------
Inventories, net 103,619 112,005
Prepaid expenses 32,719 25,210
Investments in affiliates, accounted for under the equity
method, and related receivables (note 4) 106,313 151,540
Other investments, at cost, and related receivables (note 5) 662,385 220,218
Investment in Tele-Communications, Inc. ("TCI")
common stock (note 1) 104,011 104,011
Property and equipment, at cost:
Land 21,649 21,662
Cable distribution systems 91,286 87,437
Support equipment and buildings 123,081 124,727
Computer and broadcast equipment 58,470 61,820
------------- ---------
294,486 295,646
Less accumulated depreciation 45,806 39,968
------------- ---------
248,680 255,678
------------- ---------
Franchise costs 142,807 142,789
Less accumulated amortization 7,306 5,351
------------- ---------
135,501 137,438
------------- ---------
Excess cost over acquired net assets 255,842 255,842
Less accumulated amortization 13,721 9,818
------------- ---------
242,121 246,024
------------- ---------
Other intangibles 131,025 96,873
Less accumulated amortization 71,650 65,895
------------- ---------
59,375 30,978
------------- ---------
Other assets, at cost, net of amortization 8,721 7,715
------------- ---------
$ 1,846,410 1,436,548
============= =========
</TABLE>
(continued)
I-1
<PAGE> 7
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets, continued
(unaudited)
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity June 30, December 31,
- ------------------------------------ 1994 1993
------------ ------------
amounts in thousands
<S> <C> <C>
Accounts payable $ 98,974 99,680
Accrued liabilities 83,387 82,716
Accrued litigation settlements 27,973 29,000
Film licenses payable 18,130 13,850
Due to TCI, including accrued interest payable (notes 6 and 9) 45,218 17,874
Accrued compensation relating to stock
appreciation rights (note 8) 26,269 36,996
Income taxes payable 22,580 24,624
Debt (notes 6 and 10) 229,638 260,180
Debt to TCI (notes 6 and 10) 185,918 185,918
Deferred income taxes 154,958 1,653
Other liabilities 3,060 1,585
------------ ---------
Total liabilities 896,105 754,076
------------ ---------
Minority interests in equity of consolidated
subsidiaries (note 7) 187,190 174,738
Preferred stock subject to mandatory redemption
requirements (including accreted dividends) (note 10)
Class B Redeemable Exchangeable Preferred Stock,
$.01 par value. 138,243 132,652
Class D Redeemable Voting Preferred Stock,
$.01 par value. 23,704 22,585
------------ ---------
161,947 155,237
------------ ---------
Stockholders' equity (notes 5, 8 and 11):
Class E, 6% Cumulative Redeemable Exchangeable Junior
Preferred Stock, $.01 par value. 17 17
Class A common stock, $1 par value. 87,515 87,515
Class B common stock, $1 par value. 43,339 43,339
Additional paid-in capital 231,106 236,126
Retained earnings 12,761 --
Unrealized holding gains for available-for-sale securities 241,471 --
Note receivable from related party (15,041) (14,500)
------------ ---------
601,168 352,497
------------ ---------
Commitments and contingencies (notes 4, 6 and 11)
$ 1,846,410 1,436,548
============ =========
</TABLE>
See accompanying notes to consolidated financial statements.
I-2
<PAGE> 8
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three months
ended
June 30,
--------------------
1994 1993
--------- --------
amounts in thousands
<S> <C> <C>
Revenue:
Net sales from home shopping services $ 274,005 250,264
From TCI (note 9) 12,060 11,143
From cable and programming services 54,340 42,278
--------- --------
340,405 303,685
--------- --------
Cost of sales, operating costs and expenses:
Cost of sales 176,368 162,723
Operating 52,770 44,730
Selling, general and administrative 80,508 72,126
Charges by TCI (note 9) 7,849 3,103
Compensation relating to stock appreciation
rights (note 8) -- 10,948
Adjustment to compensation relating to stock
appreciation rights (note 8) (425) --
Depreciation 7,559 8,016
Amortization 6,596 4,642
--------- --------
331,225 306,288
--------- --------
Operating income (loss) 9,180 (2,603)
Other income (expense):
Interest expense to TCI (5,123) (2,218)
Other interest expense (4,723) (6,193)
Interest income from TCI 937 435
Dividend and interest income, primarily from affiliates 5,211 5,821
Provision for impairment of investment -- (8,167)
Loss on sale of investment to TCI -- (22,129)
Share of earnings of affiliates, net 12,808 12,118
Minority interests in earnings of consolidated subsidiaries (1,488) (1,890)
Other, net (2,490) 44
--------- --------
Earnings (loss) before income taxes and
extraordinary item 14,312 (24,782)
Income tax (expense) benefit (3,457) 7,165
--------- --------
Earnings (loss) before extraordinary item 10,855 (17,617)
Extraordinary item-loss on early extinguishment of
debt, net of taxes -- (399)
--------- --------
Net earnings (loss) 10,855 (18,016)
Dividend requirement on preferred stocks (5,933) (9,504)
--------- --------
Net earnings (loss) attributable to common
shareholders $ 4,922 (27,520)
========= ========
Earnings (loss) per share:
Net earnings (loss) attributable to common
shareholders before extraordinary item $ 0.04 (0.21)
Extraordinary item, net -- 0.00
--------- --------
Net earnings (loss) attributable to common
shareholders $ 0.04 (0.21)
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
I-3
<PAGE> 9
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Six months
ended
June 30,
--------------------------
1994 1993
------------ ---------
amounts in thousands
<S> <C> <C>
Revenue:
Net sales from home shopping services $ 548,220 386,045
From TCI (note 9) 23,780 22,377
From cable and programming services 103,485 74,335
------------ -------
675,485 482,757
------------ -------
Cost of sales, operating costs and expenses:
Cost of sales 351,638 248,092
Operating 104,173 79,541
Selling, general and administrative 155,889 111,606
Charges by TCI (note 9) 11,248 4,468
Compensation relating to stock appreciation
rights (note 8) -- 19,026
Adjustment to compensation relating to stock
appreciation rights (note 8) (10,727) --
Depreciation 14,821 12,066
Amortization 12,109 8,472
------------ -------
639,151 483,271
------------ -------
Operating income (loss) 36,334 (514)
Other income (expense):
Interest expense to TCI (10,393) (2,887)
Other interest expense (8,543) (10,368)
Interest income from TCI 1,863 874
Dividend and interest income, primarily from affiliates 10,498 10,794
Gain on sale of investment -- 10,613
Provision for impairment of investment (2,233) (8,167)
Loss on sale of investment to TCI -- (22,129)
Share of earnings of affiliates, net 21,945 19,271
Minority interests in earnings of consolidated subsidiaries (5,521) (1,925)
Other, net (2,429) (2,368)
------------ -------
Earnings (loss) before income taxes and
extraordinary item 41,521 (6,806)
Income tax (expense) benefit (17,024) 1,435
------------ -------
Earnings (loss) before extraordinary item 24,497 (5,371)
Extraordinary item-loss on early extinguishment of
debt, net of taxes -- (2,191)
------------ -------
Net earnings (loss) 24,497 (7,562)
Dividend requirement on preferred stocks (11,736) (20,399)
------------ -------
Net earnings (loss) attributable to common
shareholders $ 12,761 (27,961)
============ =======
Earnings (loss) per share:
Net earnings (loss) attributable to common
shareholders before extraordinary item $ 0.10 (0.20)
Extraordinary item, net -- (0.02)
------------ -------
Net earnings (loss) attributable to common
shareholders $ 0.10 (0.22)
============ =======
</TABLE>
See accompanying notes to consolidated financial statements.
I-4
<PAGE> 10
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
(unaudited)
<TABLE>
<CAPTION>
Unrealized Note
Preferred holding receivable Total
Stock Common stock Additional gains for from stock-
--------- ----------------- paid-in Retained available-for-sale related holders'
Class E Class A Class B capital earnings securities party equity
--------- ------- ------- ---------- -------- ------------------ -------- -------
amounts in thousands
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 $ 17 87,515 43,339 236,126 - - (14,500) 352,497
Dividends, including accretion, on
all classes of preferred stock - - - - (11,736) - - (11,736)
Dividends on preferred stock subject
to mandatory redemption requirement - - - 5,026 - - - 5,026
Cash dividend on preferred stock - - - (10,046) - - - (10,046)
Unrealized holding gains for
available-for-sale securities - - - - - 241,471 - 241,471
Accrued interest on note receivable
from related party (note 8) - - - - - - (541) (541)
Net earnings - - - - 24,497 - - 24,497
--------- ------ ------ ------- ------- ------- ------- -------
Balance at June 30, 1994 $ 17 87,515 43,339 231,106 12,761 241,471 (15,041) 601,168
========= ====== ====== ======= ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
I-5
<PAGE> 11
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Six months
ended
June 30,
---------------------
1994 1993
--------- ---------
amounts in thousands
(see note 3)
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 24,497 (7,562)
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation and amortization 26,930 20,538
Compensation relating to stock
appreciation rights -- 19,026
Adjustment to compensation relating to
stock appreciation rights (10,727) --
Share of earnings of affiliates, net (21,945) (19,271)
Deferred income tax expense (benefit) 11,487 (9,724)
Minority interests in earnings 5,521 1,925
Noncash interest income (2,512) (541)
Provision for impairment of investment 2,233 8,167
Payment of litigation settlements (3,100) --
Payment of premium received upon
redemption of preferred stock investment -- 8,248
Loss on early extinguishment of debt,
net of tax -- 2,191
Gain on sale of investment -- (10,613)
Loss on sale of investment to TCI -- 22,129
Other noncash charges 2,298 1,582
Changes in operating assets and
liabilities, net of effect of
acquisitions:
Change in receivables (12,914) (7,470)
Change in inventories 8,386 (1,940)
Change in due to/from TCI 27,344 3,954
Change in prepaid expenses (7,509) (3,525)
Change in payables and
accruals 4,695 10,614
Increase in other non-current assets (33,181) --
--------- -------
Net cash provided by
operating activities 21,503 37,728
--------- -------
</TABLE>
(continued)
I-6
<PAGE> 12
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows, continued
(unaudited)
<TABLE>
<CAPTION>
Six months
ended
June 30,
------------------------
1994 1993
----------- -----------
amounts in thousands
(see note 3)
<S> <C> <C>
Cash flows from investing activities:
Cash paid for acquisitions $ -- (263,737)
Capital expended for property and
equipment (13,211) (10,891)
Additional investments in and loans
to affiliates and others (11,265) (27,529)
Return of capital from affiliates 4,960 2,650
Collections on loans to affiliates and others 12,366 6,863
Cash received on redemption of preferred
stock investment -- 104,336
Proceeds on sale of investments -- 21,767
Other investing activities, net 4,372 3,128
----------- --------
Net cash used by
investing activities (2,778) (163,413)
----------- --------
Cash flows from financing activities:
Borrowings of debt 18,000 277,725
Repayments of debt (48,963) (200,110)
Dividends on preferred stock (10,046) (9,743)
Redemption of preferred stocks -- (12,338)
Contributions by minority shareholders
of subsidiary 7,004 20,069
Distribution to minority partner of subsidiary (400) --
----------- --------
Net cash (used) provided by
financing activities (34,405) 75,603
----------- --------
Net decrease in cash and
cash equivalents (15,680) (50,082)
Cash and cash equivalents
at beginning of period 91,305 96,253
----------- --------
Cash and cash equivalents
at end of period $ 75,625 46,171
=========== ========
</TABLE>
See accompanying notes to consolidated financial statements.
I-7
<PAGE> 13
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1994
(UNAUDITED)
________________________________________________________________________________
(1) GENERAL AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements include the
accounts of Liberty Media Corporation, those of all majority-owned
subsidiaries and entities for which there is a controlling voting
interest ("Liberty" or the "Company"). All significant intercompany
accounts and transactions have been eliminated in consolidation.
As of January 27, 1994, Liberty and TCI entered into a definitive
agreement to combine the two companies (the "Mergers"). The
transaction was consummated on August 4, 1994, and was structured as a
tax free exchange of Class A and Class B shares of both companies and
preferred stock of Liberty for like shares of a newly formed holding
company, TCI/Liberty Holding Company. In connection with the Mergers,
TCI ("Old TCI") changed its name to TCI Communications, Inc. and
TCI/Liberty Holding Company changed its name to Tele-Communications,
Inc. ("Holding Company"). Old TCI shareholders received one share of
Holding Company for each of their shares. Liberty common shareholders
received 0.975 of a share of Holding Company for each of their common
shares.
Liberty owned 2,988,009 shares of TCI Class A common stock and
3,537,712 shares of TCI Class B common stock. Upon consummation of
the Mergers, Liberty received 2,988,009 shares of Class A common stock
of Holding Company and 3,537,712 shares of Class B common stock of
Holding Company.
The accompanying interim consolidated financial statements are
unaudited but, in the opinion of management, reflect all adjustments
(consisting of normal recurring accruals) necessary for a fair
presentation of the results for such periods. The results of
operations for any interim period are not necessarily indicative of
results for the full year. These consolidated financial statements
should be read in conjunction with the consolidated financial
statements and notes thereto contained in the Company's Annual Report
on Form 10-K, as amended, for the year ended December 31, 1993.
Other intangible assets include amounts assigned to long-term cable
contracts which provide for payments of distribution fees totaling
$33.2 million. These fees are amortized on a straight-line basis over
the terms of the agreements ranging from 5 to 15
I-8 (continued)
<PAGE> 14
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
years. Of the $33.2 million assigned to these contracts, $18.9
million represents contracts with TCI.
Certain amounts have been reclassified for comparability with the 1994
presentation.
In these notes to the consolidated financial statements, any reference
to TCI in connection with the issuance of the Company's preferred
stock includes subsidiaries of TCI.
(2) PRIMARY AND FULLY DILUTED EARNINGS (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE
Primary and fully diluted earnings attributable to common shareholders
per common and common equivalent share for the six months and three
months ended June 30, 1994 was computed by dividing net earnings
attributable to common shareholders by the weighted average number of
common shares outstanding (131,076,469 and 130,939,861, respectively).
Loss per common share attributable to common shareholders for the six
months and three months ended June 30, 1993 was computed by dividing
net loss attributable to common shareholders by the weighted average
number of common shares outstanding (130,294,014 and 131,472,698,
respectively). Common stock equivalents were not included in the
computation of weighted average shares outstanding because their
inclusion would be anti-dilutive.
(3) SUPPLEMENTAL DISCLOSURES TO CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash paid for interest was $8,025,000 and $13,068,000 for the six
months ended June 30, 1994 and 1993, respectively. Cash paid for
income taxes during the six months ended June 30, 1994 and 1993 was
$7,581,000 and $5,241,000, respectively.
I-9 (continued)
<PAGE> 15
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
Significant noncash investing and financing activities are as follows:
<TABLE>
<CAPTION>
Six months
ended June 30,
--------------------------
1994 1993
---- ----
amounts in thousands
<S> <C> <C>
Cash paid for acquisitions:
Fair value of assets acquired $ - 680,193
Net liabilities assumed - (183,704)
Common stock issued for acquisition - (123,000)
Noncash contribution for acquisition - (32,673)
Minority interests in equity of
acquired entities - ( 77,079)
---------- ---------
$ - 263,737
========== =========
Liberty Class A common stock
issued upon conversion of
preferred stock $ - 12,767
========== =========
Accreted and unpaid preferred
stock dividends $ 10,112 20,399
========== =========
Note issued in exchange for
Liberty Class A common stock $ - 18,539
========== =========
Notes issued in redemption
of preferred stocks $ - 163,057
========== =========
Unrealized gains, net of deferred
income taxes, on available-
for-sale securities $ 241,471 -
========== =========
</TABLE>
I-10 (continued)
<PAGE> 16
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
(4) INVESTMENTS IN AFFILIATES
Liberty has several investments in affiliates accounted for under the
equity method. Summarized unaudited results of operations for such
affiliates are as follows:
<TABLE>
<CAPTION>
Six months
ended June 30,
---------------------
1994 1993
---- ----
amounts in thousands
<S> <C> <C>
Revenue $ 924,770 937,781
Operating expenses (681,656) (700,637)
Depreciation
and amortization (95,345) (92,401)
--------- --------
Operating income 147,769 144,743
Interest expense (53,163) (51,962)
Other, net (36,066) (35,598)
--------- --------
Net earnings $ 58,540 57,183
========= ========
</TABLE>
I-11 (continued)
<PAGE> 17
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
The following table reflects the carrying value of the Company's
investments accounted for under the equity method, including related
receivables:
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
---------- -----------
amounts in thousands
<S> <C> <C>
QVC, Inc. ("QVC") $ -- 60,397
Kansas City Cable Partners ("KCCP") (29,441) (33,618)
US Cable of Lake County ("Lake County") 26,263 25,650
Columbia Associates, L.P. ("Columbia") 5,452 7,720
Lenfest Communications, Inc. ("Lenfest") 13,483 16,508
The Cable Partnerships of Country Cable
and Knight-Ridder Cablevision, Inc.
(SCI Cable Partners and TKR Cable Company)
(collectively referred to as "TKR") 40,974 34,270
Sunshine Network Joint Venture ("Sunshine") 9,089 9,131
American Movie Classics Company ("AMC") (2,779) (11,026)
Sioux Falls Cable Television ("Sioux Falls") (10,937) (11,675)
SportsChannel Chicago Associates ("Sports") 32,733 32,561
Home Team Sports Limited Partnership ("HTS") 3,419 4,610
Other investments 18,057 17,012
---------- --------
$ 106,313 151,540
========== ========
</TABLE>
I-12 (continued)
<PAGE> 18
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
The following table reflects the Company's share of earnings (losses) of
each of the aforementioned affiliates:
<TABLE>
<CAPTION>
Six months
ended June 30,
---------------------------
1994 1993
---- ----
amounts in thousands
<S> <C> <C>
QVC $ 3,022 8,635
KCCP 4,177 5,388
Lake County 613 39
Columbia (2,268) (3,597)
Lenfest (3,025) (5,515)
TKR 6,704 6,850
Sunshine (42) (647)
AMC 8,545 6,024
Sioux Falls 738 908
Sports 4,116 3,498
HTS (342) 203
Other (293) (2,515)
--------- --------
$ 21,945 19,271
========= ========
</TABLE>
On November 11, 1993, Liberty entered into an agreement with the staff
of the Federal Trade Commission pursuant to which Liberty agreed to
divest all of its equity interests in QVC during an 18 month time period
if QVC was successful in its offer to buy Paramount Communications, Inc.
("Paramount") and not to vote or otherwise exercise or influence control
over QVC until such time as QVC withdrew its offer for Paramount.
Simultaneously, Liberty agreed to withdraw from a stockholders agreement
pursuant to which Liberty and certain other stockholders exercised
control over QVC (the "Stockholders' Agreement"). On February 15, 1994,
QVC terminated its offer for Paramount. Upon termination of such offer,
Liberty had the right to be reinstated as a party to the Stockholders'
Agreement so long as such option was exercised within 90 days after such
termination.
I-13 (continued)
<PAGE> 19
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
On November 16, 1993, Liberty sold 1,690,041 shares of common stock of
QVC to Comcast Corporation ("Comcast") for aggregate consideration of
approximately $31,461,000. The sale to Comcast reduced Liberty's
interest in QVC common stock (on a fully diluted basis) from 21.6% to
18.5%. Liberty continued to account for its investment in QVC under the
equity method although it no longer exercised significant control over
such affiliate, due to the pending determination of whether the Company
would rejoin the control group under the Stockholders' Agreement. As a
result of the election on May 13, 1994, by Liberty to forego the
exercise of its option to be reinstated as a party to the Stockholders'
Agreement, Liberty began as of that date to account for its investment
in QVC under the cost method.
On August 5, 1994, Liberty, Comcast and QVC announced that they had
entered into a definitive merger agreement (the "Merger Agreement")
pursuant to which Comcast and Liberty would acquire QVC. In accordance
with the Merger Agreement, Comcast and Liberty commenced a tender offer
for all shares of stock of QVC at a net cash price of $46 per share of
QVC Common Stock and a net cash price of $460 per share of QVC Preferred
Stock on August 11, 1994. Following expiration of the tender offer, a
corporation controlled by both Comcast and Liberty will merge with QVC
and any remaining shares of QVC will be converted into cash at the same
price as offered in the tender offer.
The total cost of the acquisition of the remainder of QVC stock not
currently owned by Comcast or Liberty and to pay certain fees and
expenses will be approximately $1.42 billion. Comcast and Liberty have
agreed to fund approximately $296 million and $20 million, respectively,
of the acquisition with the balance to be provided through debt
financing, which after the merger is expected to be an obligation of
QVC. The transaction is conditioned upon Comcast and Liberty obtaining
the requisite financing on satisfactory terms to purchase all of the
outstanding shares of QVC, upon receipt of certain governmental
approvals and other customary conditions. Should the transaction be
consummated, Liberty's investment in QVC would once again be accounted
for under the equity method.
Certain of the shares of stock of QVC owned by Liberty are subject to
repurchase by QVC in the event that commitments to carry its programming
are not met. Approximately 46% of the shares which the Company holds or
would hold upon exercise or conversion
I-14 (continued)
<PAGE> 20
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
of convertible securities, are "unvested" and are subject to such
repurchase rights by QVC. QVC's repurchase rights with respect to QVC
securities held by the Company are exercisable over a period of time,
ending in the year 2004, if certain carriage commitments made by
Satellite Services, Inc., ("SSI"), an indirect wholly owned subsidiary
of TCI, are not met. Under the terms of a certain agreement pursuant to
which the Company acquired from TCI a substantial number of the QVC
securities it now beneficially owns, TCI has agreed to reimburse the
Company in the event QVC exercises its right to repurchase certain of
the "unvested" shares. Such reimbursement will be based on the value
assigned such shares when the Company acquired them from TCI, which is
substantially below the current market price of such shares.
Pursuant to an agreement among the Company, Comcast and Mr. Barry
Diller, Chairman and Chief Executive Officer of QVC, ("Diller"), Diller
had the right, exercisable during a 30-day period beginning in June
1994, to purchase 1,627,934 shares of QVC Common Stock from the Company.
This right expired on July 11, 1994.
On July 11, Rainbow Program Enterprise ("Rainbow") purchased a 49.9%
general partnership interest in AMC from Liberty under the terms of a
buy/sell provision contained in the AMC partnership agreement. In
connection with the purchase, Rainbow acquired an option to purchase the
remaining 0.1% general partnership interest in AMC from Liberty for
approximately $373,000. The proceeds of $180,249,000 included the
economic benefit of Liberty's consulting agreement with AMC assigned by
Liberty to Cablevision Systems Corporation, the parent company of
Rainbow.
