-----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, RH6a3T22rsTPw4MlhMThiq0GVgKiAaSeF2BwporBead/+xWbJ3WPIZGkB4F9GggX +ZPshvHYxtoK0txcgQnvqg== 0000950134-94-000136.txt : 19940218 0000950134-94-000136.hdr.sgml : 19940218 ACCESSION NUMBER: 0000950134-94-000136 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940215 ITEM INFORMATION: 5 ITEM INFORMATION: 7 FILED AS OF DATE: 19940217 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TELE 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: 34 SEC FILE NUMBER: 000-05550 FILM NUMBER: 94510137 BUSINESS ADDRESS: STREET 1: TERRACE TOWER II STREET 2: 5619 DTC PKWY CITY: ENGLEWOOD STATE: CO ZIP: 80111 BUSINESS PHONE: 3032675500 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: February 15, 1994 Date of Earliest Event Reported: October 12, 1993 TELE-COMMUNICATIONS, INC. (Exact name of Registrant as specified in its charter) State of Delaware (State or other jurisdiction of incorporation) 0-5550 84-0588868 (Commission File Number) (I.R.S. Employer Identification No.) 5619 DTC Parkway Englewood, Colorado 80111 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (303) 267-5500 2 ITEM 5. OTHER EVENTS. On January 31, 1994, Tele-Communications, Inc. ("TCI") announced that TCI and Liberty Media Corporation ("Liberty") had entered into a definitive agreement (the "TCI/Liberty Agreement"), dated as of January 27, 1994 to combine the two companies. As previously announced, the transaction will be structured as a tax free exchange of Class A and Class B shares of both companies for like shares of a newly formed holding company, TCI/Liberty Holding Company ("TCI/Liberty"). TCI shareholders will receive one share of TCI/Liberty for each of their shares. Liberty shareholders will receive 0.975 of a share of TCI/Liberty for each of their shares. The transaction is subject to the approval of both sets of shareholders as well as various regulatory approvals and other customary conditions. It is anticipated the closing of such transaction will take place during the second quarter of 1994. A copy of the TCI/Liberty Agreement is included herein as Exhibit 2.1 and is hereby incorporated by reference into this Item 5, and the foregoing description of such transaction is qualified in its entirety by reference to such Exhibit. The letter of intent entered into between TCI and Liberty to combine the two companies was previously reported in TCI's Current Report on Form 8-K dated October 26, 1993, and audited financial statements of Liberty for the year ended December 31, 1992 were included in said filing. Historical financial information of Liberty for the nine months ended September 30, 1993 and the pro forma financial information related to the TCI/Liberty Agreement is included under Item 7 of this Report. On October 13, 1993, Liberty, TCI and Bell Atlantic Corporation ("BAC") announced that they had entered into a letter of intent (the "BAC Letter of Intent"), dated as of October 12, 1993, which sets forth the terms and conditions upon which the parties propose to negotiate a combination of Liberty and TCI with BAC pursuant to a series of transactions. On February 14, 1994, TCI, Liberty and BAC stated that they continue to work on the definitive documentation for their previously announced merger. The series of transactions contemplated by the BAC Letter of Intent are subject to numerous conditions including the preparation of definitive documentation, the approval of shareholders as well as various regulatory and governmental consents, approvals and waivers. A copy of the BAC Letter of Intent is included herein as Exhibit 2.2 and is hereby incorporated by reference into this Item 5, and the foregoing description of such document is qualified in its entirety by reference to such Exhibit. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. (a) Financial Statements Liberty Media Corporation, Nine months ended September 30, 1993: Consolidated Balance Sheets, September 30, 1993 and December 31, 1992 (unaudited) Consolidated Statements of Operations, Three months ended September 30, 1993 and 1992 (unaudited) Nine months ended September 30, 1993 and 1992 (unaudited) Consolidated Statement of Stockholders' Equity, Nine months ended September 30, 1993 (unaudited) Consolidated Statements of Cash Flows, Nine months ended September 30, 1993 and 1992 (unaudited) Notes to Consolidated Financial Statements September 30, 1993 (unaudited) (continued) 2 3 (b) Pro Forma Financial Information Tele-Communications, Inc. and Subsidiaries: Condensed Pro Forma Balance Sheet, September 30, 1993 (unaudited) Condensed Pro Forma Statement of Operations, Nine months ended September 30, 1993 (unaudited) Condensed Pro Forma Statement of Operations, Year ended December 31, 1992 (unaudited) Notes to Condensed Pro Forma Financial Statements, September 30, 1993 (unaudited) Liberty Media Corporation and Subsidiaries: Condensed Pro Forma Balance Sheet, September 30, 1993 (unaudited) Condensed Pro Forma Combined Statement of Operations, Nine months ended September 30, 1993 (unaudited) Condensed Pro Forma Combined Statement of Operations, Year ended December 31, 1992 (unaudited) Notes to Condensed Pro Forma Combined Financial Statements, September 30, 1993 (unaudited) "TCI/Liberty" and Subsidiaries: Condensed Pro Forma Balance Sheet, September 30, 1993 (unaudited) Condensed Pro Forma Statement of Operations, Nine months ended September 30, 1993 (unaudited) Condensed Pro Forma Statement of Operations, Year ended December 31, 1992 (unaudited) Notes to Condensed Pro Forma Financial Statements, September 30, 1993 (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 Mergeco, Inc. and Liberty Mergeco, Inc.* (2.2) Letter of Intent, dated October 12, 1993, among Bell Atlantic Corporation, Tele-Communications, Inc. and Liberty Media Corporation. Incorporated herein by reference to TCI's Current Report on Form 8-K, dated October 26, 1993. * The Agreement and Plan of Merger contains indexes identifying the items, including exhibits and schedules, annexed thereto. A copy of any omitted item will be furnished supplementally to the Commission upon request. 3 4 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Date: February 15, 1994 TELE-COMMUNICATIONS, INC. (Registrant) By:/s/ Gary K. Bracken Gary K. Bracken, Senior Vice President and Controller 4 5 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (unaudited)
Assets September 30, December 31, - ------ 1993 1992* ------------- ------------ amounts in thousands Cash and cash equivalents $ 50,670 96,253 Trade and other receivables 46,341 20,926 Less allowance for doubtful receivables 2,919 2,404 ---------- ---------- 43,422 18,522 ---------- ---------- Inventories, net 105,418 -- Due from Tele-Communications, Inc. ("TCI") (note 12) -- 4,786 Prepaid expenses 23,596 6,253 Deferred income taxes (note 10) 2,460 2,350 Investments in affiliates, accounted for under the equity method, and related receivables (note 4) 229,033 197,263 Other investments, at cost, and related receivables (note 5) 214,568 212,993 Investment in TCI common stock (notes 6 and 12) 104,011 104,011 Property and equipment, at cost: Land 18,971 77 Cable distribution systems 86,357 36,428 Support equipment and buildings 117,496 18,365 Computer and broadcast equipment 51,023 -- ---------- ---------- 273,847 54,870 Less accumulated depreciation 38,400 19,395 ---------- ---------- 235,447 35,475 ---------- ---------- Franchise costs 141,737 57,217 Less accumulated amortization 4,441 2,336 ---------- ---------- 137,296 54,881 ---------- ---------- Other intangibles 356,704 92,678 Less accumulated amortization 65,644 40,372 ---------- ---------- 291,060 52,306 Other assets, at cost, net of amortization 7,904 5,172 ---------- ---------- $1,444,885 790,265 ========== ========== (continued)
I-1 6 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets, continued (unaudited)
Liabilities and Stockholders' Equity September 30, December 31, - ------------------------------------ 1993 1992* ------------- ------------ amounts in thousands Accounts payable $ 88,202 9,985 Accrued liabilities 84,437 21,562 Due to TCI (note 12) 4,794 -- Accrued compensation relating to stock appreciation rights (note 11) 41,799 18,171 Sales returns 12,015 -- Income taxes payable 18,589 808 Debt (notes 8 and 13) 514,725 167,652 Other liabilities 64 3,003 ---------- ---------- Total liabilities 764,625 221,181 ---------- ---------- Minority interests in equity of consolidated subsidiaries (note 9) 181,555 10,020 Preferred stocks subject to mandatory redemption requirements (including accreted dividends) (notes 6 and 13): Class A Redeemable Convertible Preferred Stock, $.01 par value. -- 12,720 Class B Redeemable Exchangeable Preferred Stock, $.01 par value. 129,888 122,056 Class D Redeemable Voting Preferred Stock, $.01 par value. 22,034 20,485 ---------- ---------- 151,922 155,261 ---------- ---------- Stockholders' equity (notes 11 and 15) Class C Redeemable Exchangeable Preferred Stock, $.01 par value. -- 4 Class E, 6% Cumulative Redeemable Exchangeable Junior Preferred Stock, $.01 par value. 17 16 Class A common stock, $1 par value. 87,514 76,036 Class B common stock, $1 par value. 43,340 43,340 Additional paid-in capital 230,167 288,464 Retained earnings -- 10,443 Note receivable from related party (14,255) (14,500) ---------- ---------- 346,783 403,803 ---------- ---------- Commitments and contingencies (notes 4, 8 and 15) $1,444,885 790,265 ========== ==========
*Restated-see notes 7 and 10. See accompanying notes to consolidated financial statements. I-2 7 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations (unaudited)
Three months ended September 30, -------------------------------- 1993 1992* -------- ------- amounts in thousands, except per share data Revenue: Net sales $260,462 -- From TCI (note 12) 11,020 10,971 From other sources 41,601 26,510 -------- -------- 313,083 37,481 -------- -------- Cost of sales, operating costs and expenses: Cost of sales 169,548 -- Operating 46,050 15,387 Selling, general and administrative 75,412 7,150 Charges by TCI (note 12) 3,548 2,357 Compensation relating to stock appreciation rights (note 11) 4,602 3,177 Depreciation 7,981 766 Amortization 4,640 3,050 -------- -------- 311,781 31,887 -------- -------- Operating income 1,302 5,594 Other income (expense): Interest expense (8,102) (2,934) Dividend and interest income, primarily from affiliates 5,500 5,970 Share of earnings of affiliates, net 19,821 12,910 Minority interests in (earnings) losses of consolidated subsidiaries 304 (1,454) Other, net 540 (748) -------- -------- Earnings before income taxes 19,365 19,338 Income tax benefit (expense) (8,204) 505 -------- -------- Net earnings 11,161 19,843 Dividend requirement on preferred stocks (5,732) (10,959) -------- -------- Net earnings attributable to common shareholders $ 5,429 8,884 ======== ======== Primary and fully diluted earnings attributable to common shareholders per common and common equivalent share $ 0.04 0.07 ======== ======== (continued)
I-3 8 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations, continued (unaudited)
Nine months ended September 30, ------------------------------------ 1993 1992* ---------- ----------- amounts in thousands, except per share data Revenue: Net sales $ 646,507 -- From TCI (note 12) 33,397 32,510 From other sources 115,936 78,729 --------------- --------------- 795,840 111,239 --------------- --------------- Cost of sales, operating costs and expenses: Cost of sales 417,640 -- Operating 125,591 56,526 Selling, general and administrative 187,018 25,402 Charges by TCI (note 12) 8,016 4,800 Compensation relating to stock appreciation rights (note 11) 23,628 8,566 Depreciation 20,047 2,429 Amortization 13,112 8,527 --------------- --------------- 795,052 106,250 --------------- --------------- Operating income 788 4,989 Other income (expense): Interest expense (21,357) (6,164) Dividend and interest income, primarily from affiliates 17,168 19,126 Gain on sale of investment 10,613 -- Loss on sale of investment to TCI (note 12) (22,129) -- Share of earnings of affiliates, net 39,092 10,494 Minority interests in (earnings) losses of consolidated subsidiaries (1,621) 1,680 Provision for impairment of investment (note 12) (8,167) -- Other, net (1,828) (559) --------------- --------------- Earnings before income taxes and extraordinary item 12,559 29,566 Income tax expense (6,769) (2,783) --------------- --------------- Earnings before extraordinary item 5,790 26,783 Extraordinary item - loss on early extinguishment of debt, net of taxes (2,191) -- --------------- --------------- Net earnings 3,599 26,783 Dividend requirement on preferred stocks (26,131) (30,728) --------------- --------------- Net loss attributable to common shareholders $ (22,532) (3,945) =============== =============== Loss per common share: Net loss attributable to common shareholders before extraordinary item $ (0.15) (0.03) Extraordinary item, net (0.02) 0.00 --------------- --------------- Net loss attributable to common shareholders $ (0.17) (0.03) =============== ===============
*Restated-see notes 7 and 10. See accompanying notes to consolidated financial statements. I-4 9 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES Consolidated Statement of Stockholders' Equity Nine months ended September 30, 1993 (unaudited)
Preferred Stock Common stock ---------------------- ------------------------- Class C Class E Class A Class B ------- ------- ------- ------- amounts in thousands Balance at January 1, 1993 $ 4 16 76,036 43,340 Accreted dividends on all classes of preferred stock -- -- -- -- Accreted dividends on classes of preferred stock not subject to mandatory redemption requirements -- -- -- -- Cash dividends on preferred stock -- -- -- -- Issuance of Class A common stock upon conversion of preferred stock (note 12) -- 1 4,406 -- Issuance of Class A common stock for acquisition (note 7) -- -- 8,000 -- Redemption of preferred stock (note 12) (4) -- -- -- Acquisition and retirement of common stock (note 12) -- -- (928) -- Recognition of previously reserved interest income upon consolidation of affiliate (note 7) -- -- -- -- Income tax effect related to recognition of previously reserved interest income upon consolidation of affiliate -- -- -- -- Accrued interest on note receivable from related party -- -- -- -- Prepayment of interest on note receivable from related party (note 11) -- -- -- -- Net earnings -- -- -- -- ----------- ------------ ------------ ------------ Balance at September 30, 1993 $ -- 17 87,514 43,340 =========== ============ ============ ============
Notes receivable Total Additional from stock- paid-in Retained related holders' capital* earnings* party equity* -------- --------- -------- ------- amounts in thousands Balance at January 1, 1993 288,464 10,443 (14,500) 403,803 Accreted dividends on all classes of preferred stock (12,089) (14,042) -- (26,131) Accreted dividends on classes of preferred stock not subject to mandatory redemption requirements 16,703 -- -- 16,703 Cash dividends on preferred stock (9,743) -- -- (9,743) Issuance of Class A common stock upon conversion of preferred stock (note 12) 8,360 -- -- 12,767 Issuance of Class A common stock for acquisition (note 7) 115,000 -- -- 123,000 Redemption of preferred stock (note 12) (175,787) -- -- (175,791) Acquisition and retirement of common stock (note 12) (17,611) -- -- (18,539) Recognition of previously reserved interest income upon consolidation of affiliate (note 7) 26,359 -- -- 26,359 Income tax effect related to recognition of previously reserved interest income upon consolidation of affiliate (9,489) -- -- (9,489) Accrued interest on note receivable from related party -- -- (739) (739) Prepayment of interest on note receivable from related party (note 11) -- -- 984 984 Net earnings -- 3,599 -- 3,599 -------- -------- -------- -------- Balance at September 30, 1993 230,167 -- (14,255) 346,783 ======== ======== ======== ========
*Restated-see notes 7 and 10. See accompanying notes to consolidated financial statements. I-5 10 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (unaudited)
Nine months ended September 30, ---------------------------------- 1993 1992* -------- ------- amounts in thousands (see note 3) Cash flows from operating activities: Net earnings $ 3,599 26,783 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 33,159 10,956 Compensation relating to stock appreciation rights 23,628 8,566 Compensation arising from issuance of stock of a subsidiary 5,455 -- Share of earnings of affiliates, net (39,092) (10,494) Deferred income tax expense (benefit) (9,599) 1,514 Minority interests in earnings (losses) 1,621 (1,680) Noncash interest and dividends (844) (12,637) Amortization of debt discount -- 1,591 Gain on sale of investment (10,613) -- Provision for impairment of investment 8,167 -- Loss on sale of investment to TCI 22,129 -- Loss on early exinguishment of debt 3,555 -- Other noncash charges 2,779 -- Changes in operating assets and liabilities, net of effect of acquisitions: Change in receivables (3,526) (3,868) Change in inventories (2,093) -- Change in due to/from TCI, other than repayment for commercial paper 9,580 2,627 Change in prepaid expenses (8,733) (3,469) Change in payables and accruals 18,558 (7,540) -------- ------- Net cash provided from operating activities 57,730 12,349 -------- ------- (continued)
I-6 11 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows, continued (unaudited)
Nine months ended September 30, -------------------------------------------- 1993 1992* --------- -------- amounts in thousands (see note 3) Cash flows from investing activities: Cash paid for acquisitions $ (264,331) (24,086) Capital expended for property and equipment (16,959) (2,164) Additional investments in and loans to affiliates and others (34,660) (82,719) Repayment for commercial paper from TCI -- 22,057 Return of capital from affiliates 4,000 40,888 Collection of loans to affiliates and others 15,190 3,565 Cash received on redemption of preferred stock investment 112,584 -- Proceeds on sale of investments 21,767 -- Cash resulting from consolidation of a certain affiliate, net of payment therefor -- 1,269 Other investing activities, net (341) (1,630) ------------- ------------- Net cash used by investing activities (162,750) (42,820) ------------- ------------- Cash flows from financing activities: Borrowings of debt 289,695 95,068 Repayments of debt (247,072) (17,962) Dividends on preferred stocks (9,743) -- Cash paid for redemption of preferred stocks (12,338) -- Purchases and retirements of common stock -- (49,652) Contributions by minority shareholders of subsidiary 38,895 2,847 ------------- ------------- Net cash provided from financing activities 59,437 30,301 ------------- ------------- Net decrease in cash and cash equivalents (45,583) (170) Cash and cash equivalents at beginning of period 96,253 99,589 ------------- ------------- Cash and cash equivalents at end of period $ 50,670 99,419 ============= =============
