-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, ZgYXcPVE9h3U9wh6oQaLQI4HDxPr0wwcJ6UpjM09RG7wSDR8O2AAlXpctwDM6COg bHCDc2JoUqdZiw4Pr1jzqg== 0000950134-94-001036.txt : 19940819 0000950134-94-001036.hdr.sgml : 19940819 ACCESSION NUMBER: 0000950134-94-001036 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19940818 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19940818 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TELE COMMUNICATIONS INC /CO/ CENTRAL INDEX KEY: 0000925692 STANDARD INDUSTRIAL CLASSIFICATION: IRS NUMBER: 841260157 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-20421 FILM NUMBER: 94544970 BUSINESS ADDRESS: STREET 1: 5619 DTC PARKWAY CITY: ENGLEWOOD STATE: CO ZIP: 80111 BUSINESS PHONE: 3032675500 MAIL ADDRESS: STREET 1: 5619 DTC PARKWAY CITY: ENGLEWOOD STATE: CO ZIP: 90111 FORMER COMPANY: FORMER CONFORMED NAME: TCI LIBERTY HOLDING CO DATE OF NAME CHANGE: 19940620 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TCI COMMUNICATIONS INC CENTRAL INDEX KEY: 0000096903 STANDARD INDUSTRIAL CLASSIFICATION: 4841 IRS NUMBER: 840588868 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-05550 FILM NUMBER: 94544971 BUSINESS ADDRESS: STREET 1: TERRACE TOWER II STREET 2: 5619 DTC PKWY CITY: ENGLEWOOD STATE: CO ZIP: 80111 BUSINESS PHONE: 3032675500 MAIL ADDRESS: STREET 1: TERRACE TOWER II STREET 2: 5619 DTC PKWY CITY: ENGLEWOOD STATE: CO ZIP: 80111 FORMER COMPANY: FORMER CONFORMED NAME: TELE COMMUNICATIONS INC DATE OF NAME CHANGE: 19920703 8-K 1 FORM 8-K 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) 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)
Registrants' telephone number, including area code: (303) 267-5500 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. 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) 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. 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 6 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (unaudited)
Assets June 30, December 31, - ------ 1994 1993 ------------- ------------- amounts in thousands 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 ============= =========
(continued) I-1 7 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets, continued (unaudited)
Liabilities and Stockholders' Equity June 30, December 31, - ------------------------------------ 1994 1993 ------------ ------------ amounts in thousands 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 ============ =========
See accompanying notes to consolidated financial statements. I-2 8 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations (unaudited)
Three months ended June 30, -------------------- 1994 1993 --------- -------- amounts in thousands 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) ========= ========
See accompanying notes to consolidated financial statements. I-3 9 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations (unaudited)
Six months ended June 30, -------------------------- 1994 1993 ------------ --------- amounts in thousands 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) ============ =======
See accompanying notes to consolidated financial statements. I-4 10 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES Consolidated Statement of Stockholders' Equity (unaudited)
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 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 ========= ====== ====== ======= ======= ======= ======= =======
See accompanying notes to consolidated financial statements. I-5 11 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (unaudited)
Six months ended June 30, --------------------- 1994 1993 --------- --------- amounts in thousands (see note 3) 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 --------- -------
(continued) I-6 12 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows, continued (unaudited)
Six months ended June 30, ------------------------ 1994 1993 ----------- ----------- amounts in thousands (see note 3) 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 =========== ========
See accompanying notes to consolidated financial statements. I-7 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) 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) 15 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ________________________________________________________________________________ Significant noncash investing and financing activities are as follows:
Six months ended June 30, -------------------------- 1994 1993 ---- ---- amounts in thousands 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 - ========== =========
I-10 (continued) 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:
Six months ended June 30, --------------------- 1994 1993 ---- ---- amounts in thousands 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 ========= ========
I-11 (continued) 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:
June 30, December 31, 1994 1993 ---------- ----------- amounts in thousands 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 ========== ========
I-12 (continued) 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:
Six months ended June 30, --------------------------- 1994 1993 ---- ---- amounts in thousands 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 ========= ========
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) 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) 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) 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:
June 30, December 31, 1994 1993 -------- ------------ amounts in thousands 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 ========= ========
(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) 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) 23 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ________________________________________________________________________________ (6) DEBT Debt is summarized as follows:
June 30, December 31, 1994 1993 -------- ------------ amounts in thousands 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 ========= ==========
(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) 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) 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) 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) 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) 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) 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) 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 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. 32 TCI COMMUNICATIONS, INC. AND SUBSIDIARIES (formerly Tele-Communications, Inc.) Condensed Pro Forma Balance Sheet (unaudited)
June 30, 1994 ------------------------------------------------ TCI Pro forma Historical Adjustments(1) Pro forma ---------- -------------- --------- Assets amounts in millions - ------ 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 ======== ===== ======
See accompanying notes to unaudited condensed pro forma financial statements. 33 TCI COMMUNICATIONS, INC. AND SUBSIDIARIES (formerly Tele-Communications, Inc.) Condensed Pro Forma Statement of Operations (unaudited)
Six months ended June 30, 1994 -------------------------------------------------- TCI Pro forma Historical Adjustments(1) Pro forma ---------- -------------- --------- amounts in millions, except per share amounts 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 =========
See accompanying notes to unaudited condensed pro forma financial statements. 34 TCI COMMUNICATIONS, INC. AND SUBSIDIARIES (formerly Tele-Communications, Inc.) Condensed Pro Forma Statement of Operations (unaudited)
Year ended December 31, 1993 -------------------------------------------------- TCI Pro forma Historical Adjustments(1) Pro forma ---------- -------------- --------- amounts in millions, except per share amounts Revenue $ 4,153 -- 4,153 Operating, selling, general and administrative expenses and compensation relating to stock appreciation rights (2,326) -- (2,326) Depreciation and amortization (911) -- (911) ----------- ------ ------- Operating income 916 -- 916 Interest expense (731) -- (731) Interest and dividend income 34 -- 34 Share of earnings of Liberty 4 (4)(4) -- Share of losses of other affiliates, net (76) -- (76) Gain on dispositions 42 -- 42 Loss on early extinguishment of debt (17) -- (17) Other income, net (11) -- (11) ----------- ------ ------- Earnings before income taxes 161 (4) 157 Income tax expense (168) 2 (5) (166) ----------- ------ ------- Net loss (7) (2) (9) Dividend requirement on redeemable preferred stocks (2) 2 (6) -- ----------- ------ ------- Net loss applicable to common shareholders $ (9) -- (9) =========== ====== ======= Loss per common share $ (.02) ===========
See accompanying notes to unaudited condensed pro forma financial statements. 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. 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. 37 LIBERTY MEDIA CORPORATION Condensed Pro Forma Balance Sheet (unaudited)