Certain of the Company's affiliates are general partnerships and any
subsidiary of the Company that is a general partner in a general
partnership is, as such, liable as a matter of partnership law for all
debts (other than non-recourse debts) of that partnership in the event
liabilities of that partnership were to exceed its assets.
I-15 (continued)
<PAGE> 21
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
(5) OTHER INVESTMENTS
Other investments, accounted for under the cost method, and related
receivables, are summarized as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
-------- ------------
amounts in thousands
<S> <C> <C>
Limited partnership interest $ 3,647 3,647
Marketable equity securities 470,286 25,811
Convertible debt, accrued interest
and preferred stock investment 46,435 46,457
Note receivable including
accrued interest (a) 130,007 132,303
Other investments 12,010 12,000
--------- --------
$ 662,385 220,218
========= ========
</TABLE>
(a) In December 1992, Home Shopping Network, Inc. ("HSN"), a cost
investment of the Company at that time and a consolidated
subsidiary of the Company at December 31, 1993, distributed the
capital stock of Silver King Communications, Inc. ("SKC"),
formerly a wholly owned subsidiary of HSN, to their stockholders
of record, including Liberty. This transaction was treated as a
stock dividend by HSN. At the time of said dividend,
intercompany indebtedness in an amount of approximately $135
million owed by SKC to HSN was converted into a secured
long-term senior loan to SKC (a cost investment of the Company).
Such loan is evidenced by a promissory note, the terms of which
are governed by a loan agreement and the liability evidenced
thereby is secured by substantially all of SKC's assets, and
bears interest on the unpaid principal amount at 9.5% per annum.
On August 1, 1994, SKC repaid the outstanding principal and
accrued interest to HSN.
I-16 (continued)
<PAGE> 22
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
Management of the Company estimates that the market value, calculated
utilizing a multiple of cash flow approach, agreed upon sales price or
publicly quoted market prices, of all of the Company's other investments
aggregated $752 million and $406 million at June 30, 1994 and December
31, 1993, respectively. No independent external appraisals were
conducted for those assets which were valued utilizing a multiple of
cash flow approach.
In May 1993, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," ("Statement No. 115")
effective for fiscal years beginning after December 15, 1993. Under the
new rules, debt securities that the Company has both the positive intent
and ability to hold to maturity are carried at amortized cost. Debt
securities that the Company does not have the positive intent and
ability to hold to maturity and all marketable equity securities are
classified as available-for-sale or trading and carried at fair value.
Unrealized holding gains and losses on securities classified as
available-for-sale are carried as a separate component of stockholders'
equity. Unrealized holding gains and losses on securities classified as
trading are reported in earnings.
The Company applied the new rules beginning in the first quarter of
1994. Application of the new rules resulted in a net increase of
$44,392,000 to stockholders' equity as of March 31, 1994, adjusted to
$241,471,000 as of June 30, 1994, representing the recognition of
unrealized appreciation, net of taxes, for the Company's investment in
equity securities determined to be available-for-sale. However, the
unrealized holding gains do not include any unrealized gain associated
with the Company's investment in the aforementioned shares of common
stock of TCI, which were subsequently exchanged for shares of common
stock of Holding Company, as such common stock is deemed to be
restricted stock. Restricted stock, under Statement No. 115, is not
considered to have a readily determinable fair value. The majority of
the Company's available-for- sale securities as of June 30, 1994,
represents Liberty's investment in QVC, previously accounted for under
the equity method. The Company holds no debt securities.
I-17 (continued)
<PAGE> 23
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
(6) DEBT
Debt is summarized as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
-------- ------------
amounts in thousands
<S> <C> <C>
Parent company debt:
Note payable to TCI (a) $ 76,952 76,952
Note payable to TCI (b) 104,644 104,644
--------- ----------
Debt of subsidiaries: 181,596 181,596
Note payable to TCI (c) 4,322 4,322
--------- ----------
Debt due TCI 185,918 185,918
--------- ----------
Note payable to bank (d) 5,665 5,815
Note payable to bank (e) 22,425 23,425
Note payable to bank (f) 77,000 79,500
Liability to seller -- 19,637
Note payable to bank (g) 18,000 --
Unsecured note payable -- 545
Convertible note payable (h) 13,552 13,131
Notes payable to bank (i) 85,000 110,000
Other debt, with varying
rates and maturities 7,996 8,127
--------- ----------
229,638 260,180
========= ----------
$ 415,556 446,098
========= ==========
</TABLE>
(a) Payable by Liberty.
These notes payable bear interest at 11.6% per annum, are due on
February 1, 1997 and are secured by the Company's partnership
interest in Community Cable Television ("CCT") and a related
note receivable.
(b) Payable by Liberty.
These notes payable bear interest at 6% per annum and were
repaid with accrued interest on July 11, 1994.
I-18 (continued)
<PAGE> 24
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
(c) Payable by LMC Chicago Sports, Inc.
This note, which bears interest at the prime rate (7-1/4% at
June 30, 1994), is payable on December 31, 1996 and is secured
by the Company's general partnership interest in Sports.
(d) Payable by Command Cable of Eastern Illinois Limited Partnership
("Command").
This loan is payable in quarterly installments as defined in the
related loan agreement, with a final payment on September 30,
1994. The quarterly installments consist of a fixed amount per
quarter plus additional principal payments based on a percentage
of the previous quarter's cash flow. The loan agreement
contains provisions for the maintenance of certain financial
ratios and other matters.
(e) Payable by US Cable of Paterson ("Paterson").
This term loan has quarterly principal payments in increasing
amounts through December 31, 1996. In addition to the scheduled
quarterly payments, an annual payment may be required based upon
the prior year's excess cash flow, as defined. The outstanding
balance of the loan accrues interest at varying rates which
approximate the prime rate (7- 1/4% at June 30, 1994). The
terms of the agreement include, in addition to other
requirements, compliance with certain financial ratios and
limitations on capital expenditures and leases. The loan is
secured and collateralized by the assets of Paterson, the
franchise rights, and the assignment of its various leases and
contracts.
(f) Payable by CCT.
This revolving line of credit provides for borrowings of up to
$145,000,000 through March 31, 1995. Such facility provides for
mandatory commitment reduction payments through December 31,
1999. The revolving credit facility permits CCT to borrow from
the banks to fund acquisitions of cable television systems and
for other general purposes, subject to compliance with the
restrictive covenants (including ratios of debt to cash flow and
cash flow to interest expense) contained in the loan agreement
governing the facility.
I-19 (continued)
<PAGE> 25
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
(g) Payable by ARC Holding, LTD. ("ARCH").
This revolving line of credit provides for borrowings of up to
$30,000,000 through June 29, 1995, at which time mandatory
commitment reductions begin and continue through December 31,
2000, when the commitment reaches zero. Borrowings may be used
for general partnership purposes, and bear interest at rates
that fluctuate with various market rates. ARCH must comply with
restrictions on indebtedness and distributions, and must
maintain certain financial ratios. The loans are secured by
ARCH's assets.
(h) Payable by ARC.
These notes are due December 30, 2000 and bear interest at 10%
per annum. The notes are convertible, at the option of the
holders, into an 11.65% limited partnership interest in ARC.
(i) Payable by HSN.
These notes payable consist of a $85 million in unsecured senior
term loans which were repaid by HSN on August 1, 1994; and a $40
million three-year senior unsecured revolving credit facility.
In connection with the repayment of the term loans, HSN will
recognize an extra ordinary loss on early extinguishment of debt
of $0.9 million, net of taxes in the third quarter of 1994. The
revolving credit facility provides for yearly extension options
at the request of HSN and is subject to the approval of
participating banks. At June 30, 1994, $40 million of the
senior revolving credit facility remains available.
Restrictions contained in the senior term loans and revolving
credit agreement include, but are not limited to, limitations on
the encumbrance and disposition of assets and the maintenance of
various financial covenants and ratios.
(7) PROMISSORY NOTES
CCT has a note payable to TCI of approximately $60 million, including
accrued interest, due January 1, 2000. The note bears interest at 8% per
annum. The note, net of payments made, is reflected as an addition to
minority interest in the accompanying consolidated financial statements
due to its related party nature. Additionally, CCT has approximately
$38 million, including accrued interest, in notes receivable from TCI
due
I-20 (continued)
<PAGE> 26
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
January 1, 2000. The notes receivable earn interest at 11.6% per annum.
These notes receivable are reflected as a reduction of minority interest
in the accompanying consolidated financial statements as they represent
subscription notes receivable.
(8) STOCKHOLDERS' EQUITY
GENERAL
Liberty is authorized to issue 300,000,000 Class A shares and
100,000,000 Class B shares. Liberty had 87,515,378 Class A shares and
43,338,720 Class B shares outstanding at June 30, 1994, and December 31,
1993.
The Class A common stock has one vote per share and the Class B common
stock has ten votes per share. Each share of Class B common stock is
convertible, at the option of the holder, into one share of Class A
common stock.
STOCK OPTION
The Company has an employment agreement with an officer (who is also a
director). Pursuant to this agreement, such officer was granted an
option to acquire 100,000 shares of Liberty Class B common stock at a
purchase price of $256 per share (reflects actual shares issued). The
employment agreement was amended and the option was exercised with cash
and a $25,500,000 note. This note bears interest at 7.54% per annum.
During October 1991, such officer tendered to the Company in partial
payment of such note 800,000 shares of TCI Class B common stock,
resulting in a net reduction of $12,195,000 in the amount payable under
the note.
The 100,000 shares issued by Liberty upon exercise of this option,
together with all subsequent dividends and distributions thereon,
including shares issued in the Stock Splits (collectively totaling
16,000,000 shares of Liberty Class B common stock and 200,000 shares of
Class E Preferred Stock at December 31, 1993, the "Option Units"), are
subject to repurchase by the Company under certain circumstances. The
Company's repurchase right will terminate as to 20% of the Option Units
per year, commencing March 28, 1992, and will terminate as to all of the
Option Units in the event of death, disability or under certain other
circumstances.
On October 24, 1992, said officer of the Company entered into a letter
agreement with respect to the timing and method of payment under the
promissory note and the release
I-21 (continued)
<PAGE> 27
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
of the 200,000 shares of Class E Preferred Stock from the collateral
securing the promissory note. The remaining principal balance on the
note is approximately $14,500,000. The next scheduled payment will be
on October 24, 1994 in the principal amount of approximately $4,300,000
plus interest accrued from December 31, 1993 to the payment date.
STOCK PLAN
The Company has a Stock Incentive Plan (the "Stock Plan") in order to
provide a special incentive to officers and other persons. Under the
Stock Plan, stock options, stock appreciation rights, restricted stock
and other awards valued by reference to, or that are otherwise based on,
the value of Class A common stock may be granted in respect to a maximum
of 40,000,000 shares of Class A common stock. Shares to be delivered
under the Stock Plan will be available from authorized but unissued
shares of Class A common stock or from shares of Class A common stock
reacquired by the Company. Shares of Class A common stock that are
subject to options or other awards that terminate or expire unexercised
will return to the pool of such shares available for grant under the
Stock Plan.
In June 1993, the Company granted an aggregate of 56,000 non-qualified
stock options with stock appreciation rights to certain officers and key
employees under the Stock Plan. Each option is exercisable for one
share of Class A common stock at an exercise price of $19.08. The
options vest in five equal annual installments commencing June 3, 1994
and expire in June 2003. Estimates of compensation relating to these
stock options with stock appreciation rights have been recorded through
June 30, 1994, but are subject to future adjustments based upon market
value and, ultimately, on the final determination of market value when
the rights are exercised.
STOCK APPRECIATION RIGHTS
The Company has granted to certain of its officers stock appreciation
rights with respect to 2,240,000 shares of Liberty Class A common stock.
These rights have an adjusted strike price of $0.80 per share, become
exercisable and vest evenly over seven years. Stock appreciation rights
expire on March 28, 2001. Estimates of compensation relating to these
stock appreciation rights have been recorded through June 30, 1994, but
are subject to future adjustment based upon market value and,
ultimately, on the final determination of market value when the rights
are exercised. Stock appreciation rights with respect to 780,000 shares
have been exercised.
I-22 (continued)
<PAGE> 28
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
In 1993, the President of HSN received stock appreciation rights with
respect to 984,876 shares of HSN's common stock at an exercise price of
$8.25 per share. These rights vest over a four year period and are
exercisable until February 23, 2003. The stock appreciation rights will
vest upon termination of employment other than for cause and will be
exercisable for up to one year following the termination of employment.
In the event of a change in ownership control of HSN, all unvested stock
appreciation rights will vest immediately prior to the change in control
and shall remain exercisable for a one year period. Stock appreciation
rights not exercised will expire to the extent not exercised. These
rights may be exercised for cash or, so long as HSN is a public company,
for shares of HSN's common stock equal to the excess of the fair market
value of each share of common stock over $8.25 at the exercise date.
The stock appreciation rights also will vest in the event of death or
disability.
Estimated compensation relating to these stock appreciation rights has
been recorded through June 30, 1994, but is subject to future adjustment
based upon market value, and ultimately, on the final determination of
market value when the rights are exercised.
(9) TRANSACTIONS WITH TCI
Certain subsidiaries of Liberty produce and/or distribute sports and
other programming to cable television operators (including TCI) and
others. Charges to TCI are based upon customary rates charged to
others.
Certain subsidiaries of Liberty purchase, at TCI's cost plus an
administrative fee, certain pay television and other programming through
a subsidiary of TCI. In addition, HSN pays a commission to TCI for
merchandise sales to customers who are subscribers of TCI's cable
systems. Aggregate commissions and charges to TCI were approximately
$11,248,000 and $4,391,000 for the six months ended June 30, 1994 and
1993, respectively.
(10) FAIR VALUE OF FINANCIAL INSTRUMENTS
CASH AND CASH EQUIVALENTS, TRADE AND OTHER RECEIVABLES, DUE TO/FROM TCI,
PREPAID EXPENSES, ACCOUNTS PAYABLE, ACCRUED LIABILITIES, SALES RETURNS
AND INCOME TAXES PAYABLE
The carrying amount approximates fair value because of the short
maturity of these instruments.
I-23 (continued)
<PAGE> 29
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
DEBT AND DEBT DUE TCI
The carrying amount approximates fair value.
PREFERRED STOCKS, SUBJECT TO MANDATORY REDEMPTION REQUIREMENTS
The fair values of the Company's preferred stocks subject to mandatory
redemption requirements were based on management's estimates. These
estimates were made by reference to the market values of other similar
publicly traded instruments. Neither independent external appraisals
nor dealer quotes were obtained. The estimated fair value of the
Company's preferred stocks subject to mandatory redemption at June 30,
1994 was $165,516,000.
LIMITATIONS
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates are subjective in nature, involve
uncertainties and matters of significant judgment and therefore cannot
be determined with precision. Changes in assumptions could significantly
affect the estimates.
(11) COMMITMENTS AND CONTINGENCIES
In February of 1991, the Company entered into an agreement with certain
of its stockholders which provides the Company the right upon the
occurrence of a "call triggering event" to require such persons to sell
the shares of Liberty common stock owned by them, and would provide such
persons the right upon the occurrence of a "put triggering event" to
sell their shares of Liberty common stock, in a registered public
offering or to one or more third parties selected by the Company. A
"call triggering event" consists of the issuance or adoption of a decree
by a governmental authority and the determination by an independent
committee of the Board of Directors that divestiture by any or all of
such persons of his or its Liberty common stock is necessary in order to
comply with the decree or is in the best interest of the Company in
light of material restrictions that would be imposed on the Company's
business absent such divestiture. A "put triggering event" consists of
the issuance or adoption of a decree by a governmental authority
requiring any or all of such persons to divest his or its shares of
Liberty common stock or TCI common stock or rendering such person's
continued ownership thereof illegal or subject to fine or penalty or
imposing material restrictions on
I-24 (continued)
<PAGE> 30
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
such person's full rights of ownership of such shares, provided that one
of the essential facts giving rise to such decree or that renders such
decree applicable to such person is the dual ownership by such person of
voting securities of both the Company and TCI. In each case, the
Company would guarantee the sale price for certain of the shares to be
sold. Liberty's rights and obligations under this agreement were
terminated upon consummation of the Mergers.
Liberty leases business offices, has entered into pole rental agreements
and transponder lease agreements, and uses certain equipment under lease
arrangements. In addition, as of June 30, 1994, the Company had
long-term sports program rights contracts which require payments through
1998 aggregating approximately $34,982,000.
The Company is obligated to pay fees for the license to exhibit certain
qualifying films that are released theatrically by various motion
picture studios through December 31, 2006 (the "Film License
Obligations"). As of June 30, 1994, these agreements require minimum
payments aggregating approximately $287 million. The aggregate amount
of the Film License Obligations is not currently estimable because such
amount is dependent upon the number of qualifying films produced by the
motion picture studios, the amount of United States theatrical film
rentals for such qualifying films, and certain other factors.
Nevertheless, the Company's aggregate payments under the Film License
Obligations could prove to be significant.
I-25
<PAGE> 31
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(Formerly Tele-Communications, Inc.)
Condensed Pro Forma Financial Statements
June 30, 1994
(unaudited)
The following unaudited condensed pro forma balance sheet of TCI,
dated as of June 30, 1994, assumes that the Mergers, whereby TCI and Liberty
each became a wholly-owned subsidiary of Holding Company, had occurred as of
such date (see note 1).
In addition, the unaudited condensed pro forma statements of
operations of TCI for the six months ended June 30, 1994 and the year ended
December 31, 1993 assume that the Mergers had occurred prior to January 1,
1993.
The unaudited pro forma results do not purport to be indicative of the
results of operations that would have been obtained if the Mergers had occurred
prior to January 1, 1993. These condensed pro forma financial statements of
TCI should be read in conjunction with the condensed unaudited pro forma
financial statements of Liberty and Holding Company and the related notes
thereto included elsewhere herein and the respective historical financial
statements and the related notes thereto of TCI and Liberty. The pro forma
financial statements of Holding Company represent a combination of the separate
pro forma statements of TCI and Liberty in giving effect to the Mergers.
<PAGE> 32
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Condensed Pro Forma Balance Sheet
(unaudited)
<TABLE>
<CAPTION>
June 30, 1994
------------------------------------------------
TCI Pro forma
Historical Adjustments(1) Pro forma
---------- -------------- ---------
Assets amounts in millions
- ------
<S> <C> <C> <C>
Cash and receivables $ 219 -- 219
Investment in Liberty and
related receivables 522 (217)(2) 305
Investment in other affiliates
and Turner Broadcasting System,
Inc., and related receivables 1,483 -- 1,483
Property and equipment, net of
accumulated depreciation 5,207 -- 5,207
Franchise costs and other assets,
net of amortization 9,687 -- 9,687
-------- ----- ------
$ 17,118 (217) 16,901
======== ===== ======
Liabilities and Stockholders' Equity
- ------------------------------------
Payables and accruals $ 859 -- 859
Debt 10,111 -- 10,111
Deferred income taxes 3,420 -- 3,420
Other liabilities 99 -- 99
-------- ----- ------
Total liabilities 14,489 -- 14,489
-------- ----- ------
Minority interests 318 -- 318
Redeemable preferred stocks -- -- --
Common stockholders' equity:
Class A common stock 483 -- 483
Class B common stock 47 -- 47
Additional paid-in capital 2,310 -- 2,310
Cumulative foreign currency
translation adjustment (14) -- (14)
Unrealized holding gains for
available-for-sale securities 128 -- 128
Accumulated deficit (310) -- (310)
Treasury stock, at cost (333) 333 (3) --
Investment in Holding Company -- (217)(2) (550)
(333)(3)
-------- ----- ------
2,311 (217) 2,094
-------- ----- ------
$ 17,118 (217) 16,901
======== ===== ======
</TABLE>
See accompanying notes to unaudited condensed pro forma financial statements.
<PAGE> 33
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Condensed Pro Forma Statement of Operations
(unaudited)
<TABLE>
<CAPTION>
Six months ended June 30, 1994
--------------------------------------------------
TCI Pro forma
Historical Adjustments(1) Pro forma
---------- -------------- ---------
amounts in millions,
except per share amounts
<S> <C> <C> <C>
Revenue $ 2,141 -- 2,141
Operating, selling, general and
administrative expenses and
compensation relating to stock
appreciation rights (1,221) -- (1,221)
Depreciation and amortization (481) -- (481)
--------- ---- --------
Operating income 439 -- 439
Interest expense (363) -- (363)
Interest and dividend income 20 -- 20
Share of earnings of Liberty 24 (24)(4) --
Share of losses of other
affiliates, net (30) -- (30)
Loss on early extinguishment of debt (2) -- (2)
Other income, net 2 -- 2
--------- ---- --------
Earnings before income taxes 90 (24) 66
Income tax expense (52) 10 (5) (42)
--------- ---- --------
Net earnings $ 38 (14) 24
========= ==== ========
Primary and fully diluted earnings per
common and common equivalent share $ .08
=========
</TABLE>
See accompanying notes to unaudited condensed pro forma financial statements.
<PAGE> 34
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Condensed Pro Forma Statement of Operations
(unaudited)
<TABLE>
<CAPTION>
Year ended December 31, 1993
--------------------------------------------------
TCI Pro forma
Historical Adjustments(1) Pro forma
---------- -------------- ---------
amounts in millions,
except per share amounts
<S> <C> <C> <C>
Revenue $ 4,153 -- 4,153
Operating, selling, general and
administrative expenses and
compensation relating to stock
appreciation rights (2,326) -- (2,326)
Depreciation and amortization (911) -- (911)
----------- ------ -------
Operating income 916 -- 916
Interest expense (731) -- (731)
Interest and dividend income 34 -- 34
Share of earnings of Liberty 4 (4)(4) --
Share of losses of other
affiliates, net (76) -- (76)
Gain on dispositions 42 -- 42
Loss on early extinguishment of debt (17) -- (17)
Other income, net (11) -- (11)
----------- ------ -------
Earnings before income taxes 161 (4) 157
Income tax expense (168) 2 (5) (166)
----------- ------ -------
Net loss (7) (2) (9)
Dividend requirement on
redeemable preferred stocks (2) 2 (6) --
----------- ------ -------
Net loss applicable to
common shareholders $ (9) -- (9)
=========== ====== =======
Loss per common share $ (.02)
===========
</TABLE>
See accompanying notes to unaudited condensed pro forma financial statements.