*Restated-see notes 7 and 10. See accompanying notes to consolidated financial statements. I-7 12 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements September 30, 1993 (unaudited) (1) General and Significant Accounting Policies The accompanying consolidated financial statements include the accounts of Liberty Media Corporation and those of all majority-owned subsidiaries ("Liberty" or the "Company"). All significant intercompany accounts and transactions have been eliminated in consolidation. 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 for the year ended December 31, 1992, as amended. Inventories, consisting of products held for sale, are valued at the lower of cost or market, cost being determined using the first-in, first-out method. Cost includes freight, certain warehousing costs and other allocable overhead. Market is determined on the basis of replacement cost or net realizable value, giving consideration to obsolescence and other factors. Net Sales include merchandise sales and shipping and handling revenues, and are reduced by incentive discounts and sales returns to arrive at net sales. The Company's sales policy allows merchandise to be returned at the customer's discretion, generally up to 30 days after the date of sale. An allowance for returned merchandise is provided based upon past experience. Certain amounts have been reclassified for comparability with the 1993 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 Loss per common share for the nine months ended September 30, 1993 and 1992 was computed by dividing net loss attributable to common shareholders by the weighted average number of common shares outstanding (130,480,709 and 124,639,573 for the I-8 13 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements nine months ended September 30, 1993 and 1992, respectively). Common stock equivalents were not included in the computation of weighted average shares outstanding because their inclusion would be anti-dilutive. Primary earnings attributable to common shareholders per common and common equivalent share for the three months ended September 30, 1993 and 1992 was computed by dividing net earnings attributable to common shareholders by the weighted average number of common and common equivalent shares outstanding (132,828,042 and 122,344,547 for the three months ended September 30, 1993 and 1992, respectively). Fully diluted earnings attributable to common shareholders per common and common equivalent share for the three months ended September 30, 1993 and 1992 was computed by dividing earnings attributable to common shareholders by the weighted average number of common and common equivalent shares outstanding (132,832,190 and 122,511,856 for the three months ended September 30, 1993 and 1992 respectively). (3) Supplemental Disclosures to Consolidated Statements of Cash Flows Cash paid for interest was $17,601,000 and $2,668,000 for the nine months ended September 30, 1993 and 1992, respectively. Cash paid for income taxes was $5,970,000 and $3,160,000 for the nine months ended September 30, 1993 and 1992, respectively. Significant noncash investing and financing activities are as follows:
Nine months ended September 30, ------------------------- 1993 1992 -------- -------- amounts in thousands Cash paid for acquisitions: Fair value of assets acquired $ 680,787 31,672 Net liabilities assumed (183,704) (7,586) Common stock issued for acquisition (123,000) -- Noncash contribution for acquisition (32,673) -- Minority interests in equity of acquired entities (77,079) -- -------- -------- $ 264,331 24,086 ======== ========
I-9 14 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Cash resulting from consolidation of a certain affiliate, net of payment therefor: Fair value of assets acquired $ -- (26,186) Net liabilities assumed -- 27,485 Payment for additional interest -- (30) -------- -------- Cash acquired $ -- 1,269 ======== ======== Liberty Class A common stock issued upon conversion of preferred stock $ 12,767 -- ======== ======== Deferred tax liability recorded as a reduction to paid-in capital $ 9,489 -- ======== ======== Accreted and unpaid preferred stock dividends $ 24,176 30,728 ======== ======== Note issued in exchange for Liberty Class A common stock $ 18,539 -- ======== ======== Notes issued in redemption of preferred stocks $163,057 -- ======== ========
(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:
Nine months ended September 30, ---------------------------- 1993 1992 -------- -------- amounts in thousands Revenue $ 1,497,886 1,249,328 Operating expenses (1,131,018) (933,634) Depreciation and amortization (147,176) (138,008) ------------- ------------- Operating income 219,692 177,686 Interest expense (75,519) (93,817) Other, net (46,311) (46,032) ------------- ------------- Net earnings $ 97,862 37,837 ============= =============
I-10 15 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements The following table reflects the net carrying value of the Company's investments accounted for under the equity method, including related receivables:
September 30, December 31, 1993 1992 ----------------- ----------------- amounts in thousands QVC Network, Inc. ("QVC") $ 68,782 58,509 Kansas City Cable Partners ("KCCP") 44,098 35,860 US Cable of Lake County ("Lake County") 25,610 25,013 Columbia Associates, L.P. ("Columbia") 7,788 12,975 Lenfest Communications, Inc. ("LCI") 6,402 6,976 Mile Hi Cablevision Associates, Ltd. ("Mile Hi") (see note 7) -- 6,694 The Cable Partnerships of Country Cable Co. and Knight-Ridder Cablevision, Inc. ((TKR Cable Partners and TKR Cable Company) (collectively referred to as ("TKR")) 33,859 22,876 Sunshine Network Joint Venture ("Sunshine") 9,325 12,202 American Movie Classics Company ("AMC") (13,170) (22,125) Sioux Falls Cable Television ("Sioux Falls") (12,066) (13,463) SportsChannel Chicago Associates ("Sports") 31,592 31,385 Home Team Sports Limited Partnership ("HTS") 11,674 10,958 Other investments 15,139 9,403 -------- -------- $ 229,033 197,263 ======== ========
During 1992, AMC distributed $39 million to the Company. The Company recorded the amount received as a reduction of its investment in AMC (see note 14). On October 1, 1993, KCCP made an $80 million distribution to the Company. Approximately $63 million was applied to repayment of the note with the remainder recorded as a reduction of the Company's investment in KCCP. I-11 16 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:
Nine months ended September 30, ------------------------ 1993 1992 -------- -------- amounts in thousands QVC $ 12,261 7,732 KCCP 8,238 6,194 Lake County 597 (1,587) Columbia (5,187) (4,067) LCI (574) (12,032) Mile Hi (380) (1,730) TKR 10,983 6,885 Sunshine (764) (893) AMC 9,199 6,324 Sioux Falls 1,397 1,800 Sports 4,139 1,906 HTS 715 760 Other (1,532) (798) -------- --------- $ 39,092 10,494 ======== =========
The common stock of QVC is publicly traded. At September 30, 1993, based on the trading price of QVC common stock, the Company's investment in QVC had a market value of $704,808,000 (which exceeded its cost by $636,026,000). Certain of the Company's shares are subject to repurchase by certain third parties (see note 14 and 15). Affiliated Regional Communications, LTD. ("ARC"), a majority-owned subsidiary of the Company, owns a 49% interest in Sunshine. Sunshine provides television sports programming service in Florida. The Sunshine Joint Venture Agreement provided for an annual guaranteed distribution to ARC equal to 7.35% of Sunshine's gross revenue, excluding barter transaction revenue. Sunshine has not paid the distribution to ARC as it was subordinated to loans and advances made by ARC. Unpaid guaranteed distributions originally accrued interest at 10% per annum. 1992 amendments to the Joint Venture Agreement have discontinued the annual guaranteed distribution to ARC for years beginning in 1992 and suspended interest on the unpaid guaranteed distributions from July 1, 1992 until January 1, 1994. Effective January 1, 1994, the unpaid guaranteed distributions will bear interest at prime plus 0.875%. Total unpaid guaranteed distributions were approximately $2,433,000 at December 31, 1992. I-12 17 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements 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 of that partnership in the event liabilities of that partnership were to exceed its assets. (5) Other Investments Other investments, accounted for under the cost method, and related receivables, are summarized as follows:
September 30, December 31, 1993 1992 ----------------- ----------------- amounts in thousands Limited partnership interest $ 3,647 43,109 Marketable equity securities (a) 21,811 8,841 Convertible debt, accrued interest and preferred stock investment 45,935 46,459 Note receivable including accrued interest (b) 133,412 -- Receivable for redemption of preferred stock investment -- 112,584 Other investments and related receivables 9,763 2,000 ------- ------- $ 214,568 212,993 ======= =======
(a) The marketable equity securities, which are being accounted for at the lower of cost or market, had an aggregate market value of $104,489,000 (which exceeded cost by $82,678,000) at September 30, 1993. (b) 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 September 30, 1993 (see note 7), 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 Liberty). 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 I-13 18 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements of SKC's assets, and bears interest on the unpaid principal amount at 9.5% per annum. The note is payable in equal monthly installments of principal and interest over fifteen years. Management of the Company estimates that the market value, calculated utilizing a cash flow multiple or discounted future cash flow approach or publicly quoted market prices, of all of the Company's other investments aggregated $301 million and $338 million at September 30, 1993 and December 31, 1992, respectively, including amounts previously disclosed for marketable equity securities. No independent external appraisals were conducted for those assets which were valued utilizing a multiple of cash flow or discounted future cash flow approach. (6) Investment in TCI Common Stock The Company holds 2,988,009 shares of TCI Class A common stock and 3,537,712 shares of TCI Class B common stock. At September 30, 1993 and December 31, 1992, the market value of the Company's investment in TCI amounted to $164,912,000 and $140,440,000, respectively, based on its publicly quoted market price. Certain of the TCI common stock is held in escrow for delivery upon exchange of the Liberty Class B Redeemable Exchangeable Preferred Stock. Pending such exchange and provided that the Company is not in default of its obligations to redeem, exchange or purchase shares of the Class B Redeemable Exchangeable Preferred Stock, the Company has the right to vote the TCI common stock held in escrow on all matters submitted for a vote to the holders of TCI common stock. See also note 12. (7) Acquisitions On February 11, 1993, Liberty acquired 20,000,000 shares of the Class B Stock of HSN from RMS Limited Partnership ("RMS") for $58 million in cash and 8,000,000 shares of Liberty Class A common stock. Liberty had previously acquired shares of common stock of HSN in 1992. Such common stock acquired in 1992 and the Class B Stock acquired represented 23.5% of the common equity and 65.6% of the voting interest of HSN as of the date of acquisition. As a result of the acquisition of the controlling interest, HSN became a consolidated subsidiary of the Company for financial reporting purposes. On June 1, 1993, Liberty completed the purchase of approximately 16 million shares of HSN common stock at a price of $7 per share. The shares had been tendered pursuant to a tender offer initiated by the Company in April 1993. As a result of the share purchases, Liberty's ownership of HSN's common equity increased to approximately 41.5% and its voting interest increased to approximately 71%. I-14 19 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements On March 15, 1993, Mile Hi Cable Partners, L.P. ("New Mile Hi") completed the acquisition of all the general and limited partnership interests in Mile Hi, the owner of the cable television system serving Denver, Colorado. New Mile Hi is a limited partnership formed among Community Cable Television ("CCT") a general partnership owned 50.001% by the Company and 49.999% by TCI, (78% limited partnership interest), Daniels Communications, Inc. ("DCI") (1% limited partner) and P & B Johnson Corp. ("PBJC") (21% general partnership interest), a corporation controlled by Robert L. Johnson, a member of the Company's Board of Directors. New Mile Hi is a consolidated subsidiary of the Company for financial reporting purposes. Liberty's investment in Mile Hi, which was previously accounted for under the cost method, was received from TCI in the March 28, 1991 transaction whereby TCI contributed its interests in certain programming businesses and cable television systems in exchange for several different classes and series of preferred stock of Liberty. As a result of the aforementioned acquisition of Mile Hi, Liberty's investment, results of operations and stockholders' equity were adjusted retroactively to reflect Liberty's share of historical losses of Mile Hi adjusted for the amortization of the excess cost over Liberty's share of Mile Hi's historical net book value. Upon restatement, the Company's net earnings was reduced through a charge of approximately $692,000 in the nine months ended September 30, 1992. Prior to the acquisition, the Company, 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 its proportionate interest in DAPL's partnership interest in Mile Hi, representing the aforementioned 32.175% interest in Mile Hi. The subsidiary of Liberty also received a note payable from Mile Hi in the approximate amount of $50 million (including accrued interest) (the "Mile Hi Note") in novation of a loan receivable from DAPL in an equal amount. The subsidiary then was merged into Liberty Cable Partner, Inc. ("LCP") a wholly owned subsidiary of the Company and a general partner of CCT. The total value of the acquisition was approximately $180 million. Of that amount, approximately $70 million was in the form of Mile Hi debt paid at the closing. Another $50 million was in the form of the Mile Hi Note, which debt was assumed by New Mile Hi and then by CCT. Of the remaining $60 million, approximately $40 million was paid in cash to partners in Mile Hi in exchange for their partnership interests. The remaining $20 million of interest in Mile Hi was acquired by New Mile Hi through the contribution by LCP to CCT and by CCT to New Mile Hi of the 32.175% interest in Mile Hi received in the DAPL liquidation and by DCI's contribution to New Mile Hi of a 0.4% interest in Mile Hi. I-15 20 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements 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 PBJC as a capital contribution to New Mile Hi. Of the $5 million contributed by PBJC, approximately $4 million was provided by CCT through loans to Mr. Johnson and trusts for the benefit of his children. CCT funded its loans to New Mile Hi and the Johnson interests by drawing down $93 million under its revolving credit facility and by borrowing $16 million from TCI in the form of a subordinated note. The Mile Hi Note was eliminated upon consolidation. An amount representing the differential between interest expense accrued by Mile Hi and interest income accrued by the Company has been reflected as an addition to stockholders' equity. Such interest income had previously been reserved by the Company. Amounts were originally allocated to property and equipment and franchise costs at the date of acquisition based upon estimated fair values. Certain amounts were reclassified between property and equipment and franchise costs in the third quarter of 1993 to reflect the actual fair values determined upon receipt of final appraisal. The acquisitions of HSN and all the general and limited partnership interests in Mile Hi were accounted for by the purchase method. Accordingly, the results of operations of such acquired entities have been consolidated with those of the Company since their respective dates of acquisition. On a pro forma basis the Company's revenue would have been increased by approximately $111,208,000 and $820,339,000 for the nine months ended September 30, 1993 and 1992, respectively, had the acquisition occurred prior to January 1, 1992. Earnings before extraordinary item, on a pro forma basis would have been decreased by approximately $10,575,000 and $20,793,000 for the nine months ended September 30, 1993 and 1992, respectively. Net loss attributable to common shareholders and loss per common share would have increased by $15,626,000 and $0.12, respectively, for the nine months ended September 30, 1993 and net loss attributable to common shareholders and loss per common share would have increased by $20,839,000 and $0.16, respectively, for the nine months ended September 30, 1992. The foregoing unaudited pro forma financial information was based upon historical results of operations adjusted for acquisition costs and, in the opinion of management, is not necessarily indicative of the results had the Company operated the acquired entities since prior to January 1, 1992. I-16 21 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (8) Debt Debt is summarized as follows:
September 30, December 31, 1993 1992 ----------------- ----------------- amounts in thousands Note payable to bank (a) $ 6,040 6,257 Note payable to bank (b) 24,486 25,954 Note payable to bank (c) 84,500 25,000 Liability to seller (d) 19,637 19,637 Unsecured note payable (e) 1,090 1,635 Convertible notes payable (f) 12,710 12,121 Note payable to TCI (g) 4,322 4,322 Notes payable to TCI (h) 76,952 -- Notes payable to TCI (i) 104,644 -- Note payable to affiliate (j) 63,167 61,391 Notes payable to bank (k) 110,000 -- Note payable to bank -- 7,000 Other debt, with varying rates and maturities 7,177 4,335 -------- -------- $514,725 167,652 ======== ========
(a) 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. Such loan provides for interest at varying rates which approximate the prime rate (6% at September 30, 1993). All of Command's cable television assets are pledged as collateral under this loan agreement. (b) 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 is required based upon the prior year's excess cash flow, as defined. The loan agreement also required a $1,000,000 payment to be made during 1992. The outstanding balance of the loan accrues interest at varying rates which approximate the prime rate (6% at September 30, 1993). The terms of the agreement include, I-17 22 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements in addition to other requirements, the maintenance of certain financial ratios and limit capital expenditures and lease payments. The loan is secured and collateralized by the assets of Paterson, the franchise rights and the assignment of its various leases and contracts. Paterson entered into an interest rate swap agreement to reduce the impact of changes in interest rates on its floating rate bank loan payable. This agreement effectively fixes a portion of Paterson's interest rate on $6 million of its floating rate debt to a fixed rate of 8.25% plus the adjustment based on the results of a certain financial ratio, as discussed above. The agreement expires on April 18, 1995. Paterson could be exposed to credit loss in the event of nonperformance by the other parties to this agreement. However, Paterson does not anticipate any such nonperformance. (c) 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 and had a weighted average interest rate of 5.4% at December 31, 1992. The revolving credit facility permits CCT to borrow from the banks to fund acquisitions of cable television systems and for other general corporate purposes, subject to compliance with the restrictive covenants (including ratios of debt to cash flow and cash flow to interest expense, as defined) contained in the loan agreement governing the facility. (d) Payable by ARC. The liability represents the discounted amount estimated under the "Earnout Rights" agreement between ARC and a related party of Astros Programming Services, Inc. The agreement requires annual payments during a five-year period equal to 86% of the Earnings Before Depreciation, Interest and Income Taxes ("EBDIT"), as defined, of the "DBS Business," as defined, of ARC over the base EBDIT. The remaining minimum amount required under the agreement is $19,637,000 with a maximum payment of $60,000,000 required if the above calculation yields a greater amount due. The discount was deferred and amortized over the life of the agreement using the effective interest method. Amortization of the discount amounted to $1,591,000 for the nine months ended September 30, 1992 and was fully amortized as of December 31, 1992. I-18 23 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (e) Payable by LMC Regional Sports, Inc. This note payable, which bears interest at the prime rate, is payable in equal quarterly installments through June 30, 1994. (f) 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. (g) Payable by LMC Chicago Sports, Inc. This note payable, which bears interest at the prime rate, is payable on December 31, 1996 and is secured by the Company's general partnership interest in Sports. (h) Payable by Liberty. This $10,052,000 note payable and $66,900,000 note payable bear interest at 11.6% per annum. The notes are payable on February 1, 1997, and are secured by the Company's partnership interest in CCT and in the Mile Hi Note. (i) Payable by Liberty. This $18,539,442 note payable and $86,105,000 note payable bear interest at 6% per annum and are payable on December 3, 1993. From and after maturity, the unpaid amount of these notes will bear interest at 10% per annum, payable on demand. (j) Payable by Liberty Cable of Missouri, Inc. This note is payable to KCCP by a subsidiary of the Company. Such subsidiary owns a 50% general partnership interest in KCCP. The note payable is due on June 30, 2002. Interest on the note accrues at the same rate or rates that KCCP pays on debt incurred for the purpose of making the loan and compounds annually. The note is secured by a pledge of the Company's interest in KCCP and any distributions received from KCCP must be applied to repayment of the note (see note 4). I-19 24 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (k) Payable by HSN. These notes payable consist of a $60 million unsecured senior term loan, $25 million of which matures on each of June 15, 1994 and 1995 and $10 million of which matures on December 15, 1995; and a $50 million unsecured senior term loan, $25 million of which matures on each of January 31, 1997 and 1998; and a $40 million three-year senior unsecured revolving credit facility. The revolving credit facility provides for yearly extension options at the request of HSN and is subject to the approval of participating banks. At September 30, 1993 $40 million of the senior revolving credit facility remains available. The interest rate on borrowings on the senior term loans and revolving credit facility is tied to the London Interbank Offering Rate ("LIBOR"), plus an applicable margin which is subject to adjustment and currently ranges between two and two and one-eighth percent (2 & 2-1/8%) and is subject to adjustment. At October 31, 1993, the interest rates were 5.4375% on $30 million, 5.3125% on $30 million and 5.50% on the remaining $50 million. 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. (9) Promissory Notes CCT has a note payable to TCI of approximately $57 million, including accrued interest, due January 1, 2000. The note bears interest at 12% per annum through December 31, 1992 and 8% per annum thereafter. 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 $32 million in notes receivable from TCI due January 1, 2000. The notes earn interest at 11.6% per annum. These notes are reflected as a reduction of minority interest in the accompanying consolidated financial statements as they represent subscription notes receivable. (10) Income Taxes Liberty files a consolidated tax return with all of its 80% or more owned subsidiaries. Consolidated subsidiaries in which the Company owns less than 80% each file a separate Federal income tax return. Liberty and such subsidiaries calculate their respective tax liabilities on a separate return basis which are combined in the accompanying consolidated financial statements. The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 109 ("Statement No. 109"), "Accounting for Income Taxes." Statement No. 109 requires a change from the deferred method of accounting for income taxes of I-20 25 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements APB Opinion No. 11 to the asset and liability method of accounting for income taxes. Under the asset and liability method of Statement No. 109, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Under Statement No. 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company adopted Statement No. 109 in 1993 and has applied the provisions of Statement No. 109 retroactively to January 1, 1986. The Company restated its financial statements for the years beginning January 1, 1986 through December 31, 1992. The effect of the implementation of Statement No. 109 was a net increase to stockholders' equity and a reduction to deferred taxes payable of $59,126,000. New tax legislation was enacted in the third quarter of 1993 which, among other matters, increased the corporate Federal income tax rate from 34% to 35%. The company has reflected the tax rate change in its consolidated statements of operations in accordance with the treatment prescribed by Statement No. 109. Certain of the Federal income tax returns of TCI are presently under examination by the Internal Revenue Service ("IRS") for the years 1978 through 1990. This examination, or any subsequent examinations for periods up to March 28, 1991, may result in proposed adjustments for additional income taxes relating to Liberty. If and when future settlements with the IRS become final and nonappealable and if adjustments relating to Liberty are required to any consolidated return year as previously filed, Liberty and TCI have agreed to give effect to such adjustments as if they had been made a part of the original calculation of tax liabilities and benefits. Any amount remaining due or previously overpaid shall be paid or refunded as the case may be. (11) Stockholders' Equity General Liberty is authorized to issue 300,000,000 Class A shares and 100,000,000 Class B shares. Liberty had 87,513,778 Class A shares and 43,340,320 Class B shares outstanding at September 30, 1993 and 76,036,000 Class A shares and 43,340,320 Class B shares outstanding at December 31, 1992. I-21 26 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements 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. On December 3, 1992, Liberty effected a stock split in the form of a stock dividend whereby each shareholder of record received three additional shares for each share held and on March 17, 1993, Liberty effected a stock split in the form of a stock dividend whereby each shareholder of record received one additional share for each share held (the "Stock Dividends"). The share amounts throughout the notes to the consolidated financial statements have been adjusted to give effect to the Stock Dividends. Stock Options 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. The 100,000 shares issued by Liberty upon exercise of this option, together with all subsequent dividends and distributions thereon, (collectively, with the 100,000 shares, totaling 16,000,000 Liberty Class B common stock and 200,000 Class E Preferred Stock at December 31, 1992, the "Option Units"), are subject to repurchase by the Company under certain circumstances. The Company's repurchase right terminates 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 of the 200,000 shares of Class E Preferred Stock from the collateral securing the promissory note. A payment of approximately $984,000 for all interest accruing during calendar 1993 (after giving effect to a discount at the rate of 7.54% per annum to reflect the time value of money received prior to the scheduled payment date) was made in March 1993. After giving effect to the payment and the terms of the letter agreement, 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 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 I-22 27 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements exercise 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 September 30, 1993, 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 with respect to 14,000 shares have been exercised as of September 30, 1993. Stock appreciation rights with respect to 526,000 shares were exercised on October 29, 1993 and on November 2, 1993 stock appreciation rights with respect to 240,000 shares were exercised. Three officers of the Company were paid a total of $21,541,200 (the difference between the market price and exercise price on the dates exercised). 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 Company's 1991 Stock Incentive 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 September 30, 1993, but are subject to future adjustments based upon market value and, ultimately, on the final determination of market value when the rights are exercised. (12) 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 commission and charges to TCI were approximately $7,868,000 and $2,309,000 for the nine months ended September 30, 1993 and 1992, respectively. TCI and Liberty are parties to a services agreement pursuant to which TCI agreed to provide, among other things, certain financial reporting, tax and other administrative services to the Company. In addition, the employees of certain of the Company's subsidiaries remained on the TCI payroll until December 31, 1992. The Company reimbursed TCI for their salaries and related employment expenses. A subsidiary of the Company also leases office space and satellite transponder facilities from TCI. Charges by TCI under such arrangements amounted to $148,000 and $2,490,000 for the nine months ended September 30, 1993 and 1992, respectively. As of January 1, 1993, no employees of the Company's subsidiaries remained on the TCI payroll. I-23 28 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements On March 26, 1993, Liberty and TCI and certain of their respective subsidiaries entered into a series of agreements regarding the repurchase by Liberty of certain shares of its common and preferred stock from TCI and the purchase by TCI of certain cable television investments from Liberty and on June 3, 1993, Liberty completed the transactions contemplated by said agreements. The first such agreement (the "Recapitalization Agreement") was between Liberty, TCI Liberty, Inc. ("TCIL") and Tele-Communications of Colorado, Inc. ("TCIC") both of which are wholly owned subsidiaries of TCI. The Recapitalization Agreement provides for the Company's repurchase of approximately 928,000 shares of Liberty Class A common stock owned by TCIL, and repurchase all of the outstanding shares of the Class C Preferred Stock. Liberty paid an aggregate purchase price for the Class C Preferred Stock of approximately $175 million and approximately $19 million for the shares of Class A common stock. The aggregate price of approximately $194 million was satisfied by delivery of approximately $12 million in cash and four promissory notes totaling approximately $182 million (see note 8). The shares of Class A common stock sold by TCIL are part of those received upon conversion of the Company's Class A Redeemable Convertible Preferred Stock into 4,405,678 shares of Liberty Class A common stock and 55,070 shares of Class E Preferred Stock. In connection with the Recapitalization Agreement, TCIC and LCP entered into an Option-Put Agreement (the "Option-Put Agreement"). Under the Option-Put Agreement, between September 30, 1993 and December 31, 1993, LCP will have the right to require TCIC to purchase LCP's Class B partnership interest in CCT and the Mile Hi Note for an amount equal to $66,900,000 plus interest on such amount from the date of the Option-Put Agreement. Between June 30, 1994 and September 30, 1994, TCIC will have the option to purchase LCP's interest in CCT and the Mile Hi Note for an amount equal to $66,900,000 plus interest on such amount from the date of the Option-Put Agreement. Additionally, in January of 1996 TCIC will have the option to purchase, and in January of 1997 LCP will have the right to require TCIC to purchase all of LCP's Class A and Class B partnership interest in CCT and the Mile Hi Note for a purchase price equal to $76,952,000 (less any amount previously paid for interest in CCT and the Mile Hi Note) plus interest on such amount from the date of the Option-Put Agreement. Also on June 3, 1993, Liberty and a subsidiary of TCI entered into the second such agreement (the "Purchase and Sale Agreement") pursuant to which a TCI subsidiary purchased from the Company a 16% limited partnership interest in Intermedia Partners for a purchase price of approximately $9 million (which resulted in a loss in the Company's statement of operations of approximately $22 million). Also pursuant to which TCI has an option to purchase the Company's remaining 6% interest in Intermedia Partners prior to December 31, 1995 for approximately $3.6 million plus interest at 8% I-24 29 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements per annum (which resulted in a provision for impairment of investment in the Company's statement of operations of approximately $8 million). On October 8, 1993, Liberty announced that the Boards of Directors of TCI and Liberty had entered into a letter of intent (the "TCI/Liberty Letter of Intent"), dated as of October 7, 1993, to combine the two companies. The transaction would be structured as a tax-free exchange of Class A and Class B shares of both companies for like shares of a to-be formed holding company ("Newco"). TCI shareholders will receive one share of Newco for each of their shares. Liberty shareholders will receive 0.975 of a share of Newco for each of their shares. The transaction is subject to the preparation of definitive documentation, the approval of both sets of shareholders as well as various regulatory approvals and other customary conditions. On October 13, 1993, Liberty, TCI and Bell Atlantic Corporation ("BAC") announced that they had entered into a letter of intent (the "BAC Letter of Intent"), dated as of October 12, 1993, which sets forth the terms and conditions upon which the parties propose to negotiate a combination of Liberty and TCI with BAC pursuant to a series of transactions.The series of transactions contemplated by the BAC Letter of Intent are subject to numerous conditions including the preparation of definitive documentation, the approval of shareholders as well as various regulatory and governmental consents, approvals and waivers. (13) 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. Debt 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. I-25 30 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Interest Rate Swap Agreement The fair value of the interest rate swap agreement was obtained from a dealer quote. The value represents the estimated amount the Company would receive (pay) to terminate the agreement. The estimated fair value of the Company's financial instruments are summarized as follows:
September 30, 1993 ---------------------------------- Carrying Estimated amount fair value ---------- -------------- amounts in thousands Preferred stocks subject to mandatory redemption $151,922 169,862 Interest rate swap agreement -- (409)