June 30, 1994 -------------------------------------------------------- Liberty Pro forma Historical Adjustments(1)(2)(4) Pro forma ---------- -------------------- --------- Assets amounts in thousands - ------ 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 ========== ========= =========
See accompanying notes to unaudited condensed pro forma combined financial statements. 38 LIBERTY MEDIA CORPORATION Condensed Pro Forma Combined Statement of Operations (unaudited)
Six months ended June 30, 1994 ---------------------------------------------- Pro forma Liberty Adjustments Pro forma Historical (1)(2)(4) Combined ---------- ----------------- -------- amounts in thousands, except per share amounts 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 ==========
See accompanying notes to unaudited condensed pro forma combined financial statements. 39 LIBERTY MEDIA CORPORATION Condensed Pro Forma Combined Statement of Operations (unaudited)
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 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) ==========
See accompanying notes to unaudited condensed pro forma combined financial statements. 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) 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) 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) 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. 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. 45 TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES (formerly TCI/Liberty Holding Company) Condensed Pro Forma Combined Balance Sheet (unaudited)
June 30, 1994 ------------------------------------------------------------- Holding TCI Liberty Pro forma Company Pro forma Pro forma adjustments(1) Pro forma ---------- ---------- -------------- ------------ Assets amounts in millions - ------ 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 ======== ====== ===== ======
See accompanying notes to unaudited condensed pro forma combined financial statements. 46 TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES (formerly TCI/Liberty Holding Company) Condensed Pro Forma Combined Statement of Operations (unaudited)
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 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) ========
See accompanying notes to unaudited condensed pro forma financial statements. 47 TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES (formerly TCI/Liberty Holding Company) Condensed Pro Forma Combined Statement of Operations (unaudited)
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 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) ========
See accompanying notes to unaudited condensed pro forma financial statements. 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) 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. EX-2.3 2 AMENDMENT NO.2 TO THE AGREEMENT & PLAN OF MERGER 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." 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. 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 EX-2.4 3 AGREEMENT AND PLAN OF MERGER DATED 8/8/94 1 AGREEMENT AND PLAN OF MERGER DATED AS OF August 8, 1994 AMONG TELE-COMMUNICATIONS, INC., TCI COMMUNICATIONS, INC. AND TELECABLE CORPORATION 2 TABLE OF CONTENTS
Page ---- 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
3 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
(ii) 4 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
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) 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) 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- 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- 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- 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- 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- 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- 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- 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- 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 -9- 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 -10- 16 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 -11- 17 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 -12- 18 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 -13- 19 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 -14- 20 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 -15- 21 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 -16- 22 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 -17- 23 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 -18- 24 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 -19- 25 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; -20- 26 (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 -21- 27 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 -22- 28 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 -23- 29 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 -24- 30 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 -25- 31 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. -26- 32 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 -27- 33 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 -28- 34 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 -29- 35 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 -30- 36 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 -31- 37 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 -32- 38 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 -33- 39 (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 -34- 40 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 -35- 41 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 -36- 42 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 -37- 43 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 -38- 44 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. -39- 45 (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. -40- 46 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, -41- 47 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 -42- 48 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, -43- 49 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 -44- 50 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 -45- 51 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. -46- 52 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) -47- 53 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 -48- 54 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 -49- 55 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; -50- 56 (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; -51- 57 (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 -52- 58 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. -53- 59 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 -54- 60 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 -55- 61 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 -56- 62 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. -57- 63 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, -58- 64 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 -59- 65 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. -60- 66 (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 -61- 67 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 -62- 68 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 -63- 69 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 -64- 70 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 -65- 71 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 -66- 72 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 -67- 73 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 -68- 74 (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 -69- 75 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. -70- 76 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. -71- 77 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 -72- 78 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 -73- 79 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 -74- 80 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 -75- 81 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 -76- 82 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, -77- 83 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. -78- 84 "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. -79- 85 "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. -80- 86 "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. -81- 87 "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. -82- 88 "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. -83- 89 "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. -84- 90 "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. -85- 91 "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. -86- 92 "VSCA" shall have the meaning set forth in Section 1.1 hereof. -87- 93 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 94 TELECABLE CORPORATION By: /s/ FRANK BATTEN Name: Frank Batten Title: Chairman -89- -----END PRIVACY-ENHANCED MESSAGE-----