<PAGE> 35
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Notes to Condensed Pro Forma Financial Statements
June 30, 1994
(unaudited)
(1) The Mergers were structured as a tax free exchange whereby the common
stock of Old TCI and Liberty and the preferred stock of Liberty were
exchanged for like shares of Holding Company. The Agreement provided
that each share of Old TCI's and Liberty's common stock (including
shares held by Old TCI's or Liberty's subsidiaries) would be converted
into one share and 0.975 of a share, respectively, of the
corresponding class of Holding Company's common stock. Shares of
Liberty Class E Preferred Stock were converted into shares of a
preferred stock of Holding Company having designations, preferences,
rights and qualifications, limitations and restrictions substantially
identical to the shares of preferred stock being converted. Shares of
the remaining Liberty preferred stock held by subsidiaries of Old TCI
were converted into shares of a class or series of Holding Company
preferred stock having an equivalent value.
(2) Represents the conversion of Old TCI's investment in Liberty common
stock into an investment in Holding Company common stock and the
conversion of Old TCI's investment in Liberty preferred stock into an
investment in Holding Company preferred stock having an equivalent
value. Such amount is reflected as a reduction of stockholders'
equity due to its related party nature. Such conversion of shares is
reflected at the carryover basis of Old TCI's investment in Liberty.
(3) Reflects the reclassification to "Investment in Holding Company" of
79,335,038 shares of Old TCI Class A common stock held by subsidiaries
of TCI replaced with Holding Company common stock of the corresponding
class.
(4) Reflects the elimination of Old TCI's share of Liberty's historical
earnings. See note (2) above.
(5) Reflects the income tax effect of the pro forma adjustments.
(6) Reflects the elimination of the preferred stock dividend requirement
on Old TCI preferred stock converted into common stock of Old TCI
during the year ended December 31, 1993.
<PAGE> 36
LIBERTY MEDIA CORPORATION
Condensed Pro Forma Combined Financial Statements
June 30, 1994
(unaudited)
The following unaudited condensed pro forma balance sheet of Liberty,
as of June 30, 1994, assumes Liberty had changed its accounting for its
investment in QVC, Inc. ("QVC") to the cost method and that the sale by Liberty
of the 49.9% partnership interest in American Movie Classics Company ("AMC")
had occurred as of such date. Additionally, such balance sheet also assumes
that the Mergers, whereby TCI and Liberty each became wholly-owned subsidiaries
of Holding Company, had occurred as of such date.
In addition, unaudited condensed pro forma combined statements of
operations of Liberty for the six months ended June 30, 1994 and for the year
ended December 31, 1993 are included which assume the following had occurred
prior to January 1, 1993:
(a) the change in accounting for Liberty's investment in QVC to
the cost method,
(b) the sale by Liberty of its 49.9% partnership interest in AMC,
(c) the Recapitalization Agreement, as defined in note 10,
(d) the acquisition of 20 million shares of Class B common stock
of Home Shopping Network, Inc. ("HSN"),
(e) the Tender, as defined in note 11,
(f) the acquisition of all general and limited partnership
interests in Mile Hi Cablevision Associates, Ltd. ("Mile Hi")
as described in note 12,
(g) the conversion of all the outstanding shares (10,974 shares)
of Liberty's Class A Convertible Preferred Stock ("Class A
Preferred Stock") into 4,405,678 shares of Liberty Class A
common stock and 55,070 shares of Class E, 6% Cumulative
Redeemable Exchangeable Junior Preferred Stock ("Class E
Preferred Stock"), and
(h) the Mergers.
The unaudited pro forma results do not purport to be indicative of the
results of operations that would have been obtained if the foregoing events had
actually occurred prior to January 1, 1993. These condensed pro forma combined
financial statements of Liberty should be read in conjunction with the
condensed unaudited pro forma financial statements and related notes thereto of
TCI and Holding Company included elsewhere herein and the respective historical
financial statements and the related notes thereto of Liberty and TCI. The pro
forma financial statements of Holding Company represent a combination of the
separate pro forma statements of TCI and Liberty in giving effect to the
Mergers.
<PAGE> 37
LIBERTY MEDIA CORPORATION
Condensed Pro Forma Balance Sheet
(unaudited)
<TABLE>
<CAPTION>
June 30, 1994
--------------------------------------------------------
Liberty Pro forma
Historical Adjustments(1)(2)(4) Pro forma
---------- -------------------- ---------
Assets amounts in thousands
- ------
<S> <C> <C> <C>
Cash, receivables, inventories,
prepaids and other current
assets, net $ 279,303 180,429 (3) 459,732
Investment in and advances to
affiliates and others 872,709 2,779 (3) 771,477
(104,011)(4)
Property and equipment, net of
accumulated depreciation 248,680 -- 248,680
Franchise costs, intangibles
and other assets,
net of amortization 445,718 -- 445,718
---------- --------- ---------
$1,846,410 79,197 1,925,607
========== ========= =========
Liabilities and Stockholders' Equity
- ------------------------------------
Payables and accruals $ 322,531 50,000 (3) 372,531
Debt 415,556 -- 415,556
Deferred income taxes 154,958 21,594 (3) 176,552
Other liabilities 3,060 -- 3,060
---------- --------- ---------
Total liabilities 896,105 71,594 967,699
---------- --------- ---------
Minority interests 187,190 -- 187,190
Preferred stock subject to
mandatory redemption 161,947 (161,947)(5) --
Common stockholders' equity:
Class E Preferred Stock 17 (17)(5) --
Class A common stock 87,515 -- 87,515
Class B common stock 43,339 -- 43,339
Additional paid-in capital 231,106 161,964 (5) 393,070
Unrealized holding gains for
available-for-sale securities 241,471 -- 241,471
Retained earnings 12,761 111,614 (3) 124,375
Note receivable from
related party (15,041) -- (15,041)
---------- --------- ---------
601,168 273,561 874,729
---------- --------- ---------
Investment in Holding Company -- (104,011)(4) (104,011)
---------- --------- ---------
$1,846,410 79,197 1,925,607
========== ========= =========
</TABLE>
See accompanying notes to unaudited condensed pro forma combined financial
statements.
<PAGE> 38
LIBERTY MEDIA CORPORATION
Condensed Pro Forma Combined Statement of Operations
(unaudited)
<TABLE>
<CAPTION>
Six months ended June 30, 1994
----------------------------------------------
Pro forma
Liberty Adjustments Pro forma
Historical (1)(2)(4) Combined
---------- ----------------- --------
amounts in thousands,
except per share amounts
<S> <C> <C> <C>
Revenue $ 675,485 -- 675,485
Operating, selling, general and
administrative expenses (612,221) -- (612,221)
Depreciation and amortization (26,930) -- (26,930)
---------- -------- ---------
Operating income 36,334 -- 36,334
Interest expense (18,936) -- (18,936)
Dividend and interest income 12,361 -- 12,361
Share of earnings of affiliates, net 21,945 (3,022) (6) 10,378
(8,545) (7)
Minority interests (5,521) -- (5,521)
Provision for impairment of
investment (2,233) -- (2,233)
Other, net (2,429) -- (2,429)
---------- -------- ---------
Earnings before income taxes 41,521 (11,567) 29,954
Income tax expense (17,024) 4,279 (8) (12,745)
---------- -------- ---------
Net earnings 24,497 (7,288) 17,209
Dividend requirement on redeemable
preferred stocks (11,736) 11,736 (9) --
---------- -------- ---------
Net earnings attributable to
common shareholders $ 12,761 4,448 17,209
========== ======== =========
Primary and fully diluted earnings
per common and common equivalent
share $ .10
==========
</TABLE>
See accompanying notes to unaudited condensed pro forma combined financial
statements.
<PAGE> 39
LIBERTY MEDIA CORPORATION
Condensed Pro Forma Combined Statement of Operations
(unaudited)
<TABLE>
<CAPTION>
Year ended December 31, 1993
-----------------------------------------------------------------------------------------------
Pro forma
Liberty Effect of Recap- HSN Mile Hi Adjustments Pro forma
Historical italization (10) Historical(11) Historical(12) (1)(2)(4)(11)(12) Combined
---------- ---------------- -------------- -------------- ----------------- --------
amounts in thousands,
except per share amounts
<S> <C> <C> <C> <C> <C> <C>
Revenue $1,153,256 -- 103,640 7,568 -- 1,264,464
Operating, selling, general
and administrative expenses (1,104,890) -- (103,718) (4,989) -- (1,213,597)
Depreciation and amortization (49,269) -- (2,579) (1,479) (5,358)(13) (58,685)
---------- ----- -------- ------ ------- ---------
Operating income (loss) (903) -- (2,657) 1,100 (5,358) (7,818)
Interest expense (31,080) -- (2,146) (2,180) (7,702)(14) (40,928)
2,180 (15)
Dividend and interest income 23,549 -- 1,633 6 -- 25,188
Gain on sale of investment 31,972 -- -- -- -- 31,972
Loss on transactions with TCI (30,296) -- -- -- -- (30,296)
Share of earnings of affiliates,
net 34,044 -- -- -- (13,978)(6) 9,133
(11,313)(7)
380 (16)
Minority interests 289 -- -- -- 57 (17) 3,884
170 (18)
3,368 (19)
Litigation settlements (7,475) -- -- -- -- (7,475)
Other, net (1,592) -- (847) -- -- (2,439)
---------- ----- -------- ------ ------- ---------
Earnings (loss) before
income taxes and
extraordinary item 18,508 -- (4,017) (1,074) (32,196) (18,779)
Income tax expense (11,522) -- (1,741) -- 9,063 (8) (4,200)
---------- ----- -------- ------ ------- ---------
Earnings (loss) before
extraordinary item 6,986 -- (5,758) (1,074) (23,133) (22,979)
Extraordinary item-loss on
early extinguishment of debt,
net of taxes (2,191) -- (5,051) -- -- (7,242)
---------- ----- -------- ------ ------- ---------
Net earnings (loss) 4,795 -- (10,809) (1,074) (23,133) (30,221)
Dividend requirement on
redeemable preferred stocks (31,972) 9,179 -- -- 23,110 (9) --
(317)(20)
---------- ----- -------- ------ ------- ---------
Net earnings (loss)
attributable to
common shareholders $ (27,177) 9,179 (10,809) (1,074) (340) (30,221)
========== ===== ======== ====== ======= =========
Net loss attributable to
common shareholders before
extraordinary item $ (0.19)
Extraordinary item, net (0.02)
----------
Loss per common share $ (0.21)
==========
</TABLE>
See accompanying notes to unaudited condensed pro forma combined financial
statements.
<PAGE> 40
LIBERTY MEDIA CORPORATION
Notes to Condensed Pro Forma Combined Financial Statements
June 30, 1994
(unaudited)
(1) On July 11, 1994, Rainbow Program Enterprises ("Rainbow") purchased a
49.9% general partnership interest in AMC from Liberty under the terms
of a buy/sell provision contained in the AMC partnership agreement.
In connection with the purchase, Rainbow acquired an option to
purchase the remaining 0.1% general partnership interest in AMC from
Liberty for $373,000. The proceeds of $180,249,000 included the
economic benefit of Liberty's consulting agreement with AMC assigned
by Liberty to Cablevision Systems Corporation, the parent company of
Rainbow.
(2) On November 11, 1993, Liberty entered into an agreement with the staff
of the Federal Trade Commission pursuant to which Liberty agreed to
divest all of its equity interests in QVC during an 18 month time
period if QVC was successful in its offer to buy Paramount
Communications, Inc. ("Paramount") and not to vote or otherwise
exercise or influence control over QVC until such time as QVC withdrew
its offer for Paramount. Simultaneously, Liberty agreed to withdraw
from a stockholders agreement pursuant to which Liberty and certain
other stockholders exercised control over QVC (the "Stockholders'
Agreement"). On February 15, 1994, QVC terminated its offer for
Paramount. Upon termination of such offer, Liberty had the right to
be reinstated as a party to the Stockholders' Agreement so long as
such option was exercised within 90 days after such termination.
On November 16, 1993, Liberty sold 1,690,041 shares of common stock of
QVC to Comcast Corporation ("Comcast") for aggregate consideration of
approximately $31,461,000. The sale to Comcast reduced Liberty's
interest in QVC common stock (on a fully diluted basis) from 21.6% to
18.5%. Liberty continued to account for its investment in QVC under
the equity method, although it no longer exercised significant control
over such affiliate, due to the pending determination of whether the
Company would rejoin the control group under the Stockholders'
Agreement. As a result of the election on May 13, 1994 by Liberty to
forego the exercise of its option to be reinstated as a party to the
Stockholders' Agreement, Liberty began as of that date to account for
its investment in QVC under the cost method.
(3) Represents cash received from the sale of the 49.9% partnership
interest in AMC by Liberty, pursuant to the terms of the buy/sell
provision contained in the AMC partnership agreement (see note 1), and
the corresponding increase in investment in affiliates, payables and
accruals, and common stockholders' equity. Such increase in
investment in affiliates is due to a negative balance in Liberty's
carrying value due to distributions in excess of Liberty's basis in
such investment. The increase in payables and accruals represents the
estimated current income taxes payable on the sale. Increase in
deferred income taxes represents the reversal of the temporary
difference resulting from basis for income tax purposes in excess of
basis for financial statement purposes. The increase in common
stockholders' equity is due to the difference between Liberty's
carrying value of such investment and the purchase price of the same
reduced by the estimated income tax effect. Such gain ($183,208,000)
is not reflected in the pro forma combined statement of operations due
to its non-recurring nature.
(continued)
<PAGE> 41
LIBERTY MEDIA CORPORATION
Notes to Condensed Pro Forma Combined Financial Statements
(unaudited)
(4) The Mergers were structured as a tax free exchange whereby the common
stock of Old TCI and Liberty and the preferred stock of Liberty were
exchanged for like shares of Holding Company. The Agreement provided
that each share of Old TCI's and Liberty's common stock (including
shares held by Old TCI's or Liberty's subsidiaries) would be converted
into one share and 0.975 of a share, respectively, of the
corresponding class of Holding Company's common stock. Shares of
Liberty Class E Preferred Stock were converted into shares of a
preferred stock of Holding Company having designations, preferences,
rights and qualifications, limitations and restrictions substantially
identical to the shares of preferred stock being converted. Shares of
the remaining Liberty preferred stock held by subsidiaries of Old TCI
were converted into shares of a class or series of Holding Company
preferred stock having an equivalent value. Adjustment represents the
conversion of Liberty's investment in Old TCI common stock into an
investment in Holding Company common stock. Such amount is reflected
as a reduction of stockholders' equity due to its related party
nature. Such conversion of shares is reflected at the carryover basis
of Liberty's investment in Old TCI.
(5) Reflects the elimination of the historical preferred stock of Liberty
held by Old TCI or its subsidiaries. Such historical preferred stock
of Liberty was converted into Holding Company preferred stock having
an equivalent value. See note 4.
(6) Elimination of share of earnings of QVC through May 13, 1994.
(7) Elimination of share of earnings of AMC.
(8) Estimated income tax effect of the pro forma adjustments.
(9) Reflects the elimination of the preferred stock dividend requirement
on Liberty preferred stock converted into preferred stock of Holding
Company. See note 4.
(10) On June 3, 1993, Liberty completed the transaction contemplated by the
Recapitalization Agreement entered into on March 26, 1993 with certain
subsidiaries of TCI (such transaction is included in the Liberty
historical column of the pro forma balance sheet). Pursuant to the
Recapitalization Agreement, Liberty purchased 100% of the outstanding
shares of its Class C Redeemable, Exchangeable Preferred Stock (the
"Class C Preferred Stock") and 927,900 shares of its Class A common
stock. Liberty paid a purchase price of approximately $175 million
for the Class C Preferred stock and approximately $19 million for the
Class A common stock. The aggregate purchase price of approximately
$194 million was satisfied by delivery of $12 million in cash and four
promissory notes totaling $182 million. In the accompanying unaudited
condensed pro forma statements of operations, the preferred stock
dividend requirement on such purchased preferred stock has been
eliminated.
(continued)
<PAGE> 42
LIBERTY MEDIA CORPORATION
Notes to Condensed Pro Forma Combined Financial Statements
(unaudited)
(11) On February 11, 1993, Liberty acquired from RMS Limited Partnership
20,000,000 shares of Class B common stock (the "Class B Stock") of HSN
for an aggregate purchase price of $58 million in cash and 8,000,000
shares of the Class A common stock of Liberty. Additionally, on June
1, 1993, Liberty completed the purchase of approximately 16 million
shares of the common stock ("Common Stock") of HSN at a price of $7.00
per share (the "Tender"). In addition, Liberty had acquired Common
Stock of HSN previous to the acquisition of the Class B Stock (such
transactions are included in the Liberty historical column of the pro
forma balance sheet).
(12) On March 15, 1993, Mile Hi Cable Partners, L.P. ("New Mile Hi")
completed the acquisition (the "Acquisition") of all the general and
limited partnership interests in Mile Hi, the owner of the cable
television system serving Denver, Colorado (such acquisition is
included in the Liberty historical column of the pro forma balance
sheet). New Mile Hi is a limited partnership formed among Community
Cable Television ("CCT") (78% limited partnership interest), Daniels
Communications, Inc. ("DCI") (1% limited partnership interest) and P &
B Johnson Corp. (21% general partnership interest), a corporation
controlled by Robert L. Johnson, a member of the Board of Directors of
Liberty. CCT is a general partnership in which a wholly-owned
subsidiary of Liberty is a 50.001% partner and a wholly-owned
subsidiary of TCI is a 49.999% partner. New Mile Hi is a consolidated
subsidiary of Liberty for financial reporting purposes.
Prior to the Acquisition, Liberty, through a wholly-owned subsidiary,
indirectly owned a 32.175% interest in Mile Hi through its ownership
of a limited partnership interest in Daniels & Associates Partners
Limited ("DAPL"), one of Mile Hi's general partners.
DAPL was liquidated on March 12, 1993, at which time a subsidiary of
Liberty (and partner in DAPL) received a liquidating distribution
consisting of a portion of DAPL's partnership interest in Mile Hi
representing the 32.175% interest in Mile Hi and a loan receivable of
approximately $50 million (the "Mile Hi Note").
Of the $110 million in cash required by New Mile Hi to complete the
transaction, $105 million was loaned to New Mile Hi by CCT and $5
million was provided by Mr. Johnson's corporation as a capital
contribution to New Mile Hi. Of the $5 million contributed by Mr.
Johnson's corporation, approximately $4 million was provided by CCT
through loans to Mr. Johnson and trusts for the benefit of his
children. CCT funded its loans to New Mile Hi and the Johnson
interests by drawing down $93 million under its revolving credit
facility and by borrowing $16 million from TCI in the form of a
subordinated note.
(continued)
<PAGE> 43
LIBERTY MEDIA CORPORATION
Notes to Condensed Pro Forma Combined Financial Statements
(unaudited)
(13) Depreciation and amortization of the purchase price of Mile Hi and HSN
allocated to its tangible and intangible assets are based upon
weighted average lives of 12-1/2 years for tangible assets, 30 years
for intangible assets and 40 years for franchise costs.
(14) Represents interest on borrowings to finance the cash portion of the
consideration for the acquisition of the partnership interests in Mile
Hi and the interest on the promissory notes delivered to TCI pursuant
to the Recapitalization Agreement (see note 10). Interest on the
borrowings for the Mile Hi acquisition is calculated at the weighted
average rate of 6% in effect for the year ended December 31, 1993.
(15) Reflects the reduction in interest expense arising from the assumed
repayment of Mile Hi debt at January 1, 1993 and the elimination of
the intercompany interest expense recorded by Mile Hi on its debt to
CCT.
(16) Elimination of share of losses of Mile Hi through March 15, 1993.
(17) Represents the interest income on the loan to a minority partner (see
note 12).
(18) Represents the minority partners' 22% interest in the pro forma losses
of Mile Hi adjusted for the effects of the acquisition (see note 12).
(19) Represents the minority shareholders' 58.5% interest in the pro forma
losses of HSN (see note 11).
(20) Represents the preferred stock dividend requirement on the additional
shares of Class E Preferred Stock related to the conversion of all of
the outstanding shares (10,974 shares) of Liberty's Class A Preferred
Stock into 4,405,678 shares of Liberty Class A common stock and 55,070
shares of Class E Preferred Stock.
<PAGE> 44
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Condensed Pro Forma Combined Financial Statements
June 30, 1994
(unaudited)
The following unaudited condensed pro forma balance sheet of Holding
Company, dated as of June 30, 1994, assumes that the Mergers, whereby TCI and
Liberty each became wholly-owned subsidiaries of Holding Company, had occurred
as of such date.
In addition, the unaudited condensed pro forma statements of
operations of Holding Company for the six months ended June 30, 1994 and the
year ended December 31, 1993 assume that the Mergers had occurred prior to
January 1, 1993.
The unaudited pro forma results do not purport to be indicative of the
results of operations that would have been obtained if the Mergers had occurred
prior to January 1, 1993. These condensed pro forma financial statements of
Holding Company should be read in conjunction with the condensed unaudited pro
forma financial statements of TCI and Liberty and the related notes thereto
included elsewhere herein and the respective historical financial statements
and the related notes thereto of TCI and Liberty. The pro forma financial
statements of Holding Company represent a combination of the separate pro forma
statements of TCI and Liberty in giving effect to the Mergers.
<PAGE> 45
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Condensed Pro Forma Combined Balance Sheet
(unaudited)
<TABLE>
<CAPTION>
June 30, 1994
-------------------------------------------------------------
Holding
TCI Liberty Pro forma Company
Pro forma Pro forma adjustments(1) Pro forma
---------- ---------- -------------- ------------
Assets amounts in millions
- ------
<S> <C> <C> <C> <C>
Cash, receivables and other
current assets $ 219 460 -- 679
Investment in and advances to Liberty 305 -- (213)(2) --
(92)(3)
Investment in other affiliates and
Turner Broadcasting System, Inc.,
and related receivables 1,483 771 -- 2,254
Property and equipment, net of
accumulated depreciation 5,207 249 -- 5,456
Franchise costs, intangibles and
other assets, net of amortization 9,687 446 -- 10,133
-------- ------ ----- ------
$ 16,901 1,926 (305) 18,522
======== ====== ===== ======
Liabilities and Stockholders' Equity
- ------------------------------------
Payables and accruals $ 859 345 -- 1,204
Due to TCI -- 213 (213)(2) --
Debt 10,111 230 -- 10,341
Deferred income taxes 3,420 177 (5)(5) 3,592
Other liabilities 99 3 -- 102
-------- ------ ----- ------
Total liabilities 14,489 968 (218) 15,239
-------- ------ ----- ------
Minority interests 318 187 (92)(3) 413
Class A Preferred Stock -- -- -- (4) --
Stockholders' equity:
Class B 6% Cumulative Redeemable
Exchangeable Junior Preferred
Stock -- -- -- --
Class A common stock 483 88 (2)(6) 569
Class B common stock 47 43 (1)(6) 89
Additional paid-in capital 2,310 393 (109)(4) 2,602
5 (5)
3 (6)
Cumulative foreign currency
translation adjustment (14) -- -- (14)
Unrealized holding gains for
available-for sale securities 128 242 -- 370
Retained earnings (deficit) (310) 124 -- (186)
Receivable from related party -- (15) -- (15)
Treasury stock -- -- (545)(4) (545)
Investment in Holding Company (550) (104) 654 (4) --
-------- ------ ----- ------
2,094 771 5 2,870
-------- ------ ----- ------
$ 16,901 1,926 (305) 18,522
======== ====== ===== ======
</TABLE>
See accompanying notes to unaudited condensed pro forma combined financial
statements.