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. (14) Subsequent Events On September 16, 1993, Liberty announced that one of its subsidiaries received notice from Rainbow Program Enterprises ("Rainbow") that Rainbow had elected to purchase Liberty's 50% partnership interest in AMC under the terms of a buy/sell provision contained in the AMC partnership agreement. A subsidiary of Liberty had initiated the buy/sell procedure on August 2, 1993. Liberty expects to receive net pre tax cash proceeds of approximately $170 million from the sale and an additional $5 million from a buy-out of Liberty's consulting agreement with AMC. The $170 million cash proceeds consist of $195 million sales price reduced by Liberty's proportionate share of AMC's debt. The sale is scheduled to close on November 30, 1993. I-26 31 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements On July 12, 1993, HSN received a merger proposal from QVC. Representatives of HSN met with representatives of QVC to discuss the merger proposal and the terms and conditions of a definitive merger agreement regarding the merger; however, QVC had not entered into any agreement, arrangement or understanding with HSN regarding the merger. On November 5, 1993, HSN and QVC agreed to terminate negotiations on QVC's merger proposal to HSN. On November 11, 1993 Liberty and TCI entered into an agreement with the staff of the Federal Trade Commission ("FTC") which provides that in the event that QVC is successful in acquiring Paramount Communications, Inc. ("Paramount"), Liberty and TCI will be required to divest their interests in QVC within 18 months of the FTC's formal approval of the agreement. Additionally, while QVC's bid for Paramount is still ongoing, Liberty and TCI agree to refrain from voting their QVC shares, other than for the acquisition of Paramount and the related financing. They also agree to cause all QVC directors designated by Liberty or TCI to resign and not to participate in the management or control of QVC. If QVC's bid for Paramount is terminated, the FTC agreement also terminates. The agreement is subject to acceptance by the FTC. Concurrently, Liberty has entered into a separate agreement with QVC conditioned upon the acceptance of the FTC agreement by the FTC, to exit all stockholder and voting agreements relating to QVC, with the option to be reinstated as a party to those agreements in the event QVC's Paramount bid is terminated. In turn, if its Paramount acquisition is consummated, QVC has agreed that during the last four months of the divestiture period, Liberty and TCI may put their shares to QVC for $60 per share. QVC may satisfy the put in cash or by compensating Liberty and TCI for any shortfall in the sale of their shares below $60. Liberty also agreed with QVC that it would not sell any of its shares for at least six months unless the Paramount acquisition is terminated. (15) 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. I-27 32 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements 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 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. The Company believes that it would not be required to make any material payments in such event as the Company anticipates that the aggregate proceeds derived from any sale of such stock to the public or other third parties would approximate the guaranteed sales price, before giving effect to any required tax adjustment. If income taxes are payable by such persons with respect to such sales, the amount of the adjustment would be approximately $8.82 per share (assuming an effective tax rate of 36% based on Federal and state income tax rates in effect on September 30, 1993 and a sale price of $24-1/2 per share based on the last reported sale price for the Class A common stock on September 30, 1993.) The Company believes that the likelihood of the occurrence of a put triggering event is remote. The guaranteed sale price for shares of Liberty common stock that constitute "Covered Shares" (as defined) would be determined on the basis of the proportionate share that such shares represent of the fair market value of the Company on a going concern or liquidation value basis (whichever method yields a higher valuation), subject to an upward adjustment for taxes. In the aggregate, 41,162,880 shares of Liberty common stock are currently covered by the agreement. 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 September 30, 1993, the Company had long-term sports program rights contracts which require payments through 1998 aggregating approximately $45,020,000. The Company has also entered into agreements extending through 2006 with various motion picture studios for nonexclusive licenses to exhibit certain films. As of September 30, 1993, these agreements require minimum payments aggregating approximately $84,810,000. Total payments are anticipated to be significantly higher but are not currently estimatable because the payments are based on future events including United States theatrical film rentals. ARC has guaranteed Sunshine's obligation to make payments (aggregating approximately $2,280,000 through June 1994) under a certain sports program rights agreement. I-28 33 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements The Company owns shares of QVC common stock and shares of QVC Series C Preferred Stock (the "Series C Preferred") which are convertible into shares of QVC common stock, which together represent the beneficial ownership of approximately 29% of QVC's common equity as of September 30, 1993, assuming for this purpose the conversion of the Series C Preferred but not the exercise or conversion by any other holder of warrants or convertible securities of QVC. Certain of such shares are subject to repurchase by QVC in the event that commitments to carry its programming are not met. Approximately 40% of the shares which the Company holds or would hold upon exercise or conversion 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 dated November 11, 1993 between the Company and QVC (the "QVC Agreement"), in the event QVC acquires control of Paramount (in which event the Company is required to divest its interest in QVC under the terms of an agreement with the staff of the FTC), QVC has agreed to waive any repurchase rights with respect to the Company's QVC Securities. The QVC Agreement modifies the provisions of a stockholders' agreement with Comcast Corporation ("Comcast") and Barry Diller, pursuant to which, Liberty may have been required to sell approximately 2.5 million shares of QVC common stock to Comcast and approximately 800,000 shares to Mr. Diller. The purchase price under the Comcast purchase right was $22.00 per share plus an interest component based on the "prime rate" from December 1, 1992 to the date of purchase, and under Mr. Diller's purchase right, the purchase price was $30.00 per share plus an amount equal to 10% plus the rate of inflation per year from December 9, 1992 to the date of exercise. Under the QVC Agreement, Comcast has the right to purchase 1,690,041 shares of QVC common stock from the Company at a purchase price of $18.60 per share plus interest at the rate of 6% per annum from November 11, 1993 to the date of purchase, and Mr. Diller has the right to purchase 1,627,934 shares of QVC common stock from the Company at a purchase of price of $34.072 per share plus interest at the prime rate from the date Mr. Diller exercises his right to the date of purchase. Comcast has notified the Company that it intends to exercise its right to purchase (which is immediately exercisable) on November 16, 1993. Mr. Diller's right to purchase is exercisable for a 30 day period commencing in June 1994 and he is required to close his purchase within 120 days of the exercise date. I-29 34 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements 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 of that partnership in the event liabilities of that partnership were to exceed its assets. I-30 35 TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES Condensed Pro Forma Financial Statements September 30, 1993 (unaudited) The following unaudited condensed pro forma balance sheet of TCI, dated as of September 30, 1993, assumes that the proposed merger (the "TCI/Liberty Merger"), whereby TCI and Liberty will each become wholly-owned subsidiaries of TCI/Liberty, had occurred as of such date (see note 1). In addition, the unaudited condensed pro forma statements of operations of TCI for the nine months ended September 30, 1993 and the year ended December 31, 1992 assume that the proposed TCI/Liberty Merger had occurred prior to January 1, 1992. The unaudited pro forma results do not purport to be indicative of the results of operations that would have been obtained if the TCI/Liberty Merger had occurred as of January 1, 1992. These condensed pro forma financial statements, which do not reflect the effects of the proposed merger of BAC, TCI and Liberty, should be read in conjunction with the condensed unaudited pro forma financial statements of Liberty and TCI/Liberty included elsewhere herein and the respective historical financial statements of TCI and Liberty. II-1 36 TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES Condensed Pro Forma Balance Sheet (unaudited)
September 30, 1993 ---------------------------------------- TCI Pro forma Historical Adjustments(1) Pro forma ---------- -------------- --------- Assets amounts in millions - ------ Cash and receivables $ 216 -- 216 Investment in other affiliates and Turner Broadcasting System, Inc., and related receivables 1,550 (156)(2) 1,394 Property and equipment, net of accumulated depreciation 4,825 -- 4,825 Franchise costs and other assets, net of amortization 9,608 -- 9,608 -------- ------ ------ $ 16,199 (156) 16,043 ======== ====== ====== Liabilities and Stockholders' Equity - ------------------------------------ Payables and accruals $ 708 -- 708 Debt 10,194 -- 10,194 Deferred income taxes 3,292 -- 3,292 Other liabilities 83 -- 83 -------- ------ ------ Total liabilities 14,277 -- 14,277 -------- ------ ------ Minority interests 288 -- 288 Redeemable preferred stocks 18 (18)(3) -- Common stockholders' equity: Class A common stock 463 (82)(4) 381 Class B common stock 47 (3)(4) 44 Additional paid-in capital 1,912 (248)(4) 1,664 Cumulative foreign currency translation adjustment (21) -- (21) Accumulated deficit (452) -- (452) Treasury stock, at cost (333) 333 (4) -- Investment in TCI/Liberty -- (156)(2) (138) 18 (3) -------- ------ ------ 1,616 (138) 1,478 -------- ------ ------ $ 16,199 (156) 16,043 ======== ====== ======
See accompanying notes to unaudited condensed pro forma financial statements. II-2 37 TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES Condensed Pro Forma Statement of Operations (unaudited)
Nine months ended September 30, 1993 ---------------------------------------- TCI Pro forma Historical Adjustments(1) Pro forma ---------- -------------- --------- amounts in millions, except per share amounts Revenue $ 3,104 -- 3,104 Operating, selling, general and administrative expenses (1,695) -- (1,695) Depreciation and amortization (659) -- (659) -------- ------ ------ Operating income 750 -- 750 Interest expense (549) -- (549) Interest and dividend income 23 -- 23 Share of losses of Liberty 4 (4)(5) -- Share of losses of other affiliates, net (44) -- (44) Gain on disposition 49 -- 49 Loss on early extinguishment of debt (17) -- (17) Other income, net (12) -- (12) --------- ------ ------- Earnings before income taxes 204 (4) 200 Income tax expense (175) 2 (6) (173) -------- ------ ------ Net earnings $ 29 (2) 27 Dividend requirement on redeemable preferred stocks (2) 2 (7) -- -------- ------ ------ Net earnings applicable to common shareholders $ 27 -- 27 ======== ====== ====== Primary earnings per common and common equivalent share $ .06 ========
See accompanying notes to unaudited condensed pro forma financial statements. II-3 38 TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES Condensed Pro Forma Statement of Operations (unaudited)
Year ended December 31, 1992 --------------------------------------- TCI Pro forma Historical Adjustments(1) Pro forma ---------- -------------- --------- amounts in millions, except per share amounts Revenue $ 3,574 -- 3,574 Operating, selling, general and administrative expenses (1,946) -- (1,946) Depreciation and amortization (672) -- (672) -------- ------ ------ Operating income 956 -- 956 Interest expense (718) -- (718) Interest and dividend income 69 -- 69 Share of earnings of Liberty 14 (14)(5) -- Share of losses of other affiliates, net (103) -- (103) Gain on disposition 9 -- 9 Loss on early extinguishment of debt (67) -- (67) Other expense, net (29) -- (29) -------- ------ ------ Earnings before income taxes 131 (14) 117 Income tax expense (150) 6 (6) (144) -------- ------ ------ Loss from continuing operations $ (19) (8) (27) ======== ====== ====== Dividend requirement on redeemable preferred stocks $ (15) 15 (7) -- ======== ====== ====== Net loss applicable to common shareholders from continuing operations $ (34) 7 (27) ======== ====== ====== Loss per common share from continuing operations $ (.08) ========
See accompanying notes to unaudited condensed pro forma financial statements. II-4 39 TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Condensed Pro Forma Financial Statements September 30, 1993 (unaudited) (1) Pursuant to the TCI/Liberty Agreement, the TCI/Liberty Merger will be structured as a tax free exchange whereby the common and preferred stock of TCI and Liberty would be exchanged for like shares of TCI/Liberty. The TCI/Liberty Agreement provides that each share of TCI's and Liberty's common stock (other than shares of common stock owned by TCI, Liberty or their respective subsidiaries) would be converted into one share and 0.975 of a share, respectively, of TCI/Liberty's common stock. Any shares of TCI common stock or TCI preferred stock held by subsidiaries of TCI or by Liberty or its subsidiaries and any shares of Liberty common stock or Liberty preferred stock held by subsidiaries of Liberty or by TCI or its subsidiaries shall be converted into shares of a class or series of TCI/Liberty preferred stock having an equivalent value. As of the date of this Current Report on Form 8-K, the terms and conditions of the preferred stock to be issued to TCI, Liberty or their respective subsidiaries have not been determined. Shares of preferred stock of TCI or Liberty not owned by TCI, Liberty or their respective subsidiaries would be converted into shares of a preferred stock of TCI/Liberty having designations, preferences, rights and qualifications, limitations and restrictions similar to the shares of preferred stock being converted. (2) Represents the conversion of TCI's investment in Liberty common stock and preferred stock into an investment in TCI/Liberty preferred stock having an equivalent value. Such amount is reflected as a reduction of stockholders' equity due to its related party nature. Such conversion of shares is reflected at the carryover basis of TCI's investment in Liberty. Because the terms of the TCI/Liberty preferred stock to be issued to TCI, Liberty or their respective subsidiaries are not yet known, the condensed unaudited pro forma statements of operations have not been adjusted to reflect any dividends that might accrue on the TCI/Liberty stock. (3) Reflects the elimination of the historical preferred stock of TCI not owned by TCI, Liberty or their respective subsidiaries. Such historical preferred stock of TCI will be converted into a like kind of TCI/Liberty preferred stock. (4) Reflects the elimination of 82,323,000 and 3,538,000 shares of TCI Class A and TCI Class B common stock, respectively. Such TCI common shares are held by TCI, Liberty or their respective subsidiaries and will be converted into TCI/Liberty preferred stock having an equivalent value. (5) Reflects the elimination of TCI's share of Liberty's historical earnings or losses. See note (2) above. (6) Reflects the income tax effect of the pro forma adjustments. (7) Reflects the elimination of the preferred stock dividend requirement on TCI preferred stock assumed to be converted into preferred stock of TCI/Liberty (see note 3). II-5 40 LIBERTY MEDIA CORPORATION Condensed Pro Forma Financial Statements September 30, 1993 (unaudited) The following unaudited condensed pro forma balance sheet of Liberty, as of September 30, 1993, assumes that the sale by Liberty of the 50% partnership interest in American Movie Classics Company ("AMC") had occurred as of such date. Additionally, such balance sheet also assumes that the TCI/Liberty Merger, whereby TCI and Liberty will each become wholly-owned subsidiaries of TCI/Liberty, had occurred as of such date. In addition, unaudited condensed pro forma combined statements of operations of Liberty for the nine months ended September 30, 1993 and for the year ended December 31, 1992 are included which assume the following had occurred prior to January 1, 1992: (a) the sale by Liberty of its 50% partnership interest in AMC, (b) the Recapitalization Agreement, as defined in note 5, (c) the purchase by a subsidiary of TCI of a 16% limited partnership interest in Intermedia Partners from a subsidiary of Liberty, (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 6, (f) the acquisition of all general and limited partnership interests in Mile Hi Cablevision Associates, Ltd. ("Mile Hi") as described in note 7, (g) the conversion of all the outstanding shares (10,974 shares) of Liberty's Class A Convertible Preferred Stock ("Class A Preferred Stock") into 4,405,678 shares of Liberty Class A common stock and 55,070 shares of Class E, 6% Cumulative Redeemable Exchangeable Junior Preferred Stock ("Class E Preferred Stock"), and (h) the TCI/Liberty Merger. 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 on January 1, 1992. These pro forma combined financial statements, which do not reflect the effects of the proposed merger of BAC, TCI and Liberty, should be read in conjunction with the historical financial statements of Liberty and the condensed unaudited pro forma financial statements of TCI and TCI/Liberty included elsewhere herein. II-6 41 LIBERTY MEDIA CORPORATION Condensed Pro Forma Balance Sheet (unaudited)