<PAGE> 46
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Condensed Pro Forma Combined Statement of Operations
(unaudited)
<TABLE>
<CAPTION>
Six months ended June 30, 1994
---------------------------------------------------------
Holding
TCI Liberty Pro forma Company
Pro forma Pro forma adjustments(1) Pro forma
--------- --------- -------------- ------------
amounts in millions, except per share amounts
<S> <C> <C> <C> <C>
Revenue $ 2,141 675 (35)(7) 2,781
Operating, selling, general and
administrative expenses and
compensation relating to
stock appreciation rights (1,221) (612) 35 (7) (1,798)
Depreciation and amortization (481) (27) -- (508)
---------- ------ ----- --------
Operating income 439 36 -- 475
Interest expense (363) (19) 21 (8) (361)
Interest and dividend income 20 12 (21)(8) 11
Share of earnings (losses) of
affiliates, net (30) 10 -- (20)
Loss on early extinguishment of debt (2) -- -- (2)
Other income (expense), net 2 (9) -- (7)
---------- ------ ----- --------
Earnings before income taxes 66 30 -- 96
Income tax expense (42) (13) -- (55)
---------- ------ ----- --------
Net earnings 24 17 -- 41
Dividend requirement on
redeemable preferred stocks -- -- (5)(9) (5)
---------- ------ ----- --------
Net earnings attributable
to common shareholders $ 24 17 (5) 36
========== ====== ===== ========
Primary and fully diluted earnings
attributable to common shareholders per
common and common equivalent share $ .06 (11)
========
</TABLE>
See accompanying notes to unaudited condensed pro forma financial statements.
<PAGE> 47
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Condensed Pro Forma Combined Statement of Operations
(unaudited)
<TABLE>
<CAPTION>
Year ended December 31, 1993
---------------------------------------------------------
Holding
TCI Liberty Pro forma Company
Pro forma Pro forma adjustments(1) Pro forma
--------- --------- -------------- ------------
amounts in millions, except per share amounts
<S> <C> <C> <C> <C>
Revenue $ 4,153 1,264 (55)(7) 5,362
Operating, selling, general and
administrative expenses and
compensation relating to
stock appreciation rights (2,326) (1,213) 55 (7) (3,484)
Depreciation and amortization (911) (59) -- (970)
--------- -------- ------ --------
Operating income (loss) 916 (8) -- 908
Interest expense (731) (41) 9 (8) (763)
Interest and dividend income 34 25 (9)(8) 50
Share of earnings (losses) of
affiliates, net (76) 9 -- (67)
Gain on disposition 42 32 -- 74
Loss on transactions with TCI -- (30) -- (30)(10)
Loss on early extinguishment of debt (17) (7) -- (24)
Other expense, net (11) (6) -- (17)
--------- -------- ------ --------
Earnings (loss) before
income taxes 157 (26) -- 131
Income tax expense (166) (4) -- (170)
--------- -------- ------ --------
Net loss (9) (30) -- (39)
Dividend requirement on
redeemable preferred stocks -- -- (10)(9) (10)
--------- -------- ------ --------
Net loss attributable
to common shareholders $ (9) (30) (10) (49)
========= ======== ====== ========
Loss per common share $ (.09)(12)
========
</TABLE>
See accompanying notes to unaudited condensed pro forma financial statements.
<PAGE> 48
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Condensed Pro Forma Combined Financial Statements
June 30, 1994
(unaudited)
(1) The Mergers were structured as a tax free exchange whereby the common
stock of Old TCI and Liberty and the preferred stock of Liberty were
exchanged for like shares of Holding Company. The Agreement provided
that each share of Old TCI's and Liberty's common stock (including
shares held by Old TCI's or Liberty's subsidiaries) would be converted
into one share and 0.975 of a share, respectively, of the
corresponding class of Holding Company's common stock. Shares of
Liberty Class E Preferred Stock were converted into shares of a
preferred stock of Holding Company having designations, preferences,
rights and qualifications, limitations and restrictions substantially
identical to the shares of preferred stock being converted. Shares of
the remaining Liberty preferred stock held by subsidiaries of Old TCI
were converted into shares of a class or series of Holding Company
preferred stock having an equivalent value.
(2) Represents the elimination of intercompany indebtedness between TCI
and Liberty.
(3) Represents the elimination of TCI's minority interest in the equity of
a consolidated subsidiary of Liberty.
(4) Represents the reclassification to treasury stock of shares of Holding
Company held by TCI, Liberty or their respective subsidiaries
previously reflected as "Investment in Holding Company". All
preferred stock of Holding Company held by TCI or its subsidiaries
(also reflected in the TCI pro forma financial information as
"Investment in Holding Company") has been eliminated in consolidation
with Holding Company.
(5) Represents the elimination of temporary differences associated with
TCI's and Liberty's investments in Holding Company preferred and
common stock.
(6) Reflects the net conversion of Old TCI and Liberty common stock held
other than by Old TCI, Liberty or their subsidiaries, at the exchange
ratios described in note 1, into like shares of Holding Company.
(7) Represents the elimination of intercompany revenue and operating
expenses between TCI and Liberty arising from the sale of certain
cable television programming to their respective cable television
subscribers.
(8) Represents the elimination of interest on intercompany indebtedness
between TCI and Liberty.
(9) Represents the preferred stock dividend requirement on preferred stock
of Holding Company other than preferred stock issued to TCI or its
respective subsidiaries.
(10) Amount not eliminated for pro forma purposes as a reserve for an
impairment would have been required (based upon fair market value of
underlying asset) equal to the loss recognized by Liberty.
(continued)
<PAGE> 49
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Condensed Pro Forma Combined Financial Statements
(11) Reflects primary earnings per common and common equivalent share based
upon 610,017,732 weighted average shares. Such amount is calculated
utilizing 492,134,730 weighted average shares of Old TCI at June 30,
1994 (such amount representing Old TCI's weighted average shares, as
disclosed in its historical financial statements) reduced by
6,525,721 shares of Old TCI common stock previously held by Liberty
and 127,799,557 weighted average shares of Liberty at June 30, 1994
(such amount representing Liberty's weighted average shares, as
disclosed in its historical financial statements, adjusted by 0.975
of a share) reduced by 3,390,834 shares of Liberty common stock (as
adjusted by 0.975 of a share) previously held by Old TCI.
(12) Reflects primary earnings per common and common equivalent share based
upon 550,232,340 weighted average shares. Such amount is calculated
utilizing 432,566,150 weighted average shares of Old TCI at December
31, 1993 (such amount representing Old TCI's weighted average shares,
as disclosed in its historical financial statements) reduced by
6,525,721 shares of Old TCI common stock previously held by Liberty
and 127,582,745 weighted averages shares of Liberty at December 31,
1993 (such amount representing Liberty's weighted average shares, as
disclosed in its historical financial statements, shares of Liberty
common stock issued in the HSN merger and Liberty common stock
repurchased from Old TCI in 1993, all of which have been adjusted by
0.975 of a share) reduced by 3,390,834 shares of Liberty common stock
(as adjusted by 0.975 of a share) previously held by Old TCI.
<PAGE> 1
AMENDMENT NO. 2 TO
AGREEMENT AND PLAN OF MERGER
This Amendment No. 2, dated as of August 4, 1994 (this
"Amendment"), to a certain Agreement and Plan of Merger, dated as of January
27, 1994, as amended by Amendment No. 1 thereto as of March 30, 1994 (as
heretofore so amended, the "Merger Agreement"), by and among
Tele-Communications, Inc., a Delaware corporation ("TCI"), Liberty Media
Corporation, a Delaware corporation, TCI/Liberty Holding Company, a Delaware
corporation jointly owned by TCI and Liberty ("TCI/Liberty"), TCI Mergerco,
Inc., a Delaware corporation and a wholly owned subsidiary of TCI/Liberty ("TCI
Mergerco"), and Liberty Mergerco, Inc., a Delaware corporation and a wholly
owned subsidiary of TCI/Liberty, is entered into by and among the parties to
the Merger Agreement. All capitalized terms used in this Amendment which are
not otherwise defined herein shall have the meanings ascribed to such terms in
the Merger Agreement.
WHEREAS, the parties to the Merger Agreement wish to amend
certain provisions of the Merger Agreement relating to (i) the certificate of
incorporation of TCI Surviving Corporation immediately after the Effective
Time, (ii) the conversion ratio of TCI Mergerco common stock into shares of TCI
Surviving Corporation common stock and (iii) the Restated Certificate of
Incorporation of TCI/Liberty.
NOW, THEREFORE, in consideration of the premises and the
respective agreements set forth herein, the parties hereto agree as follows:
1. The first sentence of Section 1.5(a) of the Merger
Agreement is hereby amended to read in its entirety
as follows:
"The Restated Certificate of Incorporation of TCI, as
in effect immediately prior to the Effective Time,
shall, by virtue of the TCI Merger, be the
Certificate of Incorporation of TCI Surviving
Corporation from and after the Effective Time, until
thereafter amended as provided by law."
<PAGE> 2
2. Section 2.1(g) of the Merger Agreement is hereby
amended to read in its entirety as follows:
"(g) TCI Mergerco Stock. Each share of common stock,
par value $1.00 per share, of TCI Mergerco issued and
outstanding immediately prior to the Effective Time
shall be converted into (i) 40,613,094.2 shares of
Class A Common Stock, par value $1.00 per share, of
TCI Surviving Corporation and (ii) 4,725,878.7 shares
of Class B Common Stock, par value $1.00 per share,
of TCI Surviving Corporation, and each certificate
evidencing ownership of shares of TCI Mergerco common
stock shall from and after the Effective Time
evidence ownership of the number of shares of Class A
Common Stock and Class B Common Stock of TCI
Surviving Corporation determined as set forth in this
Section 2.1(g)."
3. Exhibit A to the Merger Agreement is hereby amended
to read in its entirety as set forth in Annex 1 to
this Amendment.
4. Exhibit C to the Merger Agreement is hereby deleted,
and all references thereto in the Merger Agreement
are hereby deleted.
5. Except as specifically amended hereby, the terms and
provisions of the Merger Agreement shall remain in
full force and effect.
6. This Amendment may be executed in counterparts, each
of which shall be deemed to be an original, and all
of which together shall be deemed to be one and the
same instrument.
7. This Amendment and the legal relations between the
parties shall be governed by and construed in
accordance with the laws of the State of Delaware,
without regard to the conflict of laws rules thereof.
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment No. 2 to the Merger Agreement as of the date first above written.
TELE-COMMUNICATIONS, INC.
Attest: By: /s/ STEPHEN M. BRETT
/s/ BRENDAN R. CLOUSTON Its: Senior Vice President
LIBERTY MEDIA CORPORATION
Attest: By: /s/ PETER R. BARTON
/s/ VIVIAN J. CARR Its: President
TCI/LIBERTY HOLDING COMPANY
Attest: By: /s/ STEPHEN M. BRETT
/s/ BRENDAN R. CLOUSTON Its: Executive Vice President
TCI MERGERCO, INC.
Attest: By: /s/ STEPHEN M. BRETT
/s/ BRENDAN R. CLOUSTON Its: Vice President
LIBERTY MERGERCO, INC.
Attest: By: /s/ JOHN DRAPER
/s/ VIVIAN J. CARR Its: Vice President
<PAGE> 1
AGREEMENT AND PLAN
OF MERGER
DATED AS OF
August 8, 1994
AMONG
TELE-COMMUNICATIONS, INC.,
TCI COMMUNICATIONS, INC.
AND
TELECABLE CORPORATION
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I THE MERGER
Section 1.1 The Merger . . . . . . . . . . . . . . . . 2
Section 1.2 Effective Date of the Merger . . . . . . . 2
Section 1.3 State Law . . . . . . . . . . . . . . . . . 2
ARTICLE II THE SURVIVING CORPORATION
Section 2.1 Certificate of Incorporation . . . . . . . 3
Section 2.2 By-Laws . . . . . . . . . . . . . . . . . . 3
Section 2.3 Board of Directors; Officers . . . . . . . 3
ARTICLE III MERGER VALUE; CONVERSION OF SHARES
Section 3.1 Merger Value . . . . . . . . . . . . . . . 3
Section 3.2 Adjustment of Merger Value . . . . . . . . 4
Section 3.3 Adjustment Procedures . . . . . . . . . . . 6
Section 3.4 Conversion of Shares . . . . . . . . . . . 11
Section 3.5 Parent to Make Certificates Available . . . 15
Section 3.6 Dividends; Transfer Taxes . . . . . . . . . 15
Section 3.7 No Fractional Shares . . . . . . . . . . . 16
Section 3.8 Shareholders' Approval . . . . . . . . . . 16
Section 3.9 Closing of the Company's Transfer Books . . 17
Section 3.10 Assistance in Consummation of the
Merger . . . . . . . . . . . . . . . . . 17
Section 3.11 Closing . . . . . . . . . . . . . . . . . . 18
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT
Section 4.1 Organization and Qualification . . . . . . 18
Section 4.2 Capitalization of Parent . . . . . . . . . 19
Section 4.3 Authority Relative to this Merger
Agreement . . . . . . . . . . . . . . . . 21
Section 4.4 Reports and Financial Statements . . . . . 23
Section 4.5 Absence of Certain Changes or Events . . . 25
Section 4.6 Parent Action . . . . . . . . . . . . . . . 26
Section 4.7 Financial Advisor . . . . . . . . . . . . . 26
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 5.1 Organization and Qualification . . . . . . 26
Section 5.2 Capitalization . . . . . . . . . . . . . . 27
Section 5.3 Subsidiaries . . . . . . . . . . . . . . . 28
Section 5.4 Authority Relative to this Merger
Agreement . . . . . . . . . . . . . . . . 29
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Section 5.5 Reports and Financial Statements . . . . . 31
Section 5.6 Absence of Certain Changes or Events . . . 32
Section 5.7 Litigation . . . . . . . . . . . . . . . . 33
Section 5.8 Labor and Employee Matters . . . . . . . . 34
Section 5.9 ERISA . . . . . . . . . . . . . . . . . . . 35
Section 5.10 Company Action . . . . . . . . . . . . . . 38
Section 5.11 Financial Advisor . . . . . . . . . . . . . 39
Section 5.12 Compliance with Applicable Laws . . . . . . 39
Section 5.13 Taxes . . . . . . . . . . . . . . . . . . . 41
Section 5.14 Environmental Laws . . . . . . . . . . . . 41
Section 5.15 Intellectual Property . . . . . . . . . . . 42
Section 5.16 Company Representation . . . . . . . . . . 42
ARTICLE VI REPRESENTATIONS AND WARRANTIES REGARDING SUB
Section 6.1 Organization and Qualification . . . . . . 43
Section 6.2 Capitalization . . . . . . . . . . . . . . 43
Section 6.3 Authority Relative to this Merger
Agreement . . . . . . . . . . . . . . . . 44
ARTICLE VII CONDUCT OF BUSINESS PENDING THE MERGER
Section 7.1 Conduct of Business by the Company
Pending the Merger . . . . . . . . . . . 45
Section 7.2 Conduct of Business by Parent Pending
the Merger . . . . . . . . . . . . . . . 50
ARTICLE VIII ADDITIONAL AGREEMENTS
Section 8.1 Access and Information . . . . . . . . . . 51
Section 8.2 Registration Statement . . . . . . . . . . 52
Section 8.3 Compliance with the Securities Act . . . . 53
Section 8.4 Listing . . . . . . . . . . . . . . . . . . 54
Section 8.5 Employee Arrangements . . . . . . . . . . . 54
Section 8.6 Indemnification . . . . . . . . . . . . . . 55
Section 8.7 HSR Act . . . . . . . . . . . . . . . . . . 57
Section 8.8 Additional Agreements . . . . . . . . . . . 57
Section 8.9 No Solicitation . . . . . . . . . . . . . . 59
Section 8.10 Special Dividends . . . . . . . . . . . . . 60
Section 8.11 Cancellation of Stock Restrictions . . . . 61
Section 8.12 Information in Disclosure Documents,
Registration Statements, Etc. . . . . . . 62
Section 8.13 Merger of Holding Companies into the
Company . . . . . . . . . . . . . . . . . 63
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE IX CONDITIONS PRECEDENT
Section 9.1 Conditions to Each Party's Obligation to
Effect the Merger . . . . . . . . . . . . 64
Section 9.2 Conditions to Obligation of the Company
to Effect the Merger . . . . . . . . . . 64
Section 9.3 Conditions to Obligations of Parent and
Sub to Effect the Merger . . . . . . . . 66
ARTICLE X TERMINATION, AMENDMENT AND WAIVER
Section 10.1 Termination . . . . . . . . . . . . . . . . 68
Section 10.2 Effect of Termination . . . . . . . . . . . 69
Section 10.3 Amendment . . . . . . . . . . . . . . . . . 69
Section 10.4 Waiver . . . . . . . . . . . . . . . . . . 70
ARTICLE XI GENERAL PROVISIONS; DEFINITIONS
Section 11.1 Non-Survival of Representations,
Warranties and Agreements . . . . . . . . 70
Section 11.2 Notices . . . . . . . . . . . . . . . . . . 70
Section 11.3 Fees and Expenses . . . . . . . . . . . . . 72
Section 11.4 Publicity . . . . . . . . . . . . . . . . . 72
Section 11.5 Specific Performance . . . . . . . . . . . 73
Section 11.6 Third Party Beneficiaries . . . . . . . . . 73
Section 11.7 Entire Agreement . . . . . . . . . . . . . 73
Section 11.8 Miscellaneous . . . . . . . . . . . . . . . 74
Section 11.9 Definitions . . . . . . . . . . . . . . . . 74
</TABLE>
EXHIBITS
- --------
Exhibit Section Reference Description
- ------- ----------------- -----------
A 3.1 Certificate of
Designation
B 8.2(c) Registration Rights
Agreement
C 8.8(e) Voting Agreement
D 8.8(e) Voting Agreement
E 8.11 Shareholder Statement
(iii)
<PAGE> 5
SCHEDULES
- ---------
Schedule No. Description
- ------------ -----------
3.2(c) Telecable's Revised 1994 Budget
4.2 Parent Options, Warrants, etc.
5.3 Subsidiaries; Options, Calls, etc.
5.4 Authority Relative to Merger Agreement
5.6 Absence of Certain Changes or Events
Capital Budget
5.7 Litigation
5.9(a) Employee Benefit Plans
5.9(h) Benefits to Former Employees
5.12 Compliance with Applicable Laws
5.13 Taxes
5.14 Environmental Matters
7.1 Conduct of Business Pending the Merger
8.8(e) Holders of Company Common Stock
8.11 Shareholders of Company with Stock Restriction
Agreements
9.3(b) Franchise Consents
11.3 Certain Expenses
(iv)
<PAGE> 6
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Merger Agreement")
dated as of August 8, 1994, by and among Tele- Communications, Inc., a Delaware
corporation ("Parent"), TCI Communications, Inc., a Delaware corporation and a
wholly owned Subsidiary of Parent ("Sub"), and TeleCable Corporation, a
Virginia corporation (the "Company"):
WITNESSETH:
WHEREAS, the Boards of Directors of Parent, Sub and the
Company have approved the acquisition of the Company by Parent;
WHEREAS, the Boards of Directors of Parent, Sub and the
Company have approved the merger of the Company into Sub (the "Merger"), upon
the terms and subject to the conditions set forth herein;
WHEREAS, for federal income tax purposes, it is intended that
the Merger shall qualify as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, defined terms used herein are listed in Section 11.9
hereof.
NOW, THEREFORE, in consideration of the foregoing premises and
the representations, warranties and agreements contained herein the parties
hereto agree as follows:
-1-
<PAGE> 7
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and
subject to the conditions hereof, on the Effective Date (as defined in Section
1.2), the Company shall be merged into Sub in compliance with the provisions of
the Delaware General Corporation Law (the "DGCL") and the Virginia Stock
Corporation Act (the "VSCA") and the separate existence of the Company shall
thereupon cease, and the name of Sub, as the surviving corporation in the
Merger (the "Surviving Corporation"), shall remain "TCI Communications, Inc."
Section 1.2 Effective Date of the Merger. The
parties hereto shall file properly executed Articles of Merger with the State
Corporation Commission of the Commonwealth of Virginia and a properly executed
Certificate of Merger with the Secretary of State of the State of Delaware,
which filings shall be made as soon as practicable after the closing of the
transactions contemplated by this Merger Agreement in accordance with Section
3.8 hereof. When used in this Merger Agreement, the term "Effective Date"
shall mean the date and time at which both such filings shall have been made.
Section 1.3 State Law. At the Effective Date,
the Merger shall have the effects set forth herein and the effects set forth in
Section 252 of the DGCL and Section 13.1-721 of the VSCA.
-2-
<PAGE> 8
ARTICLE II
THE SURVIVING CORPORATION
Section 2.1 Certificate of Incorporation.
Subject to Section 8.6 hereof, the Certificate of Incorporation of Sub shall be
the Certificate of Incorporation of the Surviving Corporation after the
Effective Date, and thereafter may be amended in accordance with its terms and
as provided by law and this Merger Agreement.
Section 2.2 By-Laws. Subject to Section 8.6
hereof, the By-laws of Sub as in effect on the Effective Date shall be the
By-laws of the Surviving Corporation.
Section 2.3 Board of Directors; Officers. The
directors of Sub immediately prior to the Effective Date shall be the directors
of the Surviving Corporation and the officers of Sub immediately prior to the
Effective Date shall be the officers of the Surviving Corporation, in each case
until their respective successors are duly elected and qualified.
ARTICLE III
MERGER VALUE; CONVERSION OF SHARES
Section 3.1 Merger Value. Subject to adjustment
as provided in Section 3.2, the aggregate value of the consideration
deliverable by Parent in the Merger (the "Merger Value") shall be
$1,600,000,000 (the "Base Merger Value"), deliverable as follows: (i)
1,000,000 shares ($300,000,000 in aggregate initial
-3-
<PAGE> 9
liquidation value) of Preferred Stock of Parent having the designation, rights
and preferences set forth in a certificate of designation in the form attached
as Exhibit A (such class of stock, "Parent Preferred Stock"); and (ii) the
balance in shares of Class A Common Stock of Parent (such class of stock,
"Parent Common Stock" and, together with Parent Preferred Stock, "Parent
Stock").
Section 3.2 Adjustment of Merger Value.
(a) To determine the Merger Value, the Base Merger Value
shall be reduced by:
(i) the amount of Net Liabilities as of
the Effective Date; and
(ii) the amount, if any, by which
$1,540,000,000 exceeds 11.43 times Annualized EBITDA as of the
Effective Date.
(b) For purposes of this Section 3.2, "Net Liabilities"
means the difference, determined as of the Effective Date, without duplication,
between: (x)(i) all Liabilities (other than Liabilities for deferred taxes,
Income Taxes, dividends payable, deferred revenue from the sale of QVC stock,
and minority interests and any Liability caused by any action taken directly by
Parent or Sub or any Subsidiary of either of them (excluding actions taken by
any of them pursuant to this Agreement)) plus or minus (plus, if a payable, and
minus, if a
-4-
<PAGE> 10
receivable), (ii) all Income Taxes (excluding deferred taxes) receivable or
payable (excluding state and local income taxes arising as a result of
transactions described in Section 8.13 hereof) including, for any taxable
period that includes but does not end on the Effective Date, an accrual for
such Income Taxes through the Effective Date as if such period ended on the
Effective Date; and (y) (i) cash, cash equivalents, securities (excluding all
shares of the capital stock of Turner Broadcasting System, Inc. held by the
Company) and accounts receivable (excluding notes payable to the Company by
executives of the Company in connection with purchases of Company Common Stock
pursuant to the Company's Executive Stock Purchase Plans; provided, that, cash
obtained by the Company upon a sale or redemption of such notes shall not be
excluded from any calculation of Net Liabilities), plus (ii) prepaid expenses,
but only to the extent that the book value thereof can be realized after the
Effective Date. "Income Taxes" shall mean the Company's current but not
deferred federal, state and local income Taxes. The items taken into account
in the calculation of Net Liabilities, unless otherwise specifically provided,
shall be determined for the Company on a consolidated basis in accordance with
generally accepted accounting principles ("GAAP") applied on a basis consistent
with that applied in the preparation of the
-5-
<PAGE> 11
Company's financial statements as of and for the year ended December 31, 1993.
(c) For purposes of this Section 3.2: (i) "EBITDA"
means, for any particular period, the earnings of the Company for such period,
determined on a consolidated basis in accordance with GAAP, before "home office
operating expenses" and extraordinary items and before deduction therefrom of
any amount on account of interest, gain or loss on disposal of assets, Income
Taxes, depreciation and amortization and all amounts attributable to minority
interests in any Subsidiary that is not wholly owned, directly or indirectly,
by the Company, it being agreed that EBITDA shall be calculated in a manner
consistent with that used by the Company in estimating its "revised system cash
flow" for 1994, as set forth in a document entitled "TeleCable's Revised 1994
Budget" dated June 14, 1994, a copy of which is attached hereto as Schedule
3.2(c); and (ii) "Annualized EBITDA" means, as of any date of determination,
400% of the EBITDA for the most recent period of three full calendar months
ended prior to such date.
Section 3.3 Adjustment Procedures.
(a) Not later than a date that the Company reasonably
believes is 20 business days prior to the Effective Date the Company shall
deliver to Parent a schedule, accompanied by all reasonably necessary
supporting information, setting forth the
-6-
<PAGE> 12
Company's reasonable and good faith estimates of Net Liabilities, Annualized
EBITDA and Merger Value, all such estimates to be as of the Effective Date.
Such schedule shall be accompanied by a certificate of the chief financial
officer of the Company to the effect that the estimates contained therein were
made in good faith and on a reasonable basis. Following receipt of such
schedule, Parent shall have 10 business days to review such schedule and
supporting information and to notify the Company of any disagreements with the
Company's estimates contained thereon. If Parent provides a notice of
disagreement with the Company's estimate of the Merger Value contained in such
schedule within such 10 business day period, Parent and the Company shall
negotiate in good faith to resolve any such dispute and to reach an agreement
prior to the Effective Date on the estimated Merger Value as of the Effective
Date. The estimate so agreed upon by Parent and the Company or (if the parties
do not reach such an agreement on the estimated amount of the Merger Value
prior to the Effective Date or if Parent fails to provide a notice of
disagreement with the Company's estimate of the Merger Value within the time
provided) the estimate of the Merger Value contained in the schedule delivered
to Parent by the Company, shall be the basis for determining the amount of
Parent Common Stock issuable immediately after the Effective Date, subject to
further adjustment as provided in this Section. Not later than a
-7-
<PAGE> 13
date that the Company reasonably believes (and provides notice to the Parent at
least 5 business days before such date) is 45 business days prior to the
Effective Date, the Parent shall deliver to the Company a list (the "Prepayment
List") of all indebtedness for borrowed money of the Company that the Parent
desires the Surviving Corporation to prepay. The schedule delivered by the
Company pursuant to this Section 3.3(a) shall, in its calculation of Net
Liabilities, include as Liabilities, any penalties or premiums payable upon the
prepayment of the indebtedness included on the Prepayment List (whether or not
the Company has taken any action that would legally obligate the Company to pay
any such penalty or premium).
(b) Not later than 60 days following the Effective Date,
Parent shall deliver or cause to be delivered to Shareholders' Representative a
schedule substantially in the form of the schedule described in subsection (a)
above providing detailed calculations, as of the Effective Date, of Net
Liabilities, Annualized EBITDA and the Merger Value, together with all
reasonably necessary supporting information. Such calculations shall be
accompanied by a certificate of a vice president of Parent that such
calculations were prepared in good faith and on a reasonable basis. With
respect to the indebtedness listed on the Prepayment List, the schedule
provided pursuant to this Section 3.3(b) shall reflect in its calculation
-8-
<PAGE> 14
of Net Liabilities only those penalties or premiums payable upon prepayment of
such indebtedness as the Surviving Corporation (i) has actually paid as of the
date such schedule is delivered or (ii) is, as of the date such schedule is
delivered, irrevocably legally obligated to pay thereafter.
(c) Following receipt of the information referred to in
subsection (b) above, Shareholders' Representative shall have 10 business days
to review such information and to notify Parent in writing of any disagreement
with Parent's calculations, which notice shall specify in reasonable detail the
nature and extent of such disagreement.
(d) If Shareholders' Representative fails to provide a
notice of disagreement with Parent's calculations of Net Liabilities,
Annualized EBITDA and the Merger Value within the period specified in
subsection (c) above, Parent's calculations thereof referred to in subsection
(b) above shall be final, conclusive and nonappealable.
(e) If Shareholders' Representative provides a notice of
disagreement with Parent's calculations within the period specified in
subsection (c) above, Parent and Shareholders' Representative shall negotiate
in good faith to resolve any such dispute for a period of 30 days following the
notification thereof. At the end of such period, if the dispute is not
resolved or the negotiation period has not been mutually
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<PAGE> 15
extended, the matter shall be referred to an independent public accounting firm
selected by mutual agreement of the parties (or, if the parties cannot agree to
the selection of such a firm within 10 days after Shareholders' Representative
shall have provided a notice of disagreement, an independent public accounting
firm selected by mutual agreement of KPMG Peat Marwick and Price Waterhouse),
which firm shall render its decision as to whether Parent's position is
correct, Shareholders' Representatives' position is correct or some position
between the two is correct (together with an explanation of the basis therefor)
to the parties to the dispute not later than 45 days following submission of
the dispute to it, which decision shall be final, conclusive and nonappealable.
(f) Upon the final determination of Net Liabilities,
Annualized EBITDA and the Merger Value pursuant to subsections (b)-(e) above,
(i) if the Merger Value as of the Effective Date is determined to be less than
the estimate of the Merger Value made pursuant to subsection (a) above, the
Merger Value shall be deemed to be reduced by the amount of the difference,
effective as of the Effective Date, and Certificates representing the number of
Holdback Shares, if any, remaining after subtracting from the total number of
Holdback Shares the number of Holdback Shares determined by dividing (x) such
reduction in the Merger Value by (y) $24.00, shall be delivered to the
shareholders of
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the Company entitled thereto or (ii) if the Merger Value as of the Effective
Date is determined to be greater than the estimate of Merger Value made
pursuant to subsection (a) above, the Parent shall issue to the shareholders of
the Company entitled thereto the number of shares of Parent Common Stock (which
shall include all the Holdback Shares) equal to the difference between (a) the
number of shares issuable upon final determination of the Merger Value (based
on a $24.00 price per share) and (b) the number of shares of Parent Common
Stock previously issued to the shareholders of the Company based upon the
estimate of Merger Value pursuant to subsection (a) above.
(g) The Company and the Parent shall make the
calculations required pursuant to this Section 3.3 in a manner consistent with
the accounting practices and methodologies utilized by the Company in the
preparation of its December 31, 1993 audited financial statements.
Section 3.4 Conversion of Shares. As of the
Effective Date, by virtue of the Merger and without any action on the part of
any holder of any common stock of the Company:
(a) Cancellation of Shares. All shares of Class A Common
Stock of the Company ("Company Class A Common Stock") and all shares of Class B
Common Stock of the Company ("Company Class B Common Stock" and collectively
with the Company Class A Common Stock, the "Company Common Stock") which are
held by the
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Company or any Subsidiary of the Company, and any shares of Company Common
Stock owned by Parent, Sub or any other Subsidiary of Parent, shall be
cancelled.
(b) Conversion Numbers. Each share of Company Common
Stock issued and outstanding immediately prior to the Merger (except shares
subject to Section 3.4(a)) shall be converted into and shall become (i) that
number of fully paid and nonassessable shares of Parent Common Stock equal to
the Common Conversion Number and (ii) that number of fully paid and
nonassessable shares of Parent Preferred Stock equal to the Preferred
Conversion Number. For purposes of this Merger Agreement: (A) "Common
Conversion Number" means the number determined as of the Effective Date by
dividing (x) the quotient resulting from dividing the Merger Value, less
$300,000,000, by $24.00 by (y) the total number of shares of Company Common
Stock outstanding at the Effective Date, including as shares of Company Common
Stock deemed to be outstanding for purposes of calculating the Common
Conversion Number, without duplication, shares issuable pursuant to any
outstanding option, warrant, convertible security or other right to acquire
Company Common Stock issued or granted by the Company, whether or not then
exercisable or convertible, but excluding shares of Company Common Stock held
by any Subsidiary of the Company; and (B) "Preferred Conversion Number" means
the number determined as of the Effective Date by
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dividing (x) 1,000,000 by (y) the total number of shares of Company Common
Stock outstanding at the Effective Date, including as shares of Company Common
Stock deemed to be outstanding for purposes of calculating the Preferred
Conversion Number, without duplication, shares issuable pursuant to any
outstanding option, warrant, convertible security or other right to acquire
Company Common Stock issued or granted by the Company, whether or not then
exercisable or convertible, but excluding shares of Company Common Stock held
by any Subsidiary of the Company.
(c) Adjustment to Conversion Numbers. (i) Except as
provided in subsection (ii) below, in the event of any stock dividend, stock
split, reclassification, recapitalization, combination or exchange of shares
after the date hereof with respect to, or rights issued in respect of, Parent
Common Stock, the Common Conversion Number and the Preferred Conversion Number
shall be adjusted accordingly; (ii) with respect to any stock or rights
offering made to the holders of Parent Common Stock by the Parent or any
Affiliate of the Parent, all (but not less than all) of the holders of the
Company Common Stock shall, with respect to the shares of Parent Common Stock
that are to be issued hereunder to them at the Effective Date, be entitled to
participate at the sole discretion of the Shareholders' Representative, for all
purposes, and subject to all requirements and limitations of such offering as
if they were holders of
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Parent Common Stock as of the relevant time, and receive the benefits of such
offering effective as of the Effective Date.
(d) Dissenters' Rights. Notwithstanding anything in this
Merger Agreement to the contrary, but only in the circumstances and to the
extent provided by the VSCA, shares of Company Common Stock that are
outstanding immediately prior to the Effective Date and that are held by
shareholders who were entitled to but did not vote such shares in favor of the
Merger and who shall have properly and timely delivered to the Company a
written demand for payment of the fair value of shares of Company Common Stock
in the manner provided in, and shall have complied with all of the relevant
provisions of, Sections 13.1-730 et seq. of the VSCA ("Dissenting Shares")
shall not be converted into the right to receive, or be exchangeable for,
shares of Parent Stock. Instead, the holders thereof shall be entitled to
payment of the fair value of such shares in accordance with the provisions of
Section 13.1-737 of the VSCA; provided, however, that (i) if any holder of
Dissenting Shares shall subsequently withdraw his demand for payment of the
fair value of such Dissenting Shares or (ii) if any holder fails to establish
and perfect his entitlement to the relief provided in such Section 13.1-735 of
the VSCA, the rights and obligations of such holder to receive such fair value
shall terminate, and such Dissenting Shares shall thereupon be deemed to have
been converted into the right to receive, and to
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have become exchangeable for, as of the Effective Date, shares of Parent Stock
in accordance with Section 3.4(b) hereof. Prior to the Effective Date, the
Company will not settle any demand with respect to any Dissenting Shares
without the consent of Parent, which consent will not be unreasonably withheld
or delayed.
(e) Holdback Shares. To effect the adjustments to the
Merger Value, Parent shall retain, out of the Parent Stock otherwise issuable
immediately after the Effective Date, 1,000,000 shares of Parent Common Stock
(the "Holdback Shares"), pending final determination of the Merger Value and
distribution of certificates representing that portion, if any, of the Holdback
Shares required to be delivered to the shareholders of the Company entitled
thereto, as provided in Section 3.3(f).
Section 3.5 Parent to Make Certificates
Available. As soon as practicable after the date hereof, Parent shall select
Bank of New York, or such other Person or Persons reasonably satisfactory to
the Company, to act as Exchange Agent for the Merger (the "Exchange Agent").
Prior to the Effective Date, Parent shall make available to the Exchange Agent
certificates ("Certificates") representing the Parent Stock to be delivered in
accordance with Section 3.4(b) hereof. As soon as practicable after the
Effective Date, each holder of Company Common Stock will be entitled to
receive, upon surrender to the Exchange Agent of one or more certificates
representing such stock for
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cancellation, certificates representing the number of shares of Parent Common
Stock and Parent Preferred Stock into which such shares are converted in the
Merger and cash in consideration of fractional shares as provided in Section
3.7 hereof. Parent Stock (other than Holdback Shares not required to be
delivered) into which Company Common Stock shall be converted in the Merger
shall be deemed to have been issued at the Effective Date.
Section 3.6 Dividends; Transfer Taxes. Upon
surrender by a Person of the certificates representing Company Common Stock,
there shall be paid to such Person in whose name the Certificates representing
Parent Common Stock and Parent Preferred Stock shall be issued any dividends or
other distributions which shall have become payable with respect to such Parent
Common Stock and Parent Preferred Stock in respect of a record date after the
Effective Date. Any transfer taxes payable by the holders of Company Common
Stock in connection with the Merger and the conversion of Company Common Stock
into Parent Stock shall be paid by the Parent except that any transfer taxes
payable as a result of the issuance of Parent Stock to a Person other than the
registered holder of Company Common Stock as of the Effective Date shall be
paid by the shareholder.
Section 3.7 No Fractional Shares. No
certificates or scrip representing any numbers other than a whole number of
shares of Parent Common Stock or Parent Preferred Stock shall be
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issued upon the surrender for exchange of certificates representing Company
Common Stock pursuant to Section 3.4(b) hereof. In lieu of any such fractional
share, each holder of Company Common Stock who would otherwise have been
entitled to a fraction of a share of Parent Common Stock or Parent Preferred
Stock upon surrender of certificates evidencing shares of Company Common Stock
for exchange, pursuant to Section 3.4(b) hereof, shall be paid upon such
surrender cash in an appropriate amount based upon the value of the Parent
Common Stock (determined by reference to the closing sale price thereof on the
last trading day preceding the Effective Date) and the initial liquidation
value of the Parent Preferred Stock.
Section 3.8 Shareholders' Approval. After the
Registration Statement has been declared and remains effective, the Company
shall take all action necessary, in accordance with applicable law and its
Certificate of Incorporation and By-laws, to have this Agreement and the
transaction contemplated hereby approved by the holders of capital stock of the
Company. The Company shall notify Parent of the date set for any shareholder
action to be taken in connection with approval of the Merger not later than 30
days prior to such date. Subject to Section 8.9 hereof, the Board of Directors
of the Company will recommend that holders of Company Common Stock vote in
favor of and approve the
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Merger and the adoption of this Merger Agreement at the Company Meeting.
Section 3.9 Closing of the Company's Transfer
Books. At the Effective Date, the stock transfer books of the Company shall be
closed and no transfer of shares of Company Common Stock shall be made
thereafter. In the event that, after the Effective Date, Certificates are
presented to the Surviving Corporation, they shall be cancelled and exchanged
for Parent Common Stock and Parent Preferred Stock and/or cash as provided in
Sections 3.4(b) and 3.7.
Section 3.10 Assistance in Consummation of the
Merger. Each of Parent, Sub and the Company shall provide all reasonable
assistance to, and shall cooperate with, each other to bring about the
consummation of the Merger as soon as possible in accordance with the terms and
conditions of this Merger Agreement. Parent shall cause Sub to perform all of
its obligations in connection with this Merger Agreement.
Section 3.11 Closing. The closing of the
transactions contemplated by this Merger Agreement shall take place (i) at the
offices of Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd Street,
New York, New York 10022, at 9:00 A.M. local time on the date that is three
business days after the day on which the last of the conditions set forth in
Article IX (excluding delivery of opinions and certificates) is
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fulfilled or waived, but in no event prior to October 1, 1994, or (ii) at such
other time and place as Parent and Company shall agree in writing.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
Except as disclosed in this Merger Agreement (including the
Schedules and Exhibits hereto), Parent represents and warrants to the Company
as follows:
Section 4.1 Organization and Qualification.
Parent is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has the corporate power to carry on
its business as it is now being conducted or currently proposed to be
conducted. Parent is duly qualified as a foreign corporation to do business,
and is in good standing, in each jurisdiction where the character of its
properties owned or held under lease or the nature of its activities make such
qualification necessary, except where the failure to be so qualified will not,
individually or in the aggregate, have a Parent Material Adverse Effect.
Section 4.2 Capitalization of Parent. As of the
date hereof, the authorized capital stock of Parent consists of:
(a) One billion one hundred million (1,100,000,000)
shares of Common Stock designated as Class A Common Stock with a par value of
$1.00 per share; of which, as of
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August 4, 1994, 570,793,473 shares were issued and outstanding (85,713,880 of
which were owned by Subsidiaries of Sub); 9,750,836 shares were reserved for
issuance pursuant to the 1994 Incentive Stock Plan of Parent; and 38,710,990
shares were reserved for issuance pursuant to convertible debt securities of
Parent;
(b) One hundred fifty million (150,000,000) shares
of Common Stock designated as Class B Common Stock with a par value of $1.00
per share; of which, as of August 4, 1994, 89,514,039 shares were issued and
outstanding (3,537,712 of which were owned by Subsidiaries of Sub); and no
shares were reserved for issuance;
(c) Seven hundred thousand (700,000) shares of
Preferred Stock designated as Class A Preferred Stock with a par value of $.01
per share; of which, as of August 4, 1994, 592,798 shares were issued and
outstanding (all of which were owned by Subsidiaries of Sub);
(d) One million six hundred seventy five thousand
and ninety six (1,675,096) shares of Preferred Stock designated as Class B 6%
Cumulative Redeemable Exchangeable Junior Preferred Stock with a par value of
$.01 per share; of which, as of August 4, 1994, 1,675,096 shares were issued
and outstanding (55,070 of which were owned by Subsidiaries of Sub); and no
shares were reserved for issuance;
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(e) Ten million (10,000,000) shares of Preferred
Stock designated as Series Preferred Stock with a par value of $.01 per share;
of which, as of August 4, 1994, no shares were issued; and
(f) Eighty thousand (80,000) shares designated as
Preferred Stock, Series C with a par value of $1.00 per share; of which, as of
August 8, 1994, 70,559 shares were issued and outstanding; no shares were in
treasury; and no shares were reserved for issuance.
All issued and outstanding shares of Parent Common Stock and
Class B Common Stock have been duly authorized, validly issued and are fully
paid and nonassessable, and are not subject to and have not been issued in
violation of any preemptive rights and have not been issued in violation of any
federal or state securities laws. Except as set forth in Parent's SEC Reports
or as described on Schedule 4.2 hereto, as of the date hereof there are no
existing options, warrants, calls or other rights, agreements or commitments of
any character, to which the Parent or any of its Subsidiaries is a party
relating to the issued or unissued capital stock of the Parent. All shares of
Parent Stock issuable in connection with the Merger will be, at the Effective
Date, duly authorized, validly issued and fully paid and nonassessable, and not
subject to and not issued in violation of
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any preemptive rights and have not been issued in violation of any federal or
state securities laws.
Section 4.3 Authority Relative to this Merger
Agreement. Parent has the corporate power to enter into this Merger Agreement
and to carry out its obligations hereunder. The execution and delivery of this
Merger Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by Parent's Board of Directors and the Parent's Board
of Directors has authorized the voting of the Common Stock of the Sub in favor
of the Merger. This Merger Agreement constitutes a valid and binding
obligation of Parent enforceable in accordance with its terms except as
enforcement may be limited by bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors' rights generally and except that the
availability of equitable remedies, including specific performance, is subject
to the discretion of the court before which any proceeding therefor may be
brought. No other corporate proceedings on the part of Parent are necessary to
authorize this Merger Agreement and the transactions contemplated hereby.
Neither Parent nor any of its Subsidiaries is subject to or obligated under (i)
any Governing Document or (ii) any indenture or other loan document provision
or any other contract, license, franchise, permit, order, decree, concession,
lease, instrument, judgment, statute, law, ordinance, rule or regulation
applicable
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to Parent or any of its Subsidiaries or their respective properties or assets,
which would be breached or violated, or under which there would be a default
(with or without notice or lapse of time, or both), or under which there would
arise a right of termination, cancellation or acceleration of any obligation,
Lien or the loss of a benefit, by its executing and carrying out this Merger
Agreement other than, in the case of clause (ii) only, (A) any breaches,
violations, defaults, terminations, cancellations or accelerations, Liens or
losses which, individually or in the aggregate, will not have a Parent Material
Adverse Effect or prevent the consummation of the transactions contemplated
hereby and (B) the laws and regulations referred to in clauses (i) through (v)
of the next sentence. Except as referred to herein or in connection, or in
compliance, with the provisions of (i) the Hart-Scott- Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), (ii) the Securities Act
of 1933, as amended (the "Securities Act"), (iii) the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), (iv) the corporation, securities or
blue sky laws or regulations of the various states of the United States, and
(v) the rules and regulations of the relevant Governmental Entities, and
provisions contained in Franchises regarding transfer of ownership or control
of Franchises and Federal Communications Commission ("FCC") licenses, no filing
or registration with, or
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authorization, consent or approval of, any Governmental Entity is necessary for
the consummation by Parent and Sub of the Merger or the other transactions
contemplated by this Merger Agreement, other than filings, registrations,
authorizations, consents or approvals the failure of which to make or obtain
would not have a Parent Material Adverse Effect or prevent the consummation of
the transactions contemplated hereby.