September 30, 1993 ------------------------------------------ Liberty Pro forma Historical Adjustments(1)(3) Pro forma ---------- ----------------- --------- Assets amounts in thousands - ------ Cash, receivables, inventories, prepaids and other current assets, net $ 223,106 175,000 (2) 398,106 Deferred income taxes 2,460 -- 2,460 Investment in and advances to affiliates and others 547,612 13,170 (2) 456,771 (104,011)(3) Property and equipment, net of accumulated depreciation 235,447 -- 235,447 Franchise costs, intangibles and other assets, net of amortization 436,260 -- 436,260 ---------- -------- --------- $1,444,885 84,159 1,529,044 ========== ======== ========= Liabilities and Stockholders' Equity - ------------------------------------ Payables and accruals $ 249,836 50,000 (2) 299,836 Debt 514,725 -- 514,725 Other liabilities 64 -- 64 ---------- -------- --------- Total liabilities 764,625 50,000 814,625 ---------- -------- --------- Minority interests 181,555 181,555 Preferred stock subject to mandatory redemption 151,922 (151,922)(4) -- Common stockholders' equity 346,783 138,170 (2) 484,936 (17)(4) Investment in TCI/Liberty -- (104,011)(3) 47,928 151,939 (4) ---------- -------- --------- $1,444,885 84,159 1,529,044 ========== ======== =========
See accompanying notes to unaudited condensed pro forma combined financial statements. II-7 42 LIBERTY MEDIA CORPORATION Condensed Pro Forma Combined Statement of Operations (unaudited)
Nine months ended September 30, 1993 ------------------------------------------------------------------------------------------ Pro forma Liberty Effect of Recap- HSN Mile Hi Adjustments Pro forma Historical italization(5) Historical(6) Historical(7) (1)(3)(6)(7) Combined ---------- ---------------- ------------- ------------- -------------- --------- amounts in thousands except per share amounts Revenue $ 795,840 -- 103,640 7,568 -- 907,048 Operating, selling, general and administrative expenses (761,893) -- (103,718) (4,989) -- (870,600) Depreciation and amortization (33,159) -- (2,579) (1,479) (5,358)(8) (42,575) --------- ----- -------- ------ ------- -------- Operating income (loss) 788 -- (2,657) 1,100 (5,358) (6,127) Interest expense (21,357) -- (2,146) (2,180) (7,702)(9) (31,205) 2,180 (10) Dividend and interest income 17,168 -- 1,633 6 3,091 (11) 21,898 Gain on sale of investment 10,613 -- -- -- -- 10,613 Loss on sale of investments to TCI (22,129) -- -- -- -- (22,129) Share of earnings of affiliates, net 39,092 -- -- -- 380 (12) 30,273 (9,199)(13) Minority interests (1,621) -- -- -- 57 (14) 1,974 170 (15) 3,368 (16) Provision for impairment of investment (8,167) -- -- -- -- (8,167) Other, net (1,828) -- (847) -- -- (2,675) --------- ----- -------- ------ ------- -------- Earnings (loss) before income taxes and extraordinary item 12,559 -- (4,017) (1,074) (13,013) (5,545) Income tax expense (6,769) -- (1,741) -- 4,942 (17) (3,568) --------- ----- -------- ------ ------- -------- Earnings (loss) before extraordinary item 5,790 -- (5,758) (1,074) (8,071) (9,113) Extraordinary item-loss on early extinguishment of debt, net of taxes (2,191) -- (5,051) -- -- (7,242) --------- ----- -------- ------ ------- -------- Net earnings (loss) 3,599 -- (10,809) (1,074) (8,071) (16,355) Dividend requirement on redeemable preferred stocks (26,131) 9,179 -- -- 16,966 (20) -- (14)(18) --------- ----- -------- ------ ------- -------- Net earnings (loss) attributable to common shareholders $ (22,532) 9,179 (10,809) (1,074) 8,881 (16,355) ========= ===== ======== ====== ======= ======== Net loss attributable to common shareholders before extraordinary item $ (0.15) Extraordinary item, net (0.02) --------- Loss per common share $ (0.17) =========
See accompanying notes to unaudited condensed pro forma combined financial statements. II-8 43 LIBERTY MEDIA CORPORATION Condensed Pro Forma Combined Statement of Operations (unaudited)
Year ended December 31, 1992 ------------------------------------------------------------------------------------------ Pro forma Liberty Effect of Recap- HSN Mile Hi Adjustments Pro forma Historical italization(5) Historical(6) Historical(7) (1)(3)(6)(7) Combined ---------- ---------------- ------------- ------------- -------------- --------- amounts in thousands except per share amounts Revenue $ 156,513 -- 1,071,827 34,567 -- 1,262,907 Operating, selling, general and administrative expenses (144,363) -- (954,425) (23,402) -- (1,122,190) Depreciation and amortization (15,546) -- (46,623) (7,017) (25,572)(8) (94,758) --------- ------ --------- ------- ------- ---------- Operating income (loss) (3,396) -- 70,779 4,148 (25,572) 45,959 Interest expense (7,329) -- (21,926) (10,580) (22,039)(9) (51,294) 10,580 (10) Dividend and interest income 26,243 -- 4,310 -- 117 (19) 30,670 Share of earnings of affiliates, net 12,549 -- -- -- (7,839)(13) 4,710 Loss on sale (17,826) -- -- -- -- (17,826) Premium received upon redemption of preferred stock investment 8,248 -- -- -- -- 8,248 Minority interests 4,734 -- -- -- 270 (14) (11,603) 1,024 (15) (17,631)(16) Other, net (328) -- (1,213) -- -- (1,541) --------- ------ --------- ------- ------- ---------- Earnings (loss) before income taxes 22,895 -- 51,950 (6,432) (61,090) 7,323 Income tax expense (8,962) -- (21,812) -- 13,829 (17) (16,945) --------- ------ --------- ------- ------- ---------- Net earnings (loss) 13,933 -- 30,138 (6,432) (47,261) (9,622) Dividend requirement on (41,631) 22,122 -- -- 19,839 (20) -- redeemable preferred stocks (330)(18) --------- ------ --------- ------- ------- ---------- Net earnings (loss) attributable to common shareholders $ (27,698) 22,122 30,138 (6,432) (27,752) (9,622) ========= ====== ========= ======= ======= ========== Loss per common share $ (0.22) =========
See accompanying notes to unaudited condensed pro forma combined financial statements. II-9 44 LIBERTY MEDIA CORPORATION Notes to Condensed Pro Forma Combined Financial Statements September 30, 1993 (unaudited) (1) On September 16, 1993, Liberty announced that one of its subsidiaries received notice from Rainbow Program Enterprises that Rainbow Program Enterprises had elected to purchase Liberty's 50% partnership interest in AMC under the terms of a buy/sell provision contained in the AMC partnership agreement. A subsidiary of Liberty had initiated the buy/sell procedure on August 1, 1993. Liberty expects to receive net pre-tax cash proceeds of approximately $170 million from the sale and an additional $5 million from a buy-out of Liberty's consulting agreement with AMC. (2) Represents assumed cash received from the sale of the 50% partnership interest in AMC by Liberty, pursuant to the terms of the buy/sell provision contained in the AMC partnership agreement (see note 1), and the corresponding increase in investment in affiliates, payables and accruals, and common stockholders' equity. Such increase in investment in affiliates is due to a negative balance in Liberty's carrying value due to distributions in excess of Liberty's basis in such investment. The increase in payables and accruals represents the estimated income taxes payable on the sale. 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 is not reflected in the pro forma combined statement of operations due to its non-recurring nature. (3) Pursuant to the TCI/Liberty Agreement, the TCI/Liberty Merger will be structured as a tax free exchange whereby the common and preferred stock of TCI and Liberty would be exchanged for like shares of TCI/Liberty. The TCI/Liberty Agreement provides that each share of TCI's and Liberty's common stock (other than shares of common stock owned by TCI, Liberty or their respective subsidiaries) would be converted into one share and 0.975 of a share, respectively, of TCI/Liberty's common stock. Any shares of TCI common stock or TCI preferred stock held by subsidiaries of TCI or by Liberty or its subsidiaries and any shares of Liberty common stock or Liberty preferred stock held by subsidiaries of Liberty or by TCI or its subsidiaries shall be converted into shares of a class or series of TCI/Liberty preferred stock having an equivalent value. (As a result, 3,478,000 shares of Liberty Class A common stock held by a subsidiary of TCI will be converted into TCI/Liberty preferred stock having an equivalent value.) As of the date of this Current Report on Form 8-K, the terms and conditions of the preferred stock to be issued to TCI, Liberty or their respective subsidiaries have not been determined. Shares of preferred stock of TCI or Liberty not owned by TCI, Liberty or their respective subsidiaries would be converted into shares of a preferred stock of TCI/Liberty having designations, preferences, rights and qualifications, limitations and restrictions similar to the shares of preferred stock being converted. Adjustment represents the conversion of Liberty's investment in TCI common stock into an investment in TCI/Liberty 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 Liberty's investment in TCI. Because the terms of the TCI/Liberty preferred stock to be issued to TCI, Liberty or their respective subsidiaries are not yet known, the condensed unaudited pro forma statements of operations have not been adjusted to reflect any dividends that may accrue on the TCI/Liberty preferred stock. (continued) II-10 45 LIBERTY MEDIA CORPORATION Notes to Condensed Pro Forma Combined Financial Statements September 30, 1993 (unaudited) (4) Reflects the elimination of the historical preferred stock of Liberty held by TCI or its subsidiaries. Such historical preferred stock of Liberty will be converted into TCI/Liberty preferred stock having an equivalent value. The terms of such TCI/Liberty preferred stock have not yet been determined. See note 3. (5) 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. Also on June 3, 1993, Liberty and a subsidiary of TCI entered into the Purchase and Sale Agreement pursuant to which a TCI subsidiary purchased from Liberty a 16% limited partnership interest in Intermedia Partners for a purchase price of approximately $9 million (such sale is included in the Liberty historical column of the pro forma balance sheet). Liberty also granted TCI an option to purchase its remaining 6% interest prior to December 31, 1995 for approximately $3.6 million plus interest at 8% per annum. (6) 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 Common Stock combined with the acquired Common Stock in the Tender and the acquired Class B Stock represents 41.5% of the common equity and approximately 71% of the voting power of HSN. These purchases are included in the September 30, 1993 Liberty historical column of the pro forma balance sheet. For the purpose of presenting a fiscal year for HSN which is within 93 days of Liberty's, HSN's fiscal year has been brought up to November 30, 1992. This was accomplished by adding the November 30, 1992 quarter-end results to the fiscal year ended August 31, 1992 and deducting the comparable preceding year quarter-end results. (continued) II-11 46 LIBERTY MEDIA CORPORATION Notes to Condensed Pro Forma Combined Financial Statements September 30, 1993 (unaudited) (7) 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 estimated $110 million in cash required by New Mile Hi to complete the transaction, $105 million was loaned to New Mile Hi by CCT and $5 million was provided by 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. (8) 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, 11 years for intangible assets and 40 years for franchise costs. (9) 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 5). Interest on the borrowings for the Mile Hi acquisition is calculated at the weighted average rate of 6% in effect for the nine months ended September 30, 1993 and 6.3% in effect for the year ended December 31, 1992. (10) Reflects the reduction in interest expense arising from the assumed repayment of Mile Hi debt at January 1, 1992 and the elimination of the intercompany interest expense recorded by Mile Hi on its debt to CCT. (continued) II-12 47 LIBERTY MEDIA CORPORATION Notes to Condensed Pro Forma Combined Financial Statements September 30, 1993 (unaudited) (11) Represents the increase in interest income on assumed proceeds from the sale of the partnership interest in AMC, net of the reduction of interest income on funds used to make payment for the acquisition of the HSN Class B Stock and the Tender (see note 6). Such amount of reduced interest income assumes the cash was invested in short-term, interest-bearing accounts earning interest at 4% per annum for the nine months ended September 30, 1993. (12) Elimination of share of losses of Mile Hi through March 15, 1993. (13) Elimination of share of earnings of AMC. (14) Represents the interest income on the loan to a minority partner (see note 7). (15) Represents the minority partners' 22% interest in the pro forma losses of Mile Hi adjusted for the effects of the acquisition (see note 7). (16) Represents the minority shareholders' 58.5% interest in the pro forma losses of HSN (see note 6). (17) Estimated income tax effect of the pro forma adjustments. (18) 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. (19) Represents the increase in interest income on assumed proceeds from the sale of the partnership interest in AMC net of the reduction of interest income on funds used to make payment for the acquisition of the HSN Class B Stock and the Tender (see note 6). Such amount of reduced interest assumes the cash used was invested in short-term, interest-bearing accounts earning interest at 4% per annum for the year ended December 31, 1992. (20) Reflects the elimination of the preferred stock dividend requirement on Liberty preferred stock assumed to be converted into preferred stock of TCI/Liberty. See note 3. II-13 48 "TCI/LIBERTY" AND SUBSIDIARIES Condensed Pro Forma Financial Statements September 30, 1993 (unaudited) The following unaudited condensed pro forma balance sheet of TCI/Liberty, dated as of September 30, 1993, assumes that the proposed TCI/Liberty Merger, whereby TCI and Liberty will each become wholly-owned subsidiaries of TCI/Liberty, had occurred as of such date. In addition, the unaudited condensed pro forma statements of operations of TCI/Liberty for the nine months ended September 30, 1993 and the year ended December 31, 1992 assume that the proposed TCI/Liberty Merger had occurred prior to January 1, 1992. The unaudited pro forma results do not purport to be indicative of the results of operations that would have been obtained if the TCI/Liberty Merger had occurred as of January 1, 1992. These condensed pro forma financial statements, which do not reflect the effects of the proposed merger of BAC, TCI and Liberty, should be read in conjunction with the condensed unaudited pro forma financial statements of TCI and Liberty included elsewhere herein and the respective historical financial statements of TCI and Liberty. II-14 49 "TCI/LIBERTY" AND SUBSIDIARIES Condensed Pro Forma Balance Sheet (unaudited)
September 30, 1993 ----------------------------------------------------- TCI Liberty Pro forma TCI/Liberty Pro forma Pro forma adjustments(1) Pro forma ---------- ---------- -------------- --------- Assets amounts in millions - ------ Cash, receivables and other current assets $ 216 398 -- 614 Investment in other affiliates and Turner Broadcasting System, Inc., and related receivables 1,394 457 (197)(2) 1,565 (89)(3) Property and equipment, net of accumulated depreciation 4,825 235 -- 5,060 Franchise costs, intangibles and other assets, net of amortization 9,608 436 -- 10,044 ------- ------ ------ ------ $16,043 1,526 (286) 17,283 ======= ====== ====== ====== Liabilities and Stockholders' Equity - ------------------------------------ Payables and accruals $ 708 300 (11)(2) 997 Debt 10,194 514 (186)(2) 10,522 Deferred income taxes 3,292 (2) -- 3,290 Other liabilities 83 -- -- 83 ------- ------ ------ ------ Total liabilities 14,277 812 (197) 14,892 ------- ------ ------ ------ Minority interests 288 181 (89)(3) 380 Redeemable preferred stock -- -- 18 (4) 18 Stockholders' equity: Class A common stock 381 84 (2)(5) 463 Class B common stock 44 43 (1)(5) 86 Additional paid-in capital 1,664 234 (108)(4) 1,479 3 (5) (314)(6) Cumulative foreign currency translation adjustment (21) -- -- (21) Retained earnings (deficit) (452) 138 314 (6) -- Receivable from related party -- (14) -- (14) Investment in TCI/Liberty (138) 48 90 (4) -- ------- ------ ------ ------ 1,478 533 (18) 1,993 ------- ------ ------ ------ $16,043 1,526 (286) 17,283 ======= ====== ====== ======
See accompanying notes to unaudited condensed pro forma financial statements. II-15 50 "TCI/LIBERTY" AND SUBSIDIARIES Condensed Pro Forma Statement of Operations (unaudited)
Nine months ended September 30, 1993 --------------------------------------------------- TCI Liberty Pro forma TCI/Liberty Pro forma Pro forma adjustments(1) Pro forma --------- --------- -------------- --------- amounts in millions Revenue $ 3,104 907 (41)(7) 3,970 Operating, selling, general and administrative expenses (1,695) (871) 41 (7) (2,525) Depreciation and amortization (659) (42) -- (701) ------- ------ ------ ------ Operating income (loss) 750 (6) -- 744 Interest expense (549) (31) 5 (8) (575) Interest and dividend income 23 22 (5)(8) 40 Share of earnings (losses) of affiliates, net (44) 30 -- (14) Gain (loss) on disposition 49 (20) -- 29 Loss on early extinguishment of debt (17) (7) -- (24) Other expense, net (12) -- -- (12) ------- ------ ------ ------ Earnings (loss) before income taxes 200 (12) -- 188 Income tax expense (173) (4) -- (177) ------- ------ ------ ------ Net earnings (loss) 27 (16) -- 11 Dividend requirement on redeemable preferred stocks -- -- (8)(9) (8) ------- ------ ------ ------ Net earnings (loss) attributable to common shareholders $ 27 (16) (8) 3 ======= ====== ====== ====== Primary earnings per common and common equivalent share $ .01 (10) ======
See accompanying notes to unaudited condensed pro forma financial statements. II-16 51 "TCI/LIBERTY" AND SUBSIDIARIES Condensed Pro Forma Statement of Operations (unaudited)
Year ended December 31, 1992 -------------------------------------------------- TCI Liberty Pro forma TCI/Liberty Pro forma Pro forma adjustments(1) Pro forma --------- --------- -------------- --------- amounts in millions Revenue $ 3,574 1,263 (46)(7) 4,791 Operating, selling, general and administrative expenses (1,946) (1,122) 46 (7) (3,022) Depreciation and amortization (672) (95) -- (767) ------- ------ ------ ------ Operating income 956 46 -- 1,002 Interest expense (718) (51) -- (769) Interest and dividend income 69 31 -- 100 Share of earnings (losses) of affiliates, net (103) 12 -- (91) Gain (loss) on disposition 9 (18) -- (9) Loss on early extinguishment of debt (67) -- -- (67) Other expense, net (29) (13) -- (42) ------- ------ ------ ------ Earnings before income taxes 117 7 -- 124 Income tax expense (144) (17) -- (161) ------- ------ ------ ------ Loss from continuing operations $ (27) (10) -- (37) ======= ====== ====== ====== Dividend requirement on redeemable preferred stocks $ -- -- (23)(9) (23) ======= ====== ====== ====== Net loss applicable to common stockholders from continuing operations $ (27) (10) (23) (60) ======= ====== ====== ====== Loss per common share from continuing operations $ (.11)(11) ======