Section 4.4 Reports and Financial Statements.
Parent, Sub and Liberty Media Corporation, a wholly owned subsidiary of Parent
("Liberty"), have previously furnished or will furnish the Company with true
and complete copies of their respective (i) Annual Report on Form 10-K for the
fiscal years ended December 31, 1993, December 31, 1992, and December 31, 1991,
as filed with the Securities and Exchange Commission (the "Commission"), (ii)
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1994 and June
30, 1994, as filed with the Commission, (iii) proxy statements related to all
meetings of its shareholders (whether annual or special) since December 31,
1991, and (iv) all other reports or registration statements filed by Parent,
Sub or Liberty with the Commission since December 31, 1991, as amended prior to
the date hereof (the documents described in clauses (i) through (iv) (together
with all subsequent filings referred to in the next two sentences) being
referred to herein collectively as the "Parent SEC Reports"). As
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of their respective dates or effective dates, the Parent SEC Reports complied
in all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the
Commission thereunder applicable to such Parent SEC Reports, except as the same
may have been corrected, updated or superseded by means of a subsequent filing
with the Commission prior to the date hereof. As of their respective dates or
effective dates and except as the same may have been corrected, updated or
superseded by means of a subsequent filing with the Commission prior to the
date hereof, the Parent SEC Reports did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. Copies of all filings referred to in the
previous sentence have been, or will be, provided to the Company. Since
January 1, 1990, Parent, Sub and Liberty have filed with the Commission all
reports required to be filed therewith by each of them. The audited
consolidated financial statements and unaudited interim consolidated financial
statements of Parent, Sub and Liberty included in the
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Parent SEC Reports comply in all material respects with applicable accounting
requirements and with the published rules and regulations of the Commission
with respect thereto, and the financial statements included in the Parent SEC
Reports have been prepared in accordance with GAAP applied on a consistent
basis (except as may be indicated therein or in the notes thereto) and fairly
present, in all material respects, the respective consolidated financial
position of Parent and its Subsidiaries, Sub and its Subsidiaries and Liberty
and its Subsidiaries as at the dates thereof and the results of their
operations and cash flows for the periods then ended subject, in the case of
the unaudited interim consolidated financial statements, to normal year-end
audit adjustments and any other adjustments described therein.
Section 4.5 Absence of Certain Changes or
Events. Except as described in the Parent SEC Reports, since December 31,
1993, there has not been (i) any transaction, commitment, dispute or other
event or condition (financial or otherwise) of any character (whether or not in
the ordinary course of business) which, individually or in the aggregate, has
had, or in the future is likely to have, a Parent Material Adverse Effect
(other than as a result of changes in laws or regulations of general
applicability or any changes resulting from general economic, financial or
market conditions or affecting the cable television industry in general) or
(ii) any declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) with respect to the capital
stock of Parent.
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Section 4.6 Parent Action. The Board of
Directors of Parent (at a meeting duly called and held) has by the requisite
vote of all directors present (a) approved the Merger in accordance with the
applicable provisions of Section 252 of the DGCL, (b) taken any necessary steps
to render Section 203 of the DGCL inapplicable to the Merger and the
transactions contemplated by this Merger Agreement, and (c) adopted a
resolution having the effect of causing Parent not to be subject, to the extent
permitted by applicable law, to any state takeover law that may purport to be
applicable to the Merger and the transactions contemplated by this Merger
Agreement.
Section 4.7 Financial Advisor. No broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
or commission in connection with the Merger or the transactions contemplated by
this Merger Agreement based upon arrangements made by or on behalf of Parent.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as disclosed in this Merger Agreement (including the
Schedules and Exhibits hereto), the Company represents and warrants to Parent
and Sub as follows:
Section 5.1 Organization and Qualification. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the Commonwealth of Virginia and
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has the corporate power to carry on its business as it is now being conducted
or currently proposed to be conducted. The Company is duly qualified as a
foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or held under lease or
the nature of its activities makes such qualification necessary, except where
the failure to be so qualified will not, individually or in the aggregate, have
a Company Material Adverse Effect.
Section 5.2 Capitalization. As of the date
hereof, the authorized capital stock of the Company consists of 225,000 shares
of Company Class A Common Stock and 5,000,000 shares of Company Class B Common
Stock. As of the close of business on August 4, 1994, 116,555 shares of
Company Class A Common Stock were outstanding, 2,779,801 shares of Company
Class B Common Stock were outstanding and 4,877 shares of Company Class A
Common Stock were held by a Subsidiary of the Company. All issued and
outstanding shares of Company Class A Common Stock and Company Class B Common
Stock have been duly authorized, validly issued and are fully paid and
nonassessable, are not subject to and have not been issued in violation of any
preemptive rights and have not been issued in violation of any federal or state
securities laws. There are no existing options, warrants, calls or other
rights, agreements or commitments of any character, to which the
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Company or any of its Subsidiaries is a party, relating to the issued or
unissued capital stock or other securities of the Company.
Section 5.3 Subsidiaries. The only Subsidiaries
or entities (other than Subsidiaries) in which the Company directly or through
one or more of its Subsidiaries holds a 5% or greater equity interest (each an
"Equity Affiliate") of the Company are those set forth on Schedule 5.3 hereto,
which Schedule reflects the percentage and nature of the Company's ownership of
each such Subsidiary or Equity Affiliate. Each of the Company's Subsidiaries
is a corporation or partnership duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or formation and
has the corporate or partnership power to carry on its business as it is now
being conducted or currently proposed to be conducted. Each of the Company's
Subsidiaries is duly qualified as a foreign corporation or partnership to do
business, and is in good standing, in each jurisdiction where the character of
its properties owned or held under lease or the nature of its activities makes
such qualification necessary except where the failure to be so qualified will
not have a Company Material Adverse Effect. All the outstanding shares of
capital stock of each of the Company's Subsidiaries that is a corporation are
validly issued, fully paid and nonassessable. The shares of capital stock or
partnership or
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other ownership interests in each of the Company's Subsidiaries or Equity
Affiliates that are owned by the Company or by a Subsidiary of the Company are
owned free and clear of any Liens, are not subject to and have not been issued
in violation of any preemptive rights and have not been issued in violation of
any federal or state securities laws. Except as set forth on Schedule 5.3
hereto, there are no existing options, warrants, calls or other rights,
agreements or commitments of any character, to which the Company or any of its
Subsidiaries is a party, relating to the issued or unissued capital stock,
other securities or partnership or other ownership interests of any of the
Subsidiaries or Equity Affiliates of the Company.
Section 5.4 Authority Relative to this Merger
Agreement. The Company has the corporate power to enter into this Merger
Agreement and, subject to approval of this Merger Agreement by the holders of
the Company Common Stock, to carry out its obligations hereunder. The
execution and delivery of this Merger Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by the Company's
Board of Directors and Lehman Brothers Inc. has orally advised the Company's
Board of Directors that the consideration to be received in the Merger is fair,
from a financial point of view, to the Company's shareholders taken as a whole.
Subject to approval of the shareholders of the Company in accordance with
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the VSCA, this Merger Agreement constitutes a valid and binding obligation of
the Company enforceable in accordance with its terms except as enforcement may
be limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally and except that the availability of
equitable remedies, including specific performance, is subject to the
discretion of the court before which any proceeding therefor may be brought.
Except for the approval of the holders of Company Common Stock, no other
corporate proceedings on the part of the Company are necessary to authorize
this Merger Agreement and the transactions contemplated hereby. Except as set
forth on Schedule 5.4 hereto and except as provided in the Note Purchase
Agreements or the Credit Agreement, neither the Company nor any of its
Subsidiaries is subject to or obligated under (i) any Governing Document or
(ii) any indenture or other loan document provision or any other contract,
license, franchise, permit, order, decree, concession, lease, instrument,
judgment, statute, law, ordinance, rule or regulation applicable to the Company
or any of its Subsidiaries or their respective properties or assets which would
be breached or violated, or under which there would be a default (with or
without notice or lapse of time, or both), or under which there would arise a
right of termination, cancellation or acceleration of any obligation, Lien or
the loss of a benefit, by its executing and carrying out this Merger
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Agreement, other than, in the case of clause (ii) only, (A) any breaches,
violations, defaults, terminations, cancellations or accelerations, Liens or
losses which, either individually or in the aggregate, will not have a Company
Material Adverse Effect or prevent the consummation of the transactions
contemplated hereby and thereby and (B) the laws and regulations referred to in
clauses (i) through (iv) of the next sentence. Except as referred to herein
or, with respect to the Merger or the transactions contemplated thereby, in
connection, or in compliance with, the provisions of (i) the HSR Act, (ii) the
Securities Act, (iii) the corporation, securities or blue sky laws or
regulations of the various states of the United States and (iv) the rules and
regulations of the relevant Governmental Entities or the provisions of
Franchises regarding transfer of ownership or control of Franchises and FCC
licenses, no filing or registration with, or authorization, consent or approval
of, any Governmental Entity is necessary for the consummation by the Company of
the Merger or the other transactions contemplated hereby, other than filings,
registrations, authorizations, consents or approvals the failure of which to
make or obtain would not have a Company Material Adverse Effect or prevent the
consummation of the transactions contemplated hereby.
Section 5.5 Reports and Financial Statements.
The Company has previously furnished Parent with copies of audited
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financial statements for the fiscal years ended December 31, 1993, December 31,
1992 and December 31, 1991 (the "Company Reports") and a copy of the interim
financial statements for the six-month period ended June 30, 1994 (the "Interim
Company Reports"). The Company Reports have been prepared in accordance with
GAAP applied on a consistent basis (except as may be indicated therein or in
the notes thereto) and fairly present, in all material respects, the financial
position of the Company and its Subsidiaries as of the dates indicated therein
and the consolidated results of their operations and cash flows for the periods
then ended. The Interim Company Reports have been prepared in a manner
consistent with past practice (except as may be indicated therein or in the
notes thereto) and fairly present the financial position of the Company and its
Subsidiaries as of the dates indicated therein and the consolidated results of
their operations for the periods then ended, subject to normal year-end audit
adjustments and any other adjustments described therein.
Section 5.6 Absence of Certain Changes or
Events. Except as set forth on Schedule 5.6 hereto, since December 31, 1993,
there has not been (i) any transaction, commitment, dispute or other event or
condition (financial or otherwise) of any character (whether or not in the
ordinary course of business) which, individually or in the aggregate, has had,
or in the future is likely to have, a Company Material Adverse Effect
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(other than as a result of changes in laws or regulations of general
applicability or any changes resulting from general economic, financial or
market conditions or affecting the cable television industry in general), (ii)
any declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to the capital stock of the
Company (except for regularly scheduled cash dividends out of current earnings
at an annual rate not greater than $3.00 per share of Company Common Stock (the
"Regular Company Dividends"), or (iii) any entry into any commitment or
transaction material to the Company and its Subsidiaries taken as a whole
(including, without limitation, any borrowing or sale of assets) except in the
ordinary course of business consistent with past practice or except as
contained in the Company's capital budget set forth as Schedule 5.6 ("Capital
Budget"). As of December 31, 1993, the Company did not have any indebtedness,
liability or obligation of the type required by GAAP, consistently applied, to
be reflected on a balance sheet that is not reflected or reserved against in
the Company's balance sheet dated as of December 31, 1993, except for such
indebtedness, liability or obligations as do not have a Company Material
Adverse Effect.
Section 5.7 Litigation. Except as set forth on
Schedule 5.7 hereto, there is no suit, action or proceeding pending or, to the
Knowledge of the Company, threatened against
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or affecting the Company or any of its Subsidiaries that has had or is likely
to have a Company Material Adverse Effect nor is there any judgment, decree,
injunction, rule or order of any court, governmental department, commission,
agency, instrumentality or arbitrator outstanding against the Company or any of
its Subsidiaries that has had or is likely to have a Company Material Adverse
Effect.
Section 5.8 Labor and Employee Matters. There
are no collective bargaining agreements or employment agreements to which the
Company or any of its Subsidiaries is a party (together, the "Company Labor
Contracts"). To the Knowledge of the Company, no default exists with respect
to the obligations of the Company or any of its Subsidiaries under any Company
Labor Contracts, which default, individually or in the aggregate, has had or is
likely to have a Company Material Adverse Effect. Since December 31, 1993,
there have been no disputes or grievances subject to any grievance procedure,
unfair labor practice proceedings, arbitration or litigation under any Company
Labor Contracts, which have not been finally resolved, settled or otherwise
disposed of, or, to the Knowledge of the Company and its Subsidiaries, the
failure of which to resolve, settle or otherwise dispose of, individually or in
the aggregate, has had or is likely to have a Company Material Adverse Effect.
Since December 31, 1993, there have been no strikes, lockouts or work
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stoppages or slowdowns that have had, or are likely to have, a Company Material
Adverse Effect, or to the Knowledge of the Company and its Subsidiaries,
jurisdictional disputes or organizing activity occurring or threatened with
respect to the business or operations of the Company or its Subsidiaries that
have had, or are likely to have, a Company Material Adverse Effect. The
Company and its Subsidiaries are in compliance with all laws relating to the
employment of the employees, including any obligations relating to employment
standards legislation, pay equity, occupational health and safety, labor
relations and human rights legislation except for such failures to comply as do
not have, and are not likely to have, a Company Material Adverse Effect. There
are no outstanding labor relations board, occupational health and safety or
human rights investigations, complaints, prosecutions or orders which could
reasonably be expected to have a Company Material Adverse Effect.
Section 5.9 ERISA.
(a) Schedule 5.9(a) hereto sets forth all "employee benefit
plans," as defined in ERISA, and all other material employee benefit
arrangements, programs or payroll practices, including, without limitation,
severance pay, sick leave, vacation pay, salary continuation for disability,
deferred compensation, bonus, stock purchase, hospitalization, medical
insurance, life insurance, tuition reimbursement, employee
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assistance and employee discounts, that the Company or any trade or business
(whether or not incorporated) which is treated as a single employer with the
Company under Section 414(b), (c), (m) or (o) of the Code ("Code Affiliate")
maintains or has an obligation to make contributions (the "Company Benefit
Plans").
(b) Neither the Company nor any Code Affiliate has
incurred any unsatisfied withdrawal liability, as defined in Section 4201 of
ERISA, with respect to any multiemployer plan, nor has any of them incurred any
liability due to the termination or reorganization of any multiemployer plan,
except for any such liability which would not have a Company Material Adverse
Effect. To the Knowledge of the Company, neither the Company nor any of its
Code Affiliates reasonably expects to incur any liability due to a withdrawal
from or termination or reorganization of a multiemployer plan, except for any
such liability which would not have a Company Material Adverse Effect.
(c) Each Company Benefit Plan that is intended to qualify
under Section 401 of the Code and the trust maintained pursuant thereto has
been determined to be exempt from federal income taxation under Section 501 of
the Code by the Internal Revenue Service, and to the Knowledge of the Company,
nothing has occurred with respect to any such plan since such determination
which could reasonably be expected to result in the loss of such exemption or
the imposition of any material liability, penalty or
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tax under ERISA or the Code. Each Company Benefit Plan has at all times been
maintained in all material respects, by its terms and in operation, in
accordance with all applicable laws.
(d) All contributions (including all employer
contributions and employee salary reduction contributions) required to have
been made under the Company Benefit Plans or by law (without regard to any
waivers granted under Section 412 of the Code) to any funds or trusts
established thereunder or in connection therewith have been made by the due
date thereof (including any valid extension), and no accumulated funding
deficiency exists with respect to any of the Company Benefit Plans subject to
Section 412 of the Code.
(e) No Company Benefit Plan which is subject to Title IV
of ERISA has: (i) an accumulated benefit obligation that exceeds the assets of
such plan, determined as of the last applicable annual valuation date using the
actuarial methods, factors and assumptions used for the most recent actuarial
report with respect to such plan prepared in accordance with Statement Number
87 of the Financial Accounting Standards Board, or (ii) been a plan with
respect to which there has been a "reportable event," as defined in Section
4043 of ERISA and the regulations thereunder, which would require the giving of
notice to the PBGC. Except for premiums paid to the PBGC, neither the Company
nor any Code Affiliate has incurred or reasonably expects to incur any
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liability under Section 4062 or 4063 of ERISA to the PBGC, or any trustee
appointed under Section 4042 of ERISA, except for any such liability which
would not have a Company Material Adverse Effect.
(f) To the Knowledge of the Company, there have been no
violations of ERISA or the Code with respect to the filing of applicable
reports, documents and notices regarding the Company Benefit Plans with the
Secretary of Labor and the Secretary of the Treasury or the furnishing of such
reports, documents and notices to the participants or beneficiaries of the
Company Benefit Plans, except for such violations which, individually or in the
aggregate, would not have a Company Material Adverse Effect.
(g) There are no pending actions, claims or lawsuits
which have been asserted or instituted against the Company Benefit Plans, the
assets of any of the trusts under such plans or the plan sponsor or the plan
administrator, or against any fiduciary of the Company Benefit Plans with
respect to the operation of such plans (other than routine benefit claims), nor
does the Company have Knowledge of facts which could reasonably form the basis
for any such actions, claims or lawsuits, except for any such actions, claims
or lawsuits which, individually or in the aggregate, would not have a Company
Material Adverse Effect.
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(h) Except as provided in Schedule 5.9(h) and as may be
required under Section 4980B of the Code, neither the Company nor any Code
Affiliate maintains any Company Benefit Plan that provides medical or welfare
benefits to former employees.
Section 5.10 Company Action. The Board of
Directors of the Company (at a meeting duly called and held or by unanimous
written consent) has by the requisite vote of all directors (a) determined that
the Merger is advisable and fair and in the best interests of the Company and
its shareholders, (b) approved the Merger in accordance with the provisions of
Section 13.1-718 of the VSCA, (c) recommended the approval of this Merger
Agreement and the Merger by the holders of the Company Common Stock and
directed that the Merger be submitted for consideration by the Company's
shareholders at the Meeting and (d) adopted a resolution having the effect of
causing the Company not to be subject, to the extent permitted by applicable
law, to any state takeover law that may purport to be applicable to the Merger
and the transactions contemplated by this Merger Agreement.
Section 5.11 Financial Advisor. Except for
Lehman Brothers Inc. (whose fee will be paid by the Company), no broker, finder
or investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the Merger or the transactions contemplated by
this Merger Agreement based upon arrangements made by or on behalf of the
Company.
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Section 5.12 Compliance with Applicable Laws.
(a) Except as set forth on Schedule 5.12 hereto, the
Company and its Subsidiaries hold all permits, licenses, franchises, variances,
exemptions, concessions, leases, instruments, orders and approvals (the
"Company Permits") of all courts, administrative agencies or commissions or
other governmental authorities or instrumentalities, domestic or foreign (each,
a "Governmental Entity"), except for such Company Permits the failure of which
to hold, individually or in the aggregate, does not have and, in the future is
not likely to have, a Company Material Adverse Effect. To the Company's
Knowledge, the Company and its Subsidiaries are in compliance with the terms of
the Company Permits, except for such failures to comply, which individually or
in the aggregate, would not have a Company Material Adverse Effect. Except as
set forth on Schedule 5.12 hereto, to the Company's Knowledge, the businesses
of the Company and its Subsidiaries are not being conducted in violation of any
law, ordinance or regulation of any Governmental Entity, except for such
violations which, individually or in the aggregate, would not have a Company
Material Adverse Effect. No investigation or review by any Governmental Entity
with respect to the Company or any of its Subsidiaries is pending, or, to the
Knowledge of the Company, threatened, nor has any Governmental Entity indicated
to the Company an intention to conduct the same,
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other than those the outcome of which would not have a Company Material Adverse
Effect.
(b) To the Company's Knowledge, the Company and each of
its Subsidiaries have made all submissions (including, without limitation,
registration statements) required under the Communications Act of 1934, as
amended, the Cable Communications Policy Act of 1984, as amended, and the Cable
Television Consumer Protection and Competition Act of 1992 (collectively, the
"Communications Act"), and the applicable rules and regulations thereunder (the
"Rules and Regulations"), and has obtained all necessary FCC authorizations,
licenses, registrations, permits and tower approvals, except for such
authorizations, licenses, registrations, permits and tower approvals as are not
necessary for the consummation of the transactions contemplated hereby.
Section 5.13 Taxes. Except as set forth on
Schedule 5.13 hereto, the Company and each of its Subsidiaries have timely
filed all Tax returns required to be filed by any of them and have timely paid
(or the Company has paid on its behalf), or has set up an adequate reserve for
the payment of, all Taxes claimed by the Company to be owed in respect of the
periods covered by such returns. The information contained in such Tax returns
is true, complete and accurate in all material respects. Neither the Company
nor any Subsidiary of the Company is delinquent in the payment of any material
Tax, assessment or governmental
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charge. Except as set forth on Schedule 5.13 hereto, no material deficiencies
for any Taxes have been proposed, asserted or assessed against the Company or
any of its Subsidiaries that have not been finally settled or paid in full, and
no requests for waivers of the time to assess any such Tax are pending. For
the purposes of this Merger Agreement, the term "Tax" shall include all
federal, state, local and foreign income, profits, estimated, franchise, gross
receipts, payroll, sales, employment, use, property, withholding, excise and
other taxes, duties and assessments of any nature whatsoever together with all
interest, penalties and additions imposed with respect to such amounts.
Section 5.14 Environmental Laws. Except as
described on Schedule 5.14:
(a) each of the Company and its Subsidiaries is in
compliance in all material respects with all Environmental Laws; and
(b) no orders, directions or notices have been issued
pursuant to any Environmental Law and no Governmental Entity has submitted to
any of the Company and its Subsidiaries any request for information pursuant to
any Environmental Law.
Section 5.15 Intellectual Property. To the
Knowledge of the Company, the conduct of its business does not infringe, in any
material way, upon the patents, trademarks, copyrights, trade names or other
intellectual property rights, domestic or foreign,
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of any Person except for such infringements as do not have a Company Material
Adverse Effect. No Person has asserted any claim to the Company with respect
to any such infringement except for such infringements as do not have a Company
Material Adverse Effect.
Section 5.16 Company Representation. To the
Knowledge of the Company, (other than an exchange undertaken with respect to
any stock or rights offering contemplated by Section 3.4(c) hereof) there is no
present plan or intention on the part of those shareholders of the Company who,
individually, own less than 5% of the outstanding Company Common Stock
(collectively, the "5% Shareholders") to sell, exchange or otherwise dispose
of, in the aggregate, a number of shares of Parent Common Stock that would have
a value exceeding 60% of the aggregate value of Parent Stock to be received by
the 5% Shareholders in the Merger, such value to be measured at the Effective
Date.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES REGARDING SUB
Parent and Sub jointly and severally represent and warrant to
the Company as follows:
Section 6.1 Organization and Qualification. Sub
is a corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware and has the corporate power to carry on its
business as it is now being
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conducted or currently proposed to be conducted. Sub is duly qualified as a
foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or held under lease or
the nature of its activities makes such qualification necessary, except where
the failure to be so qualified will not, individually or in the aggregate, have
a Parent Material Adverse Effect. Certified copies of the Certificate of
Incorporation and By-laws of the Sub have been delivered to the Company.
Section 6.2 Capitalization. The authorized
capital stock of Sub consists of 1,000,000 shares of Common Stock par value
$1.00 per share divided into the following classes: 905,553 shares of Common
Stock designated as Class A Common Stock with a par value of $1.00 per share,
of which 811,655 are issued and outstanding and 94,447 shares of Common Stock
with a par value of $1.00 per share, of which 94,447 are issued and
outstanding.
Section 6.3 Authority Relative to this Merger
Agreement. Sub has the corporate power to enter into this Merger Agreement and
to carry out its obligations hereunder. The execution and delivery of this
Merger Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by its Board of Directors and sole shareholder, and
no other corporate proceedings on the part of Sub are
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necessary to authorize this Merger Agreement and the transactions contemplated
hereby. Except as referred to herein or in connection, or in compliance, with
the provisions of (i) the HSR Act, (ii) the Securities Act, (iii) the Exchange
Act, (iv) the corporation, securities or blue sky laws or regulations of the
various states and (v) the rules and regulations of the relevant Governmental
Entities and provisions contained in Franchises regarding transfer of ownership
or control of Franchises and FCC licenses, no filing or registration with, or
authorization, consent or approval of, any Governmental Entity is necessary for
the consummation by Sub of the Merger or the other transactions contemplated by
this Merger Agreement, other than filings, registrations, authorizations,
consents or approvals the failure of which to make or obtain would not prevent
the consummation of the transactions contemplated hereby. This Merger
Agreement constitutes a valid and binding obligation of Sub enforceable in
accordance with its terms except as enforcement may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors' rights
generally and except that the availability of equitable remedies, including
specific performance, is subject to the discretion of the court before which
any proceeding therefor may be brought.
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ARTICLE VII
CONDUCT OF BUSINESS PENDING THE MERGER
Section 7.1 Conduct of Business by the Company
Pending the Merger. Prior to the Effective Date, unless Parent shall otherwise
agree in writing or as set forth on Schedule 7.1 hereto:
(i) The Company shall, and shall cause its
Subsidiaries to, carry on their respective businesses in the
ordinary course, and shall, and shall cause its Subsidiaries
to, use their reasonable best efforts to preserve intact their
present business organizations and preserve their
relationships with customers, suppliers and others having
business dealings with them;
(ii) except as required or permitted by this Merger
Agreement the Company shall not (A) sell or pledge or agree to
sell or pledge any capital stock owned by it in any of its
Subsidiaries, (B) amend or propose to amend its Certificate of
Incorporation or By-laws, (C) split, combine or reclassify its
outstanding capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or
in substitution for shares of capital stock of the Company,
declare, set aside or pay any dividend or other distribution
payable in cash, stock or property (other than Regular Company
Dividends), (D)
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directly or indirectly redeem, purchase or otherwise acquire
or agree to redeem, purchase or otherwise acquire any shares
of capital stock of the Company, or (E) agree to do any of the
foregoing;
(iii) the Company shall not, nor shall it permit any
of its Subsidiaries to, (A) except as required by this Merger
Agreement, issue, deliver or sell or agree to issue, deliver
or sell any additional shares of, or rights of any kind to
acquire any shares of, its capital stock of any class, or any
option, rights or warrants to acquire, or securities
convertible into, shares of capital stock, (B) acquire, lease
or dispose of or agree to acquire, lease or dispose of any
capital assets or any other assets, other than in the ordinary
course of business or pursuant to the Capital Budget;
provided, notwithstanding anything to the contrary in this
Merger Agreement, the Company may (1) sell at book value any
or all shares of preferred stock of certain Subsidiaries of
Landmark Communications, Inc. owned by the Company or its
Subsidiaries and (2) may sell or permit the redemption of, at
the lesser of face value and fair-market value, certain notes
having in the aggregate a face value of no greater than
$3,541,587 issued to the Company by executives of the Company
in
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connection with purchases of Company Common Stock pursuant to
the Company's Executive Stock Purchase Plans; (C) create,
assume or incur any additional indebtedness for borrowed money
or mortgage, pledge or subject to any Lien any of its assets
or enter into any other material transaction other than in
each case in the ordinary course of business consistent with
past practice or otherwise pursuant to existing credit
facilities; (D) make any payments with respect to any
indebtedness of the Company or its Subsidiaries except for
such payments that are scheduled to come due prior to the
Effective Date; (E) acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial equity
interest in, or by any other manner, any business or any
corporation, partnership, association or other business
organization or division thereof, in each case in this Clause
(E) which are material, individually or in the aggregate, to
the Company and its Subsidiaries taken as a whole, except that
the Company may acquire new Franchises, or interests therein,
in the ordinary course of business; or (F) agree to do any of
the foregoing;
(iv) the Company shall not, nor shall it permit, any
of its Subsidiaries to, except as required to
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comply with applicable law or existing contracts or plans, (A)
adopt or terminate or amend any bonus, profit sharing,
compensation, severance, termination, stock option, pension,
retirement, deferred compensation, employment or other Company
Benefit Plan, agreement, trust, fund or other arrangement for
the benefit or welfare of any director, officer or current or
former employee, (B) increase in any manner the compensation
or fringe benefit of any director, officer or employee (except
for normal increases in the ordinary course of business
consistent with past practice), (C) grant any awards under any
bonus, incentive, performance or other compensation plan or
arrangement or Company Benefit Plan (except for such awards
made in the ordinary course of business consistent with past
practice unless such award is otherwise prohibited under
Section 7.1(iii)(A)), (D) take any action to fund or in any
other way secure the payment of compensation or benefits under
any employee plan, agreement, contract or arrangement or
Company Benefit Plan (except for such actions made in the
ordinary course of business consistent with past practice) or
(E) agree to do any of the foregoing;
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(v) the Company shall not make any affirmative
election with respect to any cost of service proceeding
conducted in accordance with Part 76.922 of Title 47 of the
Code of Federal Regulations or any similar proceeding;
(vi) the Company shall (A) make capital expenditures
in accordance with the Capital Budget; provided, that the
Company may make such departures from the Capital Budget as
are consistent with recent past practice;
(vii) the Company shall not, and shall cause its
Subsidiaries not to take, or agree in writing or otherwise to
take, any actions that would (i) make any representation or
warranty of the Company contained in this Merger Agreement
untrue or incorrect so as to cause the condition set forth in
Section 9.3(a) hereof not to be fulfilled as of the Effective
Date or, (ii) result in any of the other conditions of this
Merger Agreement set forth in Section 9.3 hereof not being
satisfied as of the Effective Date; provided, that, the
Parent's and Sub's sole remedy (except as otherwise expressly
provided in this Merger Agreement) for any breach of this
Section 7.1(vii) shall be injunctive relief;
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(viii) the Company shall consult with Parent
concerning, and permit Parent to participate in, any
proceedings for or negotiations with respect to (A) any
Franchise that is subject to renewal between the date of this
Merger Agreement and the Effective Date and (B) obtaining the
consent of any Governmental Authority with respect to the
transfer of ownership or control of any Franchise in
connection with the transactions contemplated by this
Agreement; and
(ix) the Company shall not amend, alter or otherwise
modify the provisions of, or agree to undertake any obligation
not required to be performed under, the provisions of any
Franchise of the Company as of the date hereof that would
materially increase the obligations of the Company under such
Franchise if included as an amendment thereto.
Nothing in this Section 7.1 shall prevent the Company from engaging in any
transaction with its Subsidiaries or prevent the Subsidiaries from engaging in
any transaction with other Subsidiaries of the Company.
Section 7.2 Conduct of Business by Parent
Pending the Merger. Prior to the Effective Date, unless the Company shall
otherwise agree in writing or except as otherwise contemplated or permitted by
this Merger Agreement: (a) Parent
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shall not, and shall cause its Subsidiaries not to take, or agree in writing or
otherwise to take, any actions that would (i) make any representation or
warranty of Parent or its Subsidiaries contained in this Merger Agreement
untrue or incorrect so as to cause the condition set forth in Section 9.2(a)
hereof not to be fulfilled as of the Effective Date or (ii) result in any of
the other conditions of this Merger Agreement not being satisfied as of the
Effective Date. Company's sole remedy (except as otherwise expressly provided
in this Merger Agreement) for any breach of this Section 7.2 shall be
injunctive relief.
ARTICLE VIII
ADDITIONAL AGREEMENTS
Section 8.1 Access and Information. Except as
otherwise required pursuant to a contractual obligation that exists as of the
date of this Merger Agreement, each of the Company and Parent and their
respective Subsidiaries shall afford to the other and to the other's
accountants, counsel and other representatives full access during normal
business hours (and at such other times as the parties may mutually agree)
throughout the period prior to the Effective Date to all of its properties,
books, contracts, commitments, records and personnel and, during such period,
each shall furnish promptly to the other a copy of each report, schedule and
other document filed or received by it pursuant to the requirements of federal
or state securities laws.
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Each of the Company and Parent shall hold, and shall cause their respective
employees and agents to hold, in confidence all such information in accordance
with the terms of the Confidentiality Agreement dated December 13, 1993 between
Parent and the Company (the "Confidentiality Agreement").
Section 8.2 Registration Statement.
(a) As promptly as reasonably practicable after the
execution of this Merger Agreement, the Parent shall prepare and file with the
Commission the Registration Statement on Form S-4 (the "Registration
Statement") with respect to the Parent Common Stock and the Parent Preferred
Stock to be issued in connection with the Merger and the Parent Common Stock
into which the Parent Preferred Stock is convertible under any circumstances,
and shall for three years from the Effective Date keep the Registration
Statement effective with respect to 5,000,000 shares of Parent Common Stock and
125,000 shares of Parent Preferred Stock (which numbers shall not be reduced as
a result of any resales made pursuant to the Registration Statement) to permit
resales of Parent Common Stock (including Parent Common Stock that is issuable
upon any conversion or exchange of the Parent Preferred Stock) thereunder by
Affiliates of the Company. As promptly as reasonably practicable after
comments are received from the Commission with respect to the Registration
Statement, the Parent shall file with the Commission any amendments to the
Registration
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Statement required to be filed with the Commission and Parent shall use all
reasonable efforts to cause the Registration Statement to become effective as
soon thereafter as practicable. The form and content of the filings referred
to in this Section 8.2(a) shall be reasonably satisfactory to the Company.
(b) Parent and the Company shall make all other necessary
filings with respect to the Merger under the Securities Act and the Exchange
Act and the rules and regulations thereunder, and under applicable blue sky or
similar securities laws and shall use all reasonable efforts to obtain required
approvals and clearances with respect thereto (the "Other Filings").
(c) On or before the Effective Date, Parent shall enter
into a Registration Rights Agreement (the "Registration Rights Agreement") with
the Affiliates of the Company identified pursuant to Section 8.3, in the form
attached hereto as Exhibit B.
(d) The Company shall cooperate with Parent and provide
Parent all information required to be included in the Registration Statement
and the Other Filings and shall provide promptly to Parent any information that
the Company may obtain that could necessitate amending any such document.
Section 8.3 Compliance with the Securities Act.
Prior to the Effective Date, the Company shall cause to be
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delivered to the Parent a letter from the Company, identifying all Persons who
were, in its opinion, at the time of the Company Shareholders' meeting,
"affiliates" of the Company as that term is used in paragraphs (c) and (d) of
Rule 145 under the Securities Act. Parent may cause the Certificates
evidencing Parent Stock issued to such Persons to bear a legend referring to
the applicability of paragraphs (c) and (d) of Rule 145 under the Securities
Act.
Section 8.4 Listing. Parent shall use its best
efforts to cause the shares of Parent Common Stock issued in connection with
the Merger and the Parent Common Stock into which the Parent Preferred Stock
issued in connection with the Merger is convertible to be listed on the
NASD/NM, subject to official notice of issuance.
Section 8.5 Employee Arrangements.
(a) On or after the Effective Date, Parent shall, or
shall cause its Affiliates to, honor in accordance with their terms all
obligations arising with respect to current and former employees of the Company
who participate in: (i) the Severance Plan Covering Key Employees of Telecable
Corporation and its Operating Subsidiaries, (ii) the Severance Plan Covering
Regular Full-Time Home Office, Home Office Targeting and Greenbriar
Telemarketing Employees of Telecable Corporation and (iii) the Telecable
Supplemental Benefit Plan. Each Employee of the
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Company who is not covered by any Company severance pay plan or policy on the
Effective Date and whose employment is terminated without cause by Parent or
any of its Affiliates within six months of the Effective Date shall be eligible
for severance benefits under the severance plan or policy maintained by Parent
based on such terminated employee's combined service with the Company, Parent
and their respective Affiliates occurring prior to and after the Effective
Date.
(b) Except as provided in Section 8.5(a), Parent shall,
or shall cause its Affiliates to, recognize all service with the Company and
any Affiliate thereof of the Company's employees who become employees of Parent
or Sub at or after the Effective Date for the purposes of determining
eligibility to participate, vesting, eligibility for benefits and benefit
accruals under any such "employee benefit plan," as defined in Section 3(3) of
ERISA, and all other Parent employee benefit policies, programs, arrangements
or practices, including, without limitation, any sick leave, vacation pay,
salary continuation for disability, retirement, deferred compensation, bonus,
stock purchase, hospitalization, health, dental and life insurance benefits,
maintained or to which contributions are made by Sub or Parent for the benefit
of their respective employees following the Effective Date.
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Section 8.6 Indemnification.
(a) Parent agrees that all rights to indemnification
existing in favor of the directors, officers or employees of the Company and
its Subsidiaries as provided in the Company's and its Subsidiaries'
Certificates of Incorporation and By-Laws (which shall be amended prior to the
Effective Date, if necessary, to grant the maximum indemnification permitted
under applicable law, including, without limitation, any mandatory
indemnification and rights to receive advances), with respect to matters
occurring through the Effective Date shall survive the Merger, Parent (i) shall
cause the Surviving Corporation to continue to provide indemnification to the
employees, officers and directors of the Company to the fullest extent
permitted under applicable law in full force and effect for a period of not
less than six years from the Effective Date and (ii) subject to the occurrence
of the Effective Date, Parent hereby guarantees unconditionally full payment
and performance of such indemnification. In the event the Surviving
Corporation or any of its successors or assigns (i) consolidates with or merges
into any other Person and shall not be the continuing or surviving corporation
or entity of such consolidation or merger or (ii) transfers all or
substantially all of its properties and assets to any Person, then, and in each
such case, proper provision shall be made so that the successors and assigns of
the Surviving Corporation assume the obligations set forth in this Section 8.6.
Prior to the Effective Date,
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Parent shall communicate in writing with each employee, officer and director of
the Company to confirm the Parent's obligation to such employees, officers and
directors under this Section 8.6.
(b) In the event that any action, suit, proceeding or
investigation relating hereto or to the transactions contemplated by this
Merger Agreement is commenced, whether before or after the Effective Date, the
parties hereto agree to cooperate and use their respective reasonable efforts
to vigorously defend against and respond thereto.
Section 8.7 HSR Act. The Company and Parent
shall use their reasonable best efforts to file as soon as reasonably
practicable notifications under the HSR Act in connection with the Merger and
the transactions contemplated hereby and to respond as promptly as reasonably
practicable to any inquiries received from the Federal Trade Commission (the
"FTC") and the Antitrust Division of the Department of Justice (the "Antitrust
Division") for additional information or documentation and to respond as
promptly as reasonably practicable to all inquiries and requests received from
any State Attorney General or other Governmental Entity in connection with
antitrust matters. The Company and Parent shall take such actions as are
reasonably necessary to overcome any objections which may be raised by the FTC
or Antitrust Division; provided, however, that no actions
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will be required to be taken pursuant to this sentence that would have a
Combined Material Adverse Effect.
Section 8.8 Additional Agreements.
(a) Subject to the terms and conditions herein provided,
each of the parties hereto agrees to use all reasonable efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Merger
Agreement, including using all reasonable efforts to obtain all necessary
waivers, consents and approvals, to effect all necessary registrations and
filings (including, but not limited to, filings under the HSR Act and with all
applicable Governmental Entities), and to lift any injunction or other legal
bar to the Merger (and, in such case, to proceed with the Merger as
expeditiously as possible).
(b) In case at any time after the Effective Date any
further action is necessary or desirable to carry out the purposes of this
Merger Agreement, the Parent and the Company shall take all such reasonably
necessary action.
(c) From and after the Effective Date, Parent shall
conduct its business, and shall cause Sub to conduct its business, in a manner
that will not adversely affect the characterization of the Merger as a
"reorganization" within the meaning of Section 368(a) of the Code.
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(d) Prior to the Effective Date, Parent shall file with
the Secretary of State of Delaware the certificate of designation with respect
to the Parent Preferred Stock.
(e) The parties acknowledge that the holders of Company
Common Stock listed on Schedule 8.8(e)(i) (which Schedule also lists the number
of shares of Company Class A Common Stock and Company Class B Common Stock held
by each such holder) are, concurrent with the execution hereof, entering into a
Voting Agreement in the form attached as Exhibit C and the holders of Common
Stock listed on Schedule 8.8(e)(ii) (which Schedule also lists the number of
shares of Company Class A Common Stock and Company Class B Common Stock held by
each such holder) are entering into a Voting Agreement in the form attached
hereto as Exhibit D. Further, the Company agrees to use reasonable efforts to
secure written agreements from the holders (including, without limitation,
those listed on Schedules 8.8(e)(i) and (ii)) of a sufficient number of shares
of Company Class A Common Stock and Company Class B Common Stock to ensure
satisfaction of the condition set forth in Section 9.1(a) hereof, such
reasonable efforts to include the recommendation by the Chairman of the
Company's Board of Directors that such holders enter into such an agreement.
Section 8.9 No Solicitation. Subject to the
fiduciary duties of the Board of Directors of the Company, as
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advised by outside counsel, neither the Company nor any of its Subsidiaries or
any of their respective officers, directors, representatives or agents shall
take any action to (i) initiate the submission of any Acquisition Proposal,
(ii) enter into any agreement with respect to any Acquisition Proposal or (iii)
participate in negotiations with any Person in connection with any Acquisition
Proposal. The Company will promptly communicate to the Parent any solicitation
or inquiry received by the Company and the terms of any proposal or inquiry
that it may receive in respect of any Acquisition Proposal, or of any such
information requested from it or of any such negotiations or discussions being
sought to be initiated with it. "Acquisition Proposal" shall mean any proposed
(A) merger, consolidation or similar transaction involving the Company, (B)
sale, lease or other disposition directly or indirectly by merger,
consolidation, share exchange or otherwise of all or any substantial part of
the assets of the Company or its Subsidiaries, (C) issue, sale or other
disposition of securities representing 50% or more of the voting power of the
Company Common Stock or (D) any transaction in which any Person shall acquire
beneficial ownership (as such term is defined in Rule 13d-3 under the Exchange
Act), or the right to acquire beneficial ownership or any "group" (as such term
is defined under the Exchange Act) shall have been formed
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which beneficially owns or has the right to acquire beneficial ownership of 50%
or more of the outstanding Company Common Stock.
Section 8.10 Special Dividends. Notwithstanding
anything else in this Merger Agreement to the contrary:
(a) Prior to the Effective Date, the Company may, in lieu
of its Regular Company Dividends covering the period described in clause (i),
declare a special cash dividend on the Company Common Stock to holders of
record of such shares as of the record date established therefor (which record
date shall be prior to the Effective Date) with a payment date prior to or on
the Effective Date. Such special dividend may be in an amount per share not
greater than the product of (A) a fraction, (i) the numerator of which equals
the number of days between the record date with respect to the most recent
regular common stock dividend paid by the Company and the Effective Date and
(ii) the denominator of which equals 90, and (B) $.75.
(b) Upon written notice to Parent given within 45 days
after the date of this Merger Agreement, the Company may declare, in addition
to the special dividend described in subsection (a) of this Section, a special
cash dividend on the Company Common Stock to holders of record of such shares
on the record date established therefor (which record date shall be prior to
the Effective Date) with a payment date prior to the Effective Date in an
aggregate amount equal to "Free Cash Flow." "Free Cash
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Flow" means EBITDA less the sum of (i) the Company's home office expenses, (ii)
scheduled payments of interest and principal on indebtedness for borrowed money
and (iii) capital expenditures, in each case as determined for the period from
July 1, 1994 to the end of the most recent month ending prior to the Effective
Date for which the information necessary to calculate Free Cash Flow is then
available.
Section 8.11 Cancellation of Stock Restrictions.
Immediately prior to and contingent upon the consummation of the Merger, all of
the Company's rights to repurchase shares of Company Common Stock acquired by
the Company executives pursuant to the Company's Executive Stock Purchase Plans
in effect from time to time, at the formula price stock set forth in related
Stock Restriction Agreements entered into between the Company and such
executives, shall be cancelled. Schedule 8.11 lists the shareholders and the
number of shares to which this action relates. Because Parent Common Stock is
publicly traded and freely transferable, no purpose would be served in
continuing the Company's rights of repurchase. Accordingly, the Company,
Parent and Sub agree that such cancellation is noncompensatory and that no
consideration whatsoever will at any time be required to be provided to the
Company by the holders of Company Common Stock affected by such cancellation.
Because such cancellation is noncompensatory, the Company, Parent and Sub
irrevocably agree
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that no tax deduction, credit, claim for refund or tax benefit of any nature
will be claimed by reason of such cancellation in any individual or
consolidated tax return filed by any of them for any tax year. On or before 30
days following the Effective Date, Parent shall cause Sub to provide a written
statement to each of the shareholders listed on Schedule 8.11, which statement
shall be substantially in the form of Exhibit E hereto, which notice shall be
prepared by the Company and provided to Parent prior to the Effective Date.