See accompanying notes to unaudited condensed pro forma financial statements. II-17 52 "TCI/LIBERTY" AND SUBSIDIARIES Notes to Condensed Pro Forma Financial Statements September 30, 1993 (unaudited) (1) Pursuant to the TCI/Liberty Agreement, the TCI/Liberty Merger will be structured as a tax free exchange whereby the common and preferred stock of TCI and Liberty would be exchanged for like shares of TCI/Liberty. The TCI/Liberty Agreement provides that each share of TCI's and Liberty's common stock (other than shares of common stock owned by TCI, Liberty or their respective subsidiaries) would be converted into one share and 0.975 of a share, respectively, of TCI/Liberty's common stock. Any shares of TCI common stock or TCI preferred stock held by subsidiaries of TCI or by Liberty or its subsidiaries and any shares of Liberty common stock or Liberty preferred stock held by subsidiaries of Liberty or by TCI or its subsidiaries shall be converted into shares of a class or series of TCI/Liberty preferred stock having an equivalent value. As of the date of this Current Report on Form 8-K, the terms and conditions of the preferred stock to be issued to TCI, Liberty or their respective subsidiaries have not been determined. Shares of preferred stock of TCI or Liberty not owned by TCI, Liberty or their respective subsidiaries would be converted into shares of a preferred stock of TCI/Liberty having designations, preferences, rights and qualifications, limitations and restrictions similar to the shares of preferred stock being converted. (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) Reflects the issuance of a like kind of preferred stock of TCI/Liberty in exchange for TCI preferred stock not owned by TCI, Liberty or their respective subsidiaries. Additionally, all preferred stock of TCI/Liberty held by TCI, Liberty or their respective subsidiaries (reflected in the TCI pro forma financial information and the Liberty pro forma financial information as "Investment in TCI/Liberty") has been eliminated in consolidation with TCI/Liberty. (5) Reflects the net conversion of TCI and Liberty common stock held other than by TCI, Liberty or their subsidiaries, at the exchange ratios described in note 1, into like shares of TCI/Liberty. (6) Reflects the elimination of the combined historical accumulated deficit of TCI and Liberty. (7) Represents the elimination of intercompany revenue and operating expenses between TCI and Liberty arising from the sale of certain cable television programming to their respective cable television subscribers. (8) Represents the elimination of interest on intercompany indebtedness between TCI and Liberty. (continued) II-18 53 "TCI/LIBERTY" AND SUBSIDIARIES Notes to Condensed Pro Forma Financial Statements (9) Represents the preferred stock dividend requirement on preferred stock of TCI/Liberty other than preferred stock issued to TCI, Liberty or their respective subsidiaries. (10) Reflects primary earnings per common and common equivalent share based upon 550,002,756 weighted average shares. Such amount is calculated utilizing 431,890,323 weighted average shares of TCI at September 30, 1993 (such amount representing TCI's weighted average shares, disclosed in their historical financial statements, reduced by 41,060,990 shares of TCI common stock excluded in the pro forma calculation due to its anti-dilutive effect) reduced by 6,525,721 shares of TCI common stock previously held by Liberty and 128,028,988 weighted averages shares of Liberty at September 30, 1993 (such amount representing Liberty's weighted average shares, as disclosed in their historical financial statements, adjusted by Liberty common stock equivalents previously excluded because they had an anti-dilutive effect, shares of Liberty common stock issued in the HSN merger and Liberty common stock repurchased from TCI in 1993, all of which have been adjusted by 0.975 of a share) reduced by 3,390,834 shares of Liberty common stock (as adjusted by 0.975 of a share) previously held by TCI. (11) Reflects loss per common share from continuing operations based upon 541,346,130 weighted average shares. Such amount is calculated utilizing 424,060,747 weighted average shares of TCI at December 31, 1992, as disclosed in their historical financial statements, reduced by 6,525,721 shares of TCI common stock previously held by Liberty and 127,201,938 weighted averages shares of Liberty at December 31, 1992 (such amount representing Liberty's weighted average shares, as disclosed in their historical financial statements, adjusted by shares of Liberty common stock issued in the HSN merger and Liberty common stock repurchased from TCI in 1993, all of which have been adjusted by 0.975 of a share) reduced by 3,390,834 shares of Liberty common stock (as adjusted by 0.975 of a share) previously held by TCI. II-19 54 EXHIBIT INDEX Listed below are the exhibits which are filed as part of this report (according to the number assigned to them in Item 601 of Regulation S-K): (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 Mergeco, Inc. and Liberty Mergeco, Inc.* (2.2) Letter of Intent, dated October 12, 1993, among Bell Atlantic Corporation, Tele-Communications, Inc. and Liberty Media Corporation. Incorporated herein by reference to TCI's Current Report on Form 8-K, dated October 26, 1993. * The Agreement and Plan of Merger contains indexes identifying the items, including exhibits and schedules, annexed thereto. A copy of any omitted item will be furnished supplementally to the Commission upon request. II-20 EX-2.1 2 AGREEMENT AND PLAN OF MERGER 1 AGREEMENT AND PLAN OF MERGER BY AND AMONG TELE-COMMUNICATIONS, INC. LIBERTY MEDIA CORPORATION, TCI/LIBERTY HOLDING COMPANY TCI MERGERCO, INC. AND LIBERTY MERGERCO, INC. AS OF JANUARY 27, 1994 2 TABLE OF CONTENTS
Page ---- ARTICLE I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 The Mergers . . . . . . . . . . . . . . . . . . 1 1.1 The Mergers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ----------- 1.2 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 -------------- 1.3 Effect of the Mergers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 --------------------- 1.4 Certificate of Incorporation and By-laws of TCI/Liberty . . . . . . . . . . . 2 ------------------------------------------------------- 1.5 Certificates of Incorporation and By-laws of the Surviving Corporations . . . 3 ----------------------------------------------------------------------- 1.6 Directors and Officers of the Surviving Corporations . . . . . . . . . . . . 3 ---------------------------------------------------- 1.7 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 ------- 1.8 Definitions of "Subsidiary" and "affiliate" . . . . . . . . . . . . . . . . . 3 ------------------------------------------- ARTICLE II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Conversion and Exchange of Securities; Effect of Mergers on TCI and Liberty Stock Plans . . . . . . . . . 4 2.1 Conversion of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 4 ------------------------ 2.2 TCI/Liberty Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 ----------------- 2.3 Transfer Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 -------------- 2.4 Definition of "fair market value" . . . . . . . . . . . . . . . . . . . . . . 7 --------------------------------- 2.5 Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 ----------------- 2.6 Exchange of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 ------------------ 2.7 Stock Options, SARs and Benefit Plans . . . . . . . . . . . . . . . . . . . . 11 ------------------------------------- ARTICLE III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Certain Actions . . . . . . . . . . . . . . . . . 15 3.1 TCI Stockholder Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 ----------------------- 3.2 Liberty Stockholder Meeting . . . . . . . . . . . . . . . . . . . . . . . . . 15 --------------------------- 3.3 Proxy Statement and Registration Statement . . . . . . . . . . . . . . . . . 15 ------------------------------------------ 3.4 Letters from Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . 16 ------------------------ 3.5 Release of Escrowed TCI Common Stock . . . . . . . . . . . . . . . . . . . . 17 ------------------------------------ 3.6 Identification of Affiliates . . . . . . . . . . . . . . . . . . . . . . . . 17 ---------------------------- 3.7 State Takeover Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 ----------------------- 3.8 Possible Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 ---------------------- 3.9 Reasonable Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 ------------------ 3.10 Quotation on Nasdaq NMS . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 -----------------------
i 3
Page ---- 3.11 Voting Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 ---------------- 3.12 Restrictions on Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . 19 ------------------------ 3.13 Directors and Executive Officers of TCI/Liberty at the Effective Time . . . . 20 --------------------------------------------------------------------- ARTICLE IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Representations and Warranties of Liberty . . . . . . . . . . 20 4.1 Organization and Qualification . . . . . . . . . . . . . . . . . . . . . . . 20 ------------------------------ 4.2 Authorization and Validity of Agreement . . . . . . . . . . . . . . . . . . . 21 --------------------------------------- 4.3 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 -------------- 4.4 Reports and Financial Statements . . . . . . . . . . . . . . . . . . . . . . 23 -------------------------------- 4.5 No Approvals or Notices Required; No Conflict with Instruments . . . . . . . 23 -------------------------------------------------------------- 4.6 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . 26 ------------------------------------ 4.7 Registration Statement; Proxy Statement . . . . . . . . . . . . . . . . . . . 26 --------------------------------------- 4.8 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 ----------------- 4.9 Licenses; Compliance With Regulatory Requirements; Intangible Property . . . 27 ---------------------------------------------------------------------- 4.10 Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 ------------------ 4.11 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 ----------- 4.12 Employee Benefit Plans; ERISA . . . . . . . . . . . . . . . . . . . . . . . . 29 ----------------------------- 4.13 Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 ---------------- 4.14 Recommendation of Liberty Board . . . . . . . . . . . . . . . . . . . . . . . 33 ------------------------------- 4.15 Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 ------------- ARTICLE V . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Representations and Warranties of TCI . . . . . . . . . . . 33 5.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 ------------ 5.2 Authorization and Validity of Agreement . . . . . . . . . . . . . . . . . . . 34 --------------------------------------- 5.3 Capitalization of TCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 --------------------- 5.4 TCI Reports and Financial Statements . . . . . . . . . . . . . . . . . . . . 36 ------------------------------------ 5.5 No Approvals or Notices Required; No Conflict with Instruments . . . . . . . 37 -------------------------------------------------------------- 5.6 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . 38 ------------------------------------ 5.7 Registration Statement; Proxy Statement . . . . . . . . . . . . . . . . . . . 38 --------------------------------------- 5.8 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 ----------------- 5.9 Licenses; Compliance with Regulatory Requirements; Intangible Property . . . 40 ---------------------------------------------------------------------- 5.10 Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 ------------------ 5.11 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 ----------- 5.12 Employee Benefit Plans; ERISA . . . . . . . . . . . . . . . . . . . . . . . . 41 ----------------------------- 5.13 Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 ----------------
ii 4
Page ---- 5.14 Recommendation of TCI Board . . . . . . . . . . . . . . . . . . . . . . . . . 45 --------------------------- 5.15 Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 ------------- ARTICLE VI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Representations and Warranties of TCI/Liberty . . . . . . . . . 46 6.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 ------------ 6.2 Authorization and Validity of Agreement . . . . . . . . . . . . . . . . . . . 46 --------------------------------------- 6.3 Newly Issued Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 ------------------- 6.4 Interim Operations of TCI/Liberty . . . . . . . . . . . . . . . . . . . . . . 46 --------------------------------- ARTICLE VII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Transactions Prior to Closing . . . . . . . . . . . . . 46 7.1 Access to Information Concerning Properties and Records . . . . . . . . . . . 46 ------------------------------------------------------- 7.2 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 --------------- 7.3 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 -------------------- 7.4 Conduct of Business by Liberty and TCI Pending the Effective Time . . . . . . 47 ----------------------------------------------------------------- 7.5 No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 --------------- 7.6 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 -------- 7.7 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . 51 ------------------------------- 7.8 Defense of Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 --------------------- ARTICLE VIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Conditions Precedent . . . . . . . . . . . . . . . . 52 8.1 Conditions Precedent to the Obligations of TCI and Liberty . . . . . . . . . 52 ---------------------------------------------------------- 8.2 Conditions Precedent to the Obligations of TCI . . . . . . . . . . . . . . . 53 ---------------------------------------------- 8.3 Conditions Precedent to the Obligations of Liberty . . . . . . . . . . . . . 55 -------------------------------------------------- ARTICLE IX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Termination . . . . . . . . . . . . . . . . . . 57 9.1 Termination and Abandonment . . . . . . . . . . . . . . . . . . . . . . . . . 57 --------------------------- 9.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 --------------------- ARTICLE X . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Miscellaneous . . . . . . . . . . . . . . . . . 58 10.1 Nonsurvival of Representations, Warranties and Agreements . . . . . . . . . . 58 --------------------------------------------------------- 10.2 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 ---------------
iii 5
Page ---- 10.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 ------- 10.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 ---------------- 10.5 Assignment; Binding Effect; Benefit . . . . . . . . . . . . . . . . . . . . . 60 ----------------------------------- 10.6 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 --------- 10.7 Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 ----------------- 10.8 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 -------------- 10.9 Knowledge as to Equity Affiliates . . . . . . . . . . . . . . . . . . . . . . 62 --------------------------------- 10.10 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 ------------ 10.11 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 -------------- 10.12 No Remedy in Certain Circumstances . . . . . . . . . . . . . . . . . . . . . 62 ---------------------------------- 10.13 Limited Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 -----------------
Exhibit A - Certificate of Incorporation of TCI/Liberty Exhibit B - By-laws of TCI/Liberty Exhibit C - Certificate of Incorporation of TCI Surviving Corporation Exhibit D - Certificate of Incorporation of Liberty Surviving Corporation Exhibit E - By-laws of TCI Surviving Corporation Exhibit F - By-laws of Liberty Surviving Corporation Exhibit G - Other Employee Benefit Plans Exhibit H - Rule 145 Affiliates Exhibit I - Directors and Executive Officers of TCI/Liberty Annex 1 - Opinion of Counsel to be delivered to TCI Annex 2 - Opinion of Counsel to be delivered to Liberty
iv 6 AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER, dated as of January 27, 1994, by and among TELE-COMMUNICATIONS, INC., a Delaware corporation ("TCI"), LIBERTY MEDIA CORPORATION, a Delaware corporation ("Liberty"), TCI/LIBERTY HOLDING COMPANY, a Delaware corporation jointly owned by TCI and Liberty ("TCI/Liberty"), TCI MERGERCO, INC., a Delaware corporation and a wholly owned subsidiary of TCI/Liberty ("TCI Mergerco"), and LIBERTY MERGERCO, INC., a Delaware corporation and a wholly owned subsidiary of TCI/Liberty ("Liberty Mergerco"). WHEREAS, the respective Boards of Directors of TCI and Liberty have approved, and deem it in the best interests of their respective stockholders to consummate, the business combination transaction provided for herein, in which TCI Mergerco would merge with and into TCI (the "TCI Merger"), Liberty Mergerco would merge with and into Liberty (the "Liberty Merger"; and, together with the TCI Merger, the "Mergers"), and the surviving corporations of the Mergers would become wholly-owned subsidiaries of TCI/Liberty; WHEREAS, the parties desire to make certain representations, warranties and agreements in connection with the Mergers and also to prescribe certain conditions to the Mergers; and WHEREAS, for Federal income tax purposes it is intended that each of the Mergers shall be tax free to the parties and to the stockholders of each of TCI and Liberty. NOW, THEREFORE, in consideration of the premises and the respective representations, warranties, covenants and agreements set forth herein, the parties hereto agree as follows: ARTICLE I The Mergers 1.1 The Mergers. Subject to the terms and conditions of this Agreement, at the Effective Time (as defined in Section 1.2), (i) TCI Mergerco shall be merged with and into TCI in accordance with the provisions of the General Corporation Law of the State of Delaware (the "DGCL"), and the separate corporate existence of TCI Mergerco shall cease and TCI shall continue as the surviving corporation (hereinafter sometimes referred to as the "TCI Surviving Corporation") under the laws of the State of Delaware under the name "TCI Communications, Inc." and (ii) Liberty Mergerco shall be merged with and into Liberty in accordance with the provisions of the DGCL, and the separate corporate existence of Liberty Mergerco shall cease and Liberty shall continue as the surviving corporation (hereinafter sometimes referred to as the "Liberty Surviving Corporation") under the laws of the State of Delaware under the name "Liberty Media Corporation." (TCI and TCI Mergerco are 1 7 sometimes hereinafter referred to collectively as the "TCI Constituent Corporations" and Liberty and Liberty Mergerco are sometimes hereinafter referred to collectively as the "Liberty Constituent Corporations.") The TCI Surviving Corporation and the Liberty Surviving Corporation are sometimes hereinafter referred to collectively as the "Surviving Corporations." 1.2 Effective Time. Subject to the terms and provisions of this Agreement, there shall be filed with the Delaware Secretary of State, as soon as practicable on or after the Closing Date (as defined in Section 1.7), (i) a certificate of merger with respect to the TCI Merger (the "TCI Certificate of Merger"), in such form as is required by, and executed in accordance with, the applicable provisions of the DGCL and (ii) a certificate of merger with respect to the Liberty Merger (the "Liberty Certificate of Merger"), in such form as is required by, and executed in accordance with, the applicable provisions of the DGCL. The Mergers shall become effective simultaneously at the time of filing of the TCI Certificate of Merger and the Liberty Certificate of Merger with the Delaware Secretary of State or at such other time as may be provided in such certificates of merger. The time at which the Mergers shall become effective is referred to herein as the "Effective Time." 1.3 Effect of the Mergers. The Mergers shall have the effects set forth in Sections 259, 260 and 261 of the DGCL. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time (i) all the properties, rights, privileges, powers and franchises of the TCI Constituent Corporations shall vest in the TCI Surviving Corporation, and all debts, liabilities and duties of the TCI Constituent Corporations shall become the debts, liabilities and duties of the TCI Surviving Corporation and (ii) all the properties, rights, privileges, powers and franchises of the Liberty Constituent Corporations shall vest in the Liberty Surviving Corporation, and all debts, liabilities and duties of the Liberty Constituent Corporations shall become the debts, liabilities and duties of the Liberty Surviving Corporation. If, at any time after the Effective Time, either Surviving Corporation considers or is advised that any deeds, bills of sale, assignments, assurances or any other actions or things are necessary or desirable to vest, perfect or confirm of record or otherwise in such Surviving Corporation its right, title or interest in, to or under any of the rights, properties or assets of either TCI or TCI Mergerco, or Liberty or Liberty Mergerco, as the case may be, or otherwise to carry out the intent and purposes of this Agreement, the officers and directors of such Surviving Corporation will be authorized to execute and deliver, in the name and on behalf of each of TCI and TCI Mergerco, or Liberty and Liberty Mergerco, as the case may be, all such deeds, bills of sale, assignments and assurances and to take and do, in the name and on behalf of each of TCI and TCI Mergerco, or Liberty and Liberty Mergerco, as the case may be, all such other actions and things as may be necessary or desirable to vest, perfect or confirm any and all right, title and interest in, to and under such rights, properties or assets in such Surviving Corporation or otherwise to carry out the intent and purposes of this Agreement. 1.4 Certificate of Incorporation and By-laws of TCI/Liberty. From and after the Effective Time, (a) the Certificate of Incorporation of TCI/Liberty shall read in its entirety in the form set forth as Exhibit A and (b) the By-laws of TCI/Liberty shall read in its entirety in the form set forth as Exhibit B, in each case until thereafter amended as provided by law. 2 8 1.5 Certificates of Incorporation and By-laws of the Surviving Corporations. (a) The Certificate of Incorporation of TCI, as in effect immediately prior to the Effective Time, shall be amended, by virtue of the TCI Merger, so as to read in its entirety in the form set forth as Exhibit C hereto, and as so amended shall, from and after the Effective Time, be the Certificate of Incorporation of the TCI Surviving Corporation until thereafter further amended as provided by law. The Certificate of Incorporation of Liberty, as in effect immediately prior to the Effective Time, shall be amended, by virtue of the Liberty Merger, so as to read in its entirety in the form set forth as Exhibit D hereto, and as so amended shall, from and after the Effective Time, be the Certificate of Incorporation of the Liberty Surviving Corporation until thereafter further amended as provided by law. (b) The By-laws of TCI, as in effect immediately prior to the Effective Time, shall be amended, immediately following the Effective Time, so as to read in its entirety in the form set forth as Exhibit E hereto, and as so amended shall be the By-laws of the TCI Surviving Corporation until thereafter further amended as provided by law. The By-laws of Liberty, as in effect immediately prior to the Effective Time, shall be amended immediately following the Effective Time, so as to read in its entirety in the form set forth as Exhibit F hereto, and as so amended shall be the By-laws of the Liberty Surviving Corporation until thereafter further amended as provided by law. 1.6 Directors and Officers of the Surviving Corporations. (a) The initial directors of TCI Surviving Corporation and Liberty Surviving Corporation shall be the respective persons that are directors of TCI and Liberty, respectively, at the Effective Time, and all such directors will continue to hold office from the Effective Time until their respective successors are duly elected or appointed and qualify in the manner provided in the respective Certificates of Incorporation and By-laws of the Surviving Corporations, or as otherwise provided by applicable law. The initial officers of TCI Surviving Corporation and Liberty Surviving Corporation shall be the respective persons that are officers of TCI and Liberty, respectively, at the Effective Time and all such officers will continue to hold office from the Effective Time until their respective successors are duly appointed and qualify in the manner provided in the respective By-laws of the Surviving Corporations, or as otherwise provided by applicable law. 1.7 Closing. The closing of the transactions contemplated by this Agreement (the "Closing") shall take place at the offices of Baker & Botts, L.L.P., 885 Third Avenue, New York, New York, at 10:00 a.m., local time, on a date to be selected by the parties, which shall be no later than the second business day after the day on which the last of the conditions set forth in Article VIII (other than any such conditions which, by their terms, are not capable of being satisfied until the Closing Date) is satisfied or, where permissible, waived, unless another place, date or time is agreed to by TCI and Liberty (the date on which the Closing takes place being referred to herein as the "Closing Date"). 1.8 Definitions of "Subsidiary" and "affiliate". Subject to the last sentence of this Section 1.8, as used in this Agreement, (i) a "Subsidiary" of any party means any corporation 3 9 or other organization, whether incorporated or unincorporated, of which (x), in the case of a corporation, securities or other interests having by their terms ordinary voting power to elect a majority of the Board of Directors or others performing similar functions with respect to such corporation are directly or indirectly owned or controlled by such party, by any one or more of its Subsidiaries, or by such party and one or more of its Subsidiaries or (y) in the case of any organization or entity other than a corporation, such party, one or more of its Subsidiaries, or such party and one or more of its Subsidiaries (A) owns a majority of the equity interests thereof and (B) has the power to elect or direct the election of a majority of the members of the governing body thereof or otherwise has "control" (within the meaning of Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the "Exchange Act") over such organization or entity; and (ii) except for purposes of Section 3.6, the term "affiliate" has the meaning assigned to such term in Rule 12b-2 under the Exchange Act. For purposes of this Agreement (other than Section 3.6), (A) neither Liberty nor any of its Subsidiaries shall be deemed to be Subsidiaries or affiliates of TCI or any of TCI's Subsidiaries; (B) neither TCI nor any of its Subsidiaries (determined after applying the rule in clause (A) of this sentence) shall be deemed to be affiliates of Liberty or any of Liberty's Subsidiaries; (C) none of the affiliates (the "Liberty Affiliates") of Liberty or any of its Subsidiaries (determined after applying the rules in clauses (A) and (B) of this sentence) shall be deemed to be an affiliate of TCI or any of TCI's Subsidiaries, unless such Liberty Affiliate would be such an affiliate if neither TCI nor any of its Subsidiaries (1) owned any capital stock of Liberty, (2) designated or nominated, or possessed any contractual right to designate or nominate, any directors of Liberty or any of its Subsidiaries or (3) otherwise possessed, directly or indirectly, the power to direct or cause the direction of the management or policies of Liberty or any of its Subsidiaries; and (D) none of the affiliates ("TCI Affiliates") of TCI or any of TCI's Subsidiaries (determined after applying the rules in clauses (A) and (B) of this sentence) shall be deemed to be an affiliate of Liberty or any of Liberty's Subsidiaries, unless such TCI Affiliate would be such an affiliate if neither TCI nor any of its Subsidiaries (1) owned any capital stock of Liberty, (2) designated or nominated, or possessed any contractual right to designate or nominate, any directors of Liberty or any of its Subsidiaries or (3) otherwise possessed, directly or indirectly, the power to direct or cause the direction of the management or policies of Liberty or any of its Subsidiaries. ARTICLE II Conversion and Exchange of Securities; Effect of Mergers on TCI and Liberty Stock Plans 2.1 Conversion of Securities. At the Effective Time, by virtue of the Mergers and without any action on the part of any party hereto or the holder of any of the following securities: (a) Conversion of TCI Common Stock. Each share of the Class A Common Stock, par value $1.00 per share, of TCI (the "TCI Class A Stock") issued and outstanding immediately prior to the Effective Time (other than shares of TCI Class A Stock to be 4 10 cancelled pursuant to Section 2.1(f)) shall be converted into the right to receive one validly issued, fully paid and non-assessable share of the Class A Common Stock, par value $1.00 per share, of TCI/Liberty (the "TCI/Liberty Class A Stock") and each share of the Class B Common Stock, par value $1.00 per share, of TCI (the "TCI Class B Stock," and collectively with the TCI Class A Stock, the "TCI Common Stock") issued and outstanding immediately prior to the Effective Time (other than shares to be cancelled pursuant to Section 2.1(f)) shall be converted into the right to receive one validly issued, fully paid and non-assessable share of the Class B Common Stock, par value $1.00 per share, of TCI/Liberty (the "TCI/Liberty Class B Stock," and collectively with the TCI/Liberty Class A Stock, the "TCI/Liberty Common Stock"). All such shares of TCI Common Stock shall no longer be outstanding and shall automatically be cancelled and retired and shall cease to exist, and each holder of a certificate representing any such shares shall cease to have any rights with respect thereto, except the right to receive the shares of TCI/Liberty Common Stock to be issued pursuant to this Section 2.1(a) (and any dividends or other distributions payable pursuant to Section 2.6(g)) with respect thereto upon the surrender of such certificate in accordance with Section 2.6, without interest. (b) Conversion of TCI Preferred Stock. Subject to Section 2.5, each share of the Convertible Preferred Stock, Series C, par value $1.00 per share, of TCI (the "TCI Preferred Stock") issued and outstanding immediately prior to the Effective Time (other than shares of TCI Preferred Stock to be cancelled pursuant to Section 2.1(f)) shall be converted into the right to receive one validly issued, fully paid and non-assessable share of the Class A Convertible Preferred Stock, par value $1.00 per share, of TCI/Liberty (the "TCI/Liberty Convertible Preferred"), which shall have the designations, preferences, rights and qualifications, limitations and restrictions set forth in Article IV, Section B of Exhibit A hereto. Subject to Section 2.5, all such shares of TCI Preferred Stock shall no longer be outstanding and shall automatically be cancelled and retired and shall cease to exist, and each holder of a certificate representing any such shares shall cease to have any rights with respect thereto, except the right to receive the shares of TCI/Liberty Convertible Preferred to be issued pursuant to this Section 2.1(b) (and any dividends or other distributions payable pursuant to Section 2.6(g)) with respect thereto upon the surrender of such certificate in accordance with Section 2.6, without interest. (c) Conversion of Liberty Common Stock. Subject to Section 2.6(f), (i) each share of the Class A Common Stock, par value $1.00 per share, of Liberty (the "Liberty Class A Stock") issued and outstanding immediately prior to the Effective Time (other than shares to be cancelled pursuant to Section 2.1(f)) shall be converted into the right to receive .975 of a validly issued, fully paid and non-assessable share of the TCI/Liberty Class A Stock and (ii) each share of the Class B Common Stock, par value $1.00 per share, of Liberty (the "Liberty Class B Stock," and collectively with the Liberty Class A Stock, the "Liberty Common Stock") issued and outstanding immediately prior to the Effective Time (other than shares to be cancelled pursuant to Section 2.1(f)) shall be converted into the right to receive .975 of a validly issued, fully paid and non-assessable share of the TCI/Liberty Class B Stock. All such shares of Liberty Common Stock shall no longer be outstanding and shall automatically be 5 11 cancelled and retired and shall cease to exist, and each holder of a certificate representing any such shares shall cease to have any rights with respect thereto, except the right to receive the shares of TCI/Liberty Common Stock to be issued pursuant to this Section 2.1(c) (and any dividends or other distributions and any cash in lieu of a fractional share payable pursuant to Sections 2.6(g) and 2.6(f)) with respect thereto upon the surrender of such certificate in accordance with Section 2.6, without interest. (d) Conversion of Liberty Class B and D Preferred Stock. Each share of (i) Class B Redeemable Exchangeable Preferred Stock, par value $.01 per share, of Liberty (the "Liberty Class B Preferred") and (ii) Class D Redeemable Voting Preferred Stock, par value $.01 per share, of Liberty (the "Liberty Class D Preferred") issued and outstanding immediately prior to the Effective Time (other than shares of Liberty Class B Preferred and Liberty Class D Preferred to be cancelled pursuant to Section 2.1(f)), shall be converted into the right to receive that number of validly issued, fully paid and non-assessable shares (and/or fraction of a share) of the Class B Preferred Stock, par value $.01 per share, of TCI/Liberty ("TCI/Liberty Class B Preferred") equal to the product of one multiplied by a fraction, the numerator of which is the fair market value (as defined in Section 2.4) of the share of Liberty Class B Preferred or Liberty Class D Preferred, as the case may be, to be converted in accordance with this Section 2.1(d), and the denominator of which is the fair market value of a share of TCI/Liberty Class B Preferred. All such shares of Liberty Class B and Class D Preferred shall no longer be outstanding and shall automatically be cancelled and retired and shall cease to exist, and the holder of a certificate representing any such shares shall cease to have any rights with respect thereto, except the right to receive the shares of TCI/Liberty Class B Preferred to be issued pursuant to this Section 2.1(d) (and any dividends or other distributions payable pursuant to Section 2.6(g)) with respect thereto upon the surrender of such certificate in accordance with Section 2.6, without interest. The TCI/Liberty Class B Preferred shall have the designations, preferences, rights and qualifications, limitations and restrictions set forth in Article IV, Section C of Exhibit A hereto (as supplemented as contemplated by said Section). No certificates or scrip representing a fractional share of TCI/Liberty Class B Preferred shall be issued upon the surrender by any holder of certificates for Liberty Class B Preferred or Liberty Class D Preferred. In lieu of such a fractional share, the number of shares of TCI/Liberty Class B Preferred to which a holder shall be entitled pursuant to this Section 2.1(d) shall be rounded down to the nearest whole number (after taking into account all shares of Liberty Class B Preferred and Liberty Class D Preferred owned by such holder). (e) Conversion of Liberty Class E Preferred Stock. Each share of the Class E, 6% Cumulative Redeemable Exchangeable Junior Preferred Stock, par value $.01 per share, of Liberty (the "Liberty Class E Preferred", and collectively with the Liberty Class B Preferred and Liberty Class D Preferred, the "Liberty Preferred Stock") issued and outstanding immediately prior to the Effective Time (other than shares of Liberty Class E Preferred to be cancelled pursuant to Section 2.1(f)) shall be converted into the right to receive one validly issued, fully paid and non-assessable share of the Class C, 6% Cumulative Redeemable Exchangeable Junior Preferred Stock, par value $.01 per share, of TCI/Liberty (the "TCI/Liberty Class C Preferred", and collectively with the TCI/Liberty Class A Preferred and 6 12 the TCI/Liberty Class B Preferred, the "TCI/Liberty Preferred Stock"), which shall have the designations, preferences, rights and qualifications, limitations and restrictions set forth in Article IV, Section D of Exhibit A. All such shares of Liberty Class E Preferred shall no longer be outstanding and shall automatically be cancelled and retired and shall cease to exist, and each holder of a certificate representing any such shares shall cease to have any rights with respect thereto, except the right to receive the shares of TCI/Liberty Class C Preferred to be issued pursuant to this Section 2.1(e) (and any dividends or other distributions payable pursuant to Section 2.6(g)) with respect thereto upon the surrender of such certificate in accordance with Section 2.6, without interest. (f) Treasury Stock. All shares of TCI Common Stock and TCI Preferred Stock which are held immediately prior to the Effective Time by TCI in its treasury, and all shares of Liberty Common Stock and Liberty Preferred Stock which are held immediately prior to the Effective Time by Liberty in its treasury, shall be cancelled and retired and shall cease to exist, and no capital stock of TCI/Liberty or other consideration shall be delivered with respect thereto. (g) TCI Mergerco Stock. Each share of common stock, par value $1.00 per share, of TCI Mergerco issued and outstanding immediately prior to the Effective Time shall be converted into one share of the common stock, par value $1.00 per share, of the TCI Surviving Corporation, and each certificate evidencing ownership of shares of TCI Mergerco common stock shall from and after the Effective Time evidence ownership of the same number of shares of common stock of the TCI Surviving Corporation. (h) Liberty Mergerco Stock. Each share of common stock, par value $1.00 per share, of Liberty Mergerco issued and outstanding immediately prior to the Effective Time shall be converted into one share of common stock, par value $1.00 per share, of the Liberty Surviving Corporation, and each certificate evidencing ownership of shares of Liberty Mergerco common stock shall from and after the Effective Time evidence ownership of the same number of shares of common stock of the Liberty Surviving Corporation. 2.2 TCI/Liberty Stock. Each of TCI Surviving Corporation and Liberty Surviving Corporation shall, immediately following the Effective Time, return to TCI/Liberty, without payment of any consideration therefor, any shares of TCI/Liberty Common Stock held by it immediately prior to the Effective Time, whereupon such shares shall be cancelled and retired by TCI/Liberty and resume the status of authorized and unissued shares. 2.3 Transfer Books. At the Effective Time, the stock transfer books of both TCI and Liberty shall be closed and no transfer of shares of capital stock of TCI or Liberty shall thereafter be made. 2.4 Definition of "fair market value". For purposes of Section 2.1 and Section 2.6(f), the term "fair market value" means (i) with respect to a share of either class of Liberty Common Stock, the average of the last reported sale prices (or, if on any day no sale price is 7 13 reported, the average of the quoted high and low bid prices on such day) of such a share on the Nasdaq National Market System ("Nasdaq NMS") for the five full trading days immediately preceding the Closing Date, and (ii) with respect to a share of Liberty Class B Preferred, Liberty Class D Preferred or TCI/Liberty Class B Preferred, the value for such share (or the midpoint of any range of values for such share) in the opinion of CS First Boston Corporation ("CS First Boston") as of the date of their opinion (which shall be dated not more than five business days prior to the Closing Date). 2.5 Dissenting Shares. Notwithstanding anything in this Agreement to the contrary, shares of TCI Preferred Stock which are issued and outstanding immediately prior to the Effective Time and which are held by any stockholder who is entitled to appraisal rights pursuant to Section 262 of the DGCL, who, on a timely basis, makes and perfects a demand for appraisal of such shares in accordance with all requirements and provisions of Section 262 of the DGCL, and who does not effectively withdraw or lose the right to such appraisal (collectively, "Dissenting Shares"), shall not be converted as described in Section 2.1(b), but shall, from and after the Effective Time, represent only the right to receive such consideration as may be determined to be due to such stockholder with respect to such Dissenting Shares pursuant to Section 262 of the DGCL; provided, however, that Dissenting Shares held by any stockholder who, after the Effective Time, withdraws his demand for appraisal or loses his right of appraisal with respect to such shares, in either case pursuant to Section 262 of the DGCL, shall be deemed to have been converted, as of the Effective Time, into the right to receive the shares of TCI/Liberty Class A Preferred specified in Section 2.1(b), without interest. 2.6 Exchange of Shares. (a) Appointment of Exchange Agent. On or before the Closing Date, TCI/Liberty shall enter into an agreement approved by TCI and Liberty (the "Exchange Agent Agreement") with an exchange agent jointly selected by TCI and Liberty (the "Exchange Agent"), authorizing such Exchange Agent to act as exchange agent hereunder. (b) Letter of Transmittal. As soon as reasonably practicable after the Effective Time, the Exchange Agent shall mail to each holder of record of a certificate or certificates which immediately prior to the Effective Time represented issued and outstanding shares of TCI Common Stock, TCI Preferred Stock, Liberty Common Stock or Liberty Preferred Stock (the "Certificates") whose shares were converted into the right to receive shares of TCI/Liberty Common Stock or TCI/Liberty Preferred Stock pursuant to Section 2.1: (i) a notice of the effectiveness of the Mergers and (ii) a letter of transmittal (which shall state that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent) with instructions for use in effecting the surrender and exchange of the Certificates. Such notice, letter of transmittal and instructions shall contain such provisions and be in such form as TCI and Liberty may jointly specify. (c) Exchange Procedure. Promptly following the surrender, in accordance 8 14 with such instructions, of a Certificate to the Exchange Agent (or such other agent or agents as may be appointed by the Exchange Agent or TCI/Liberty pursuant to the Exchange Agent Agreement), together with such letter of transmittal (duly executed) and any other documents required by such instructions or letter of transmittal, TCI/Liberty shall, subject to Section 2.6(d), cause to be distributed to the person in whose name such Certificate shall have been issued (i) a certificate registered in the name of such person representing the number of whole shares of TCI/Liberty Common Stock or TCI/Liberty Preferred Stock, as the case may be, into which the shares previously represented by the surrendered Certificate shall have been converted at the Effective Time pursuant to Section 2.1 and (ii), in the case of a Certificate which immediately prior to the Effective Time represented shares of Liberty Common Stock, payment (which shall be made by check) of any cash payable in lieu of a fractional share pursuant to Section 2.6(f). Each Certificate so surrendered shall forthwith be cancelled. (d) Unregistered Transfers of TCI or Liberty Stock. In the event of a transfer of ownership of TCI Common Stock, TCI Preferred Stock, Liberty Common Stock or Liberty Preferred Stock which is not registered in the transfer records of TCI or Liberty, as the case may be, a certificate representing the proper number of whole shares of TCI/Liberty Common Stock or TCI/Liberty Preferred Stock may be issued (and cash in lieu of a fractional share may be paid) to the transferee if the Certificate representing such TCI Common Stock, TCI Preferred Stock, Liberty Common Stock or Liberty Preferred Stock surrendered to the Exchange Agent in accordance with Section 2.6(c) is properly endorsed for transfer or is accompanied by appropriate and properly endorsed stock powers (in each case with appropriate signature guarantees) and is otherwise in proper form to effect such transfer, if the person requesting such transfer pays to the Exchange Agent any transfer or other taxes payable by reason of such transfer or establishes to the satisfaction of the Exchange Agent that such taxes have been paid or are not required to be paid. (e) Lost, Stolen or Destroyed Certificates. In the event any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen or destroyed satisfactory to TCI/Liberty and complying with any other reasonable requirements imposed by TCI/Liberty, TCI/Liberty will cause to be delivered to such person in respect of such lost, stolen or destroyed Certificate the TCI/Liberty Common Stock or TCI/Liberty Preferred Stock and other property deliverable in respect thereof as determined in accordance with this Article II. TCI/Liberty may, in its discretion, require the owner of such lost, stolen or destroyed Certificate to give TCI/Liberty a bond in such sum as it may direct as indemnity against any claim that may be made against TCI/Liberty or the applicable Surviving Corporation with respect to the Certificate alleged to have been lost, stolen or destroyed. (f) No Fractional Shares of TCI/Liberty Common Stock. No certificates or scrip representing fractional shares of TCI/Liberty Common Stock shall be issued upon the surrender for exchange of Certificates which immediately prior to the Effective Time represented shares of Liberty Common Stock, no stock split or dividend with respect to shares of TCI/Liberty Common Stock shall relate to any fractional share interest, and no such 9 15 fractional share interest will entitle the owner thereof to vote as, or to any other rights of, a stockholder of TCI/Liberty. In lieu of such fractional shares, any holder of Liberty Common Stock who would otherwise be entitled to a fractional share of TCI/Liberty Class A Stock or TCI/Liberty Class B Stock (after taking into account all shares of Liberty Class A Stock or Liberty Class B Stock, as the case may be, owned by such holder), will, upon surrender of his Certificate to the Exchange Agent in accordance with Section 2.6(c), be entitled to receive cash in an amount (rounded to the nearest whole cent) determined by multiplying such fraction by the fair market value of a share of Liberty Class A Stock or Liberty Class B Stock, as the case may be. (g) No Dividends Before Surrender of Certificates. No dividends or other distributions declared or made with respect to TCI/Liberty Common Stock or TCI/Liberty Preferred Stock shall be paid to the holder of any unsurrendered Certificate with respect to the shares of TCI/Liberty Common Stock or TCI/Liberty Preferred Stock represented thereby, until the holder of record of such Certificate shall surrender such Certificate as provided herein. Subject to the effect of applicable laws, following surrender of any such Certificate, there shall be paid to the record holder of the certificates representing whole shares of TCI/Liberty Common Stock or TCI/Liberty Preferred Stock issued in exchange therefor, without interest, (i) at the time of such surrender, the amount of dividends or other distributions, if any, theretofore payable by TCI/Liberty with respect to such whole shares of TCI/Liberty Common Stock or TCI/Liberty Preferred Stock the payment date for which was on or prior to such surrender, and (ii) at the appropriate payment date, the amount of dividends or other distributions, if any, with a record date prior to such surrender and with a payment date subsequent to such surrender payable with respect to such whole shares of TCI/Liberty Common Stock or TCI/Liberty Preferred Stock. (h) No Further Ownership Rights in TCI or Liberty Stock. All shares of TCI/Liberty Common Stock or TCI/Liberty Preferred Stock issued and all cash in lieu of fractional shares paid upon the surrender for exchange of shares of TCI Common Stock, TCI Preferred Stock, Liberty Common Stock or Liberty Preferred Stock in accordance with the terms hereof shall be deemed to have been issued and paid in full satisfaction of all rights pertaining to such shares of TCI Common Stock, TCI Preferred Stock, Liberty Common Stock or Liberty Preferred Stock (provided, however, that after the Effective Time TCI/Liberty shall, on behalf of TCI or Liberty, as the case may be, pay as provided in Section 2.6(g) any dividends or make any other distributions (in TCI/Liberty capital stock in the case of stock dividends) with a record date prior to the Effective Time which may have been declared by TCI or Liberty on such shares of TCI Common Stock, TCI Preferred Stock, Liberty Common Stock or Liberty Preferred Stock prior to the date hereof or which may be declared after the date hereof in accordance with the terms of this Agreement and which remain unpaid at the Effective Time). Subject to Section 2.6(i), if, after the Effective Time, Certificates are presented to a Surviving Corporation for any reason, they shall be cancelled and exchanged as provided in this Article II. (i) Abandoned Property Laws. Payment or delivery of any shares of 10 16 TCI/Liberty Common Stock or TCI/Liberty Preferred Stock (as the case may be), any cash in lieu of fractional shares of TCI/Liberty Common Stock and any dividends or distributions with respect to TCI/Liberty Common Stock or TCI/Liberty Preferred Stock shall be subject to applicable abandoned property, escheat and similar laws and neither TCI/Liberty nor either Surviving Corporation shall be liable to any holder of shares of TCI Common Stock, TCI Preferred Stock, Liberty Common Stock, Liberty Preferred Stock, TCI/Liberty Common Stock or TCI/Liberty Preferred Stock for any such shares, for any dividends or distributions with respect thereto or for any cash in lieu of fractional shares which may be delivered to any public official pursuant to any abandoned property, escheat or similar law. 2.7 Stock Options, SARs and Benefit Plans. (a) TCI Stock Options and SARS. (i) At the Effective Time, each outstanding option to purchase shares of TCI Class A Stock (a "TCI Stock Option") issued by TCI pursuant to the Tele-Communications, Inc. 1992 Stock Incentive Plan (the "1992 TCI SIP") or the Tele-Communications, Inc. 1982 Incentive Stock Option Plan (the "TCI 1982 ISOP", and collectively with the 1992 TCI SIP, the "TCI Incentive Plans") or issued pursuant to a TCI Predecessor Plan (as defined below) and assumed by TCI, or otherwise issued by TCI, whether vested or unvested, shall be assumed by TCI/Liberty. Thereafter, each TCI Stock Option shall be deemed to constitute an option to purchase, on the same terms and conditions as were applicable under such TCI Stock Option, that number of shares of TCI/Liberty Class A Stock which is equal to the number of shares of TCI Class A Stock that were subject to such TCI Stock Option immediately prior to the Effective Time, at an exercise price per share of TCI/Liberty Class A Stock equal to the exercise price per share of TCI Class A Stock subject to such TCI Stock Option immediately prior to the Effective Time. The assumption hereinabove provided for shall be accomplished in a manner that shall, in all respects, comply with the requirements of the Internal Revenue Code of 1986, as amended (the "Code"), with respect to each TCI Stock Option that is an "incentive stock option" (as defined in Section 422(b) of the Code) including any requirement that the assumption of such TCI Stock Option by TCI/Liberty shall not give to the holder any additional benefits that he did not have prior to such assumption, and TCI/Liberty may make any changes that it deems necessary or desirable with respect to such assumption in order to satisfy the requirements of the Code. For purposes of this Agreement, the term "TCI Predecessor Plans" means (x) the United Artists Entertainment Company 1988 Incentive and Non-Qualified Stock Option Plan, which was terminated on or before December 2, 1991 and as to which outstanding options were assumed by TCI pursuant to the Agreement and Plan of Merger, dated as of June 6, 1991, between United Artists Entertainment Company ("UAE") and TCI (the "1991 Merger Agreement") and (y) the United Artists Communications, Inc. 1982 Stock Option Plan and the United Artists Communications, Inc. 1983 Stock Option Plan, which were each terminated on or before May 25, 1989 and as to which outstanding options were assumed by UAE pursuant to the Second Amended and Restated Agreement and Plan of Reorganization and Merger, dated as of March 8, 1988, among United Artists Communications, Inc., United Cable Television Corporation and TCI, which options, in turn, were assumed by TCI pursuant to the 1991 Merger Agreement. 11 17 (ii) At the Effective Time, each outstanding stock appreciation right with respect to shares of TCI Class A Stock (a "TCI SAR") issued by TCI pursuant to a TCI Incentive Plan or issued pursuant to a TCI Predecessor Plan and assumed by TCI, or otherwise issued by TCI, whether vested or unvested, shall be assumed by TCI/Liberty. Thereafter, each TCI SAR shall be deemed to constitute a stock appreciation right, on the same terms and conditions as were applicable under such TCI SAR, with respect to that number of shares of TCI/Liberty Class A Stock which is equal to the number of shares of TCI Class A Stock that were subject to such TCI SAR immediately prior to the Effective Time, at an exercise price per stock appreciation right equal to (A) in the case of a TCI SAR issued in tandem with TCI Stock