Section 8.12 Information in Disclosure Documents,
Registration Statements, Etc. Each of Parent, Sub and the Company agrees that
none of the information supplied by it for inclusion in the Registration
Statement for the purpose of registering the shares of Parent Common Stock and
Parent Preferred Stock to be issued in the Merger and the Parent Common Stock
into which the Parent Preferred Stock is convertible, will at the time the
Registration Statement becomes effective and at the Effective Date, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. Parent
and Sub agree that the Registration Statement will comply as to form in all
material respects with the
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provisions of the Securities Act and the rules and regulations promulgated
thereunder.
Section 8.13 Merger of Holding Companies into the
Company. Prior to the Effective Date the Company shall (i) cause its wholly
owned Subsidiary, TeleCable Investment Corporation, a Virginia corporation, to
merge with and into the Company's wholly owned Subsidiary, TeleCable
Technologies, Inc., a Virginia corporation ("TTI"), and (ii) thereafter cause
TTI to merge with and into the Company, with the Company as the surviving
corporation.
ARTICLE IX
CONDITIONS PRECEDENT
Section 9.1 Conditions to Each Party's
Obligation to Effect the Merger. The respective obligations of each party to
effect the Merger shall be subject to the fulfillment at or prior to the
Effective Date of the following conditions:
(a) This Merger Agreement and the transactions
contemplated hereby shall have been duly approved by the holders of the Company
Common Stock.
(b) The waiting period applicable to the consummation of
the Merger under the HSR Act shall have expired or been terminated.
(c) The Registration Statement shall have become
effective in accordance with the provisions of the Securities Act
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and any necessary state securities law approvals shall have been obtained. No
stop order suspending the effectiveness of the Registration Statement shall
have been issued by the Commission and remain in effect.
(d) No preliminary or permanent injunction or other order
by any federal or state court in the United States which prevents the
consummation of the Merger shall have been issued and remain in effect (each
party agreeing to use its reasonable best efforts to have any such injunction
lifted).
Section 9.2 Conditions to Obligation of the
Company to Effect the Merger. The obligation of the Company to effect the
Merger shall be subject to the fulfillment at or prior to the Effective Date of
the additional following conditions, unless waived by the Company:
(a) Parent and Sub shall have performed in all material
respects their agreements contained in this Merger Agreement required to be
performed on or prior to the Effective Date and the representations and
warranties of Parent and Sub contained in this Merger Agreement shall be true
(except (i) as contemplated or permitted by this Merger Agreement and (ii)
where the failure to be true, in the aggregate, would not have a Parent
Material Adverse Effect) when made and on and as of the Effective Date as if
made on and as of such date and the Company shall have
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received a certificate of the Parent executed by the President or a Vice
President of Parent and Sub to that effect.
(b) The Company shall have received, on the date hereof
and on the Effective Date, a favorable opinion of its counsel, Willkie Farr &
Gallagher, based upon certain factual representations of the Company, Parent
and Sub reasonably requested by such counsel, dated such dates, to the effect
that the Merger will constitute a "reorganization" for federal income tax
purposes within the meaning of Section 368(a) of the Code and that accordingly:
(i) No gain or loss will be recognized by the
shareholders of the Company upon the conversion of their
shares of Company Common Stock into shares of Parent Common
Stock and Parent Preferred Stock pursuant to the terms of the
Merger (except to the extent cash is received in lieu of
fractional shares);
(ii) The tax basis of the shares of Parent Common
Stock and Parent Preferred Stock received by the shareholders
of the Company on the conversion of Company Common Stock
pursuant to the Merger will be the same as the basis of the
shares of Company Common Stock converted (less any portion of
such basis allocable to any fractional interest in any share
of Parent Common Stock); and
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(iii) The holding period of the Parent Common Stock
and Parent Preferred Stock into which shares of Company Common
Stock are converted will include the period that such shares
of Company Common Stock were held by the holder, provided such
shares were held as a capital asset by such holder.
(c) Parent Stock issued in connection with the Merger and
Parent Common Stock into which the Parent Preferred Stock issued in connection
with the Merger is convertible shall have been authorized for listing on the
NASD/NM upon official notice of issuance.
Section 9.3 Conditions to Obligations of Parent
and Sub to Effect the Merger. The obligations of Parent and Sub to effect the
Merger shall be subject to the fulfillment at or prior to the Effective Date of
the additional following conditions, unless waived by Parent:
(a) The Company shall have performed in all material
respects its agreements contained in this Merger Agreement required to be
performed on or prior to the Effective Date and, subject to Section 8.9 and
except as contemplated or permitted by this Merger Agreement, the
representations and warranties of the Company contained in this Merger
Agreement that are subject to a Company Material Adverse Effect modifier shall
be true when made and on and as of the Effective Date as if made on and as of
such
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date, the representations and warranties of the Company contained in this
Merger Agreement that are not subject to such a qualifier shall be true (except
for each failure to be true that does not have a Company Material Adverse
Effect) when made and as of the Effective Date as if made on and as of such
date, and Parent and Sub shall have received a certificate of the Company
executed by the President or an Executive Vice President of the Company to that
effect.
(b) Any authorization, consent, order or approval of any
Governmental Entity necessary for the transfer of control of each Franchise
listed on Schedule 9.3(b) in connection with the consummation of the
transactions contemplated by this Merger Agreement shall have been obtained or
deemed obtained pursuant to the Rules and Regulations and other applicable
laws, regulations, ordinances or similar enactments of each Governmental Entity
having jurisdiction over such Franchise.
(c) The FCC shall have consented, to the extent such
consent is legally required, to the transfer to Parent of all FCC licenses
possessed by the Company, except where the failure to receive such consent
would not have a Combined Material Adverse Effect.
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ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
Section 10.1 Termination. This Merger Agreement
may be terminated at any time prior to the Effective Date, whether before or
after approval by the shareholders of the Company:
(a) by mutual consent of the Board of Directors of Parent
and the Board of Directors of the Company;
(b) by either Parent or the Company if the Merger shall
not have been consummated on or before May 31, 1995 (except if the condition
contained in Section 9.1(a) shall not have been satisfied as of such date, in
which event, August 31, 1995), provided that the party seeking to terminate
this Agreement has not breached its obligations hereunder in any material
respect;
(c) by the Company, provided the Company has not breached
any of its obligations hereunder in any material respect, if any of the
conditions specified in Sections 9.1 or 9.2 have not been met or waived by the
Company (or, in the case of Section 9.1, waived by the Company, Parent and Sub)
at such time as such condition is no longer capable of satisfaction; or
(d) by Parent, provided Parent has not breached any of
its obligations hereunder in any material respect, if any of the conditions
specified in Sections 9.1 or 9.3 have not been met or waived by Parent (or, in
the case of Section 9.1, waived by Parent, Sub and the Company) at such time as
such condition is no longer capable of satisfaction.
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Section 10.2 Effect of Termination. In the event
of termination of this Merger Agreement by either Parent or the Company, as
provided above, this Merger Agreement shall forthwith become void and (except
for the willful breach of this Merger Agreement by any party hereto) there
shall be no liability on the part of either the Company, Parent or Sub or their
respective officers or directors.
Section 10.3 Amendment. This Merger Agreement
may be amended by the parties hereto, by or pursuant to action taken by all of
their Boards of Directors, at any time before or after approval hereof by the
shareholders of the Company and prior to the Effective Date, but, after such
approval, no amendment shall be made which alters the indemnification
provisions of Section 8.6 or changes the ratios at which Company Common Stock
is to be converted into Parent Common Stock and Parent Preferred Stock as
provided in Section 3.4 or which in any way materially adversely affects the
rights of such shareholders, without the further approval of such shareholders.
This Merger Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto.
Section 10.4 Waiver. At any time prior to the
Effective Date, the parties hereto, by or pursuant to action taken by their
respective Boards of Directors, may (i) extend the time for the performance of
any of the obligations or other acts
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of the other parties hereto, (ii) waive any inaccuracies in the representations
and warranties contained herein or in any documents delivered pursuant hereto
and (iii) waive compliance with any of the agreements or conditions contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid if set forth in an instrument in writing signed on behalf
of such party.
ARTICLE XI
GENERAL PROVISIONS; DEFINITIONS
Section 11.1 Non-Survival of Representations,
Warranties and Agreements. No representations, warranties or agreements in
this Merger Agreement shall survive the Merger, except for the agreements
contained in Sections 3.1, 3.2, 3.3, 3.4, 3.5, 3.6, 3.7, 3.9, 3.10, 8.2, 8.3
(last sentence), 8.4, 8.5, 8.6, 8.8, 8.11, 10.2, 10.3, 10.4 and Article XI.
Section 11.2 Notices. All notices or other
communications under this Merger Agreement shall be in writing and shall be
given (and shall be deemed to have been duly given upon receipt) by delivery in
person, by cable, telegram, telex or other standard form of telecommunications,
or by registered or certified mail, postage prepaid, return receipt requested,
addressed as follows:
If to the Company:
TeleCable Corporation
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Dominion Tower, 9th Floor
999 Waterside Drive
Norfolk, VA 23510
Attention: Alfred F. Ritter, Jr.
Telephone No.: (804) 624-5006
Telecopy No.: (804) 624-5056
and:
Louis F. Ryan, Esq.
150 Brambleton Avenue
Norfolk, VA 23510
Telephone No.: (804) 446-2009
Telecopy No.: (804) 446-2489
With a copy to:
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, NY 10022
Attention: William J. Grant, Jr.
Telephone No.: (212) 821-8000
Telecopy No.: (212) 821-8111
If to Parent or Sub:
Tele-Communications, Inc.
Terrace Tower II
Englewood, Colorado 80111-3000
Attention: Mary S. Willis, Esq.,
Legal Department
Telecopy No.: (303) 488-3217
With a copy to:
Sherman & Howard L.L.C.
633 17th Street, Suite 3000
Denver, Colorado 80202
Attention: Charles Y. Tanabe, Esq.
Telecopy No.: (303) 298-0940
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or to such other addresses as any party may have furnished to the other parties
in writing in accordance with this Section.
Section 11.3 Fees and Expenses. Except as
provided in Schedule 11.3, whether or not the Merger is consummated, all costs
and expenses incurred in connection with this Merger Agreement and the
transactions contemplated by this Merger Agreement shall be paid by the party
incurring such expenses. Notwithstanding the preceding sentence, the Company
shall pay the cost and expenses incurred by the Parent if the transaction is
terminated as a result of a failure of the condition set forth in Section
9.1(a) either alone or among other conditions to be satisfied. The Company's
expenses relating to the transactions contemplated hereby, including, without
limitation, fees of Lehman Brothers, Inc. and counsel to the Company, shall be
paid or accrued by the Company prior to the Effective Date.
Section 11.4 Publicity. So long as this Merger
Agreement is in effect prior to the Effective Date, Parent, Sub and the Company
agree to consult with each other in issuing any press release or otherwise
making any public statement with respect to the transactions contemplated by
this Merger Agreement. Prior to the Effective Date, neither the Parent, Sub
nor the Company shall issue any such press release or make any such public
statement without the prior written consent of the other parties, except as may
be required by law or by obligations
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pursuant to any listing agreement with any national securities market. The
commencement of litigation relating to this Merger Agreement or the
transactions contemplated hereby or any proceedings in connection therewith
shall not be deemed a violation of this Section 11.4.
Section 11.5 Specific Performance. The parties
hereto agree that irreparable damage would occur in the event that any of the
provisions of this Merger Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
Section 11.6 Third Party Beneficiaries. The
parties hereto agree that the Company's shareholders, officers, directors,
employees, attorneys and agents are intended third party beneficiaries of the
terms of this Merger Agreement, to the extent such terms refer expressly to
such Persons, with full rights hereunder as if each of them were a party
hereto.
Section 11.7 Entire Agreement. This Merger
Agreement shall be of no force or effect until executed and delivered by all of
the parties hereto. This Merger Agreement may be amended, modified or
cancelled, and the terms and conditions hereof may be
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waived, only by a written instrument signed by the Company, Parent and Sub.
Section 11.8 Miscellaneous. This Merger
Agreement (including the documents and instruments referred to herein) (a) when
executed and delivered, constitutes the entire agreement and supersedes all
other prior agreements and understandings, both written and oral, among the
parties, or any of them, with respect to the subject matter hereof (other than
as provided in the confidentiality agreement between the Company and Parent as
the same may be amended) and (b) shall be governed in all respects, including
validity, interpretation and effect, by the laws of the State of Delaware
(without giving effect to the provisions thereof relating to conflicts of law).
This Merger Agreement may be executed in two or more counterparts which
together shall constitute a single agreement. Any certificate delivered
pursuant to this Merger Agreement shall be made without personal liability on
the part of the person giving such certificate.
Section 11.9 Definitions.
"Acquisition Proposal" shall have the meaning set forth in
Section 8.9 hereof.
"Affiliate" shall mean as to any person or entity, any other
person or entity which, directly or indirectly, controls, or is under common
control with, or is controlled by, such person or entity. As used in this
definition, "control" (including,
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with its correlative meanings, "controlling," "controlled by" and "under common
control with") shall mean possession, directly or indirectly, of the power to
direct or cause the direction of management or policies of a Person (whether
through the ownership of securities, or partnership or other ownership
interest, by contract or otherwise).
"Antitrust Division" shall have the meaning set forth in
Section 8.7 hereof.
"Base Merger Value" shall have the meaning set forth in
Section 3.1 hereof.
"Capital Budget" shall have the meaning set forth in Section
5.6 hereof.
"Certificates" shall have the meaning set forth in Section 3.5
hereof.
"Code" shall have the meaning set forth in the recitals.
"Code Affiliate" shall have the meaning set forth in Section
5.9 hereof.
"Combined Material Adverse Effect" shall mean a material
adverse effect on the business, properties, assets, condition (financial or
otherwise), liabilities or operations of the Parent, Sub and the Company, taken
as a whole.
"Commission" shall have the meaning set forth in Section 4.4
hereof.
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"Common Conversion Number" shall have the meaning set forth in
Section 3.4(b) hereof.
"Communications Act" shall have the meaning set forth in
Section 5.12 hereof.
"Company" shall have the meaning set forth in the first
paragraph hereof.
"Company Benefit Plans" shall have the meaning set forth in
Section 5.9(a) hereof.
"Company Class A Common Stock" shall have the meaning set
forth in Section 3.4(a) hereof.
"Company Common Stock" shall have the meaning set forth in
Section 3.4(a) hereof.
"Company Class B Common Stock" shall have the meaning set
forth in Section 3.4(a) hereof.
"Company Labor Contracts" shall have the meaning set forth in
Section 5.8 hereof.
"Company Material Adverse Effect" shall mean a material
adverse effect on the business, properties, assets, condition (financial or
otherwise), liabilities or operations of the Company and its Subsidiaries,
taken as a whole (after taking into account any adequate related reduction in
Base Merger Value), or on the ability of Company to perform its obligations
under this Merger Agreement.
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"Company Meeting" shall have the meaning set forth in Section
3.8 hereof.
"Company Permits" shall have the meaning set forth in Section
5.12 hereof.
"Company Reports" shall have the meaning set forth in Section
5.5 hereof.
"Confidentiality Agreement" shall have the meaning set forth
in Section 8.1 hereof.
"Credit Agreements" shall mean (i) the three Amended and
Restated Revolving and Term Loan Agreements, dated as of December 1, 1993,
between the Company, on the one hand, and each of Mellon Bank, N.A., Wachovia
Bank of North Carolina, N.A. and Nationsbank of Virginia, N.A. on the other and
(ii) the Revolving and Term Loan Agreement, dated as of October 27, 1986,
between the Company and Morgan Guaranty Trust Company of New York
"DGCL" shall have the meaning set forth in Section 1.1 hereof.
"Dissenting Shares" shall have the meaning set forth in
Section 3.4(d) hereof.
"EBITDA" shall have the meaning set forth in Section 3.2(c)
hereof.
"Effective Date" shall have the meaning set forth in Section
1.2 hereof.
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"Environmental Law" means any applicable federal, state, local
or foreign law, statute, standard, ordinance, rule, regulation, code, license,
permit, authorization or approval, and any consent order, administrative or
judicial order, judgment, decree, injunction, or settlement agreement between
the Company or any of its Subsidiaries and a Governmental Entity relating to
the protection, preservation or restoration of the environment (including,
without limitation, air, water vapor, surface water, ground water, drinking
water supply, surface land, subsurface land, plant and animal life or any other
natural resource).
"Equity Affiliate" shall have the meaning set forth in Section
5.3 hereof.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Exchange Act" shall have the meaning set forth in Section 4.3
hereof.
"Exchange Agent" shall have the meaning set forth in Section
3.5 hereof.
"FCC" shall have the meaning set forth in Section 4.3 hereof.
"Franchise" shall mean authority to provide cable television
service pursuant to a governmental franchise or similar authorization.
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"Franchise Area" shall mean any of the geographic areas in
which the Company or its Subsidiaries is authorized to provide cable television
service pursuant to a Franchise or similar authorization or provides cable
television service without a Franchise.
"Free Cash Flow" shall have the meaning set forth in Section
8.10(b) hereof.
"FTC" shall have the meaning set forth in Section 8.7 hereof.
"GAAP" shall have the meaning set forth in Section 3.2(b)
hereof.
"Governing Document" shall mean, with respect to any Person,
such Person's (x) certificate of incorporation, articles of incorporation or
other corporate organizational document, (y) by-laws and (z) partnership
agreement relating to the formation of such Person as in effect at the time of
determination to include any amendments thereto.
"Governmental Entity" shall have the meaning set forth in
Section 5.12 hereof.
"Holdback Shares" shall have the meaning set forth in Section
3.4(e) hereof.
"HSR Act" shall have the meaning set forth in Section 4.3
hereof.
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"Income Taxes" shall have the meaning set forth in Section
3.2(b) hereof.
"Interim Company Reports" shall have the meaning set forth in
Section 5.5 hereof.
"Knowledge" shall mean the personal knowledge of system
managers of the Company and all officers and employees of the Company based at
the Company's corporate headquarters in Norfolk, Virginia having a title of
Vice President or above.
"Landmark" shall have the meaning set forth in Section
7.1(iii) hereof.
"Liabilities" shall mean any debts, liabilities or obligations
whatsoever, whether absolute, contingent or otherwise, as the same would appear
on a balance sheet of the Company in accordance with GAAP consistently applied.
"Liberty" shall have the meaning set forth in Section 4.4
hereof.
"Lien" shall mean any lien, security interest, pledge, charge,
claim, option, right to acquire, restriction on transfer, voting restriction or
encumbrance of any nature.
"Merger" shall have the meaning set forth in the recitals.
"Merger Agreement" shall have the meaning set forth in the
first paragraph hereof.
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"Merger Value" shall have the meaning set forth in Section 3.1
hereof.
"NASD/NM" shall refer to the National Association of
Securities Dealers/National Market.
"Net Liabilities" shall have the meaning set forth in Section
3.2(b) hereof.
"Note Purchase Agreements" shall mean (i) the Note Agreement,
dated as of April 29, 1988, among the Company, Teachers Insurance and Annuity
Association of America and certain other lenders relating to the purchase of
$150,000,000 in 9.32% Notes due May 1, 1993, (ii) the Note Agreement, dated as
of October 16, 1991, among the Company, Teachers Insurance and Annuity
Association of America and certain other lenders relating to the purchase of
(a) $10,000,000 in 9.25% Notes due October 15, 1997, (b) $50,000,000 in 9.38%
Notes due October 15, 1998 and (c) $15,00,000 in 9.44% Notes due October 15,
1999 and (iii) the Note Agreement, dated as of March 31, 1994, among the
Company and Teachers Insurance and Annuity Association of America and certain
other lenders relating to the purchase of $40,000,000 in 6.25% Senior Notes due
March 31, 2004.
"Other Filings" shall have the meaning set forth in Section
8.2(b) hereof.
"Parent" shall have the meaning set forth in the first
paragraph hereof.
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"Parent Common Stock" shall have the meaning set forth in
Section 3.1 hereof.
"Parent Material Adverse Effect" shall mean a material adverse
effect on the business, properties, assets, condition (financial or otherwise),
liabilities or operations of Parent and its Subsidiaries, taken as a whole, or
on the ability of Parent to perform its obligations under this Merger
Agreement.
"Parent Preferred Stock" shall have the meaning set forth in
Section 3.1 hereof.
"Parent SEC Reports" shall have the meaning set forth in
Section 4.4 hereof.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Person" means any individual, partnership, corporation,
business trust, joint stock company, trust, unincorporated association, joint
venture, Governmental Entity or other entity of any nature.
"Preferred Conversion Number" shall have the meaning set forth
in Section 3.4 hereof.
"Prospectus" means the prospectus included as part of the
Registration Statement.
"Registration Rights Agreement" shall have the meaning set
forth in Section 8.2(c) hereof.
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"Registration Statement" shall have the meaning set forth in
Section 8.2(a) hereof.
"Regular Company Dividends" shall have the meaning set forth
in Section 5.6 hereof.
"Rules and Regulations" shall have the meaning set forth in
Section 5.12(b) hereof.
"Securities Act" shall have the meaning set forth in Section
4.3 hereof.
"Shareholders' Representative" shall mean Frank Batten.
"Stock Restriction Agreements" shall have the meaning set
forth in Section 8.11 hereof.
"Sub" shall have the meaning set forth in the first paragraph
hereof.
"Subsidiary" shall mean with respect to any Person, any
corporation or partnership more than 50% of whose outstanding voting securities
or partnership interests, as the case may be, are directly or indirectly owned
by such Person.
"Surviving Corporation" shall have the meaning set forth in
Section 1.1 hereof.
"TTI" shall have the meaning set forth in Section 8.13 hereof.
"Tax" shall have the meaning set forth in Section 5.13 hereof.
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"VSCA" shall have the meaning set forth in Section 1.1 hereof.
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All accounting terms not otherwise defined in this Merger
Agreement shall have the meanings ascribed to them under GAAP.
IN WITNESS WHEREOF, Parent, Sub and the Company have caused
this Merger Agreement to be signed by their respective officers thereunder duly
authorized all as of the date first written above.
TELE-COMMUNICATIONS, INC.
By: /s/ BERNARD W. SCHOTTERS
Name: Bernard W. Schotters
Title: Executive Vice President
TCI COMMUNICATIONS, INC.
By: /s/ BERNARD W. SCHOTTERS
Name: Bernard W. Schotters
Title: Executive Vice President
<PAGE> 94
TELECABLE CORPORATION
By: /s/ FRANK BATTEN
Name: Frank Batten
Title: Chairman
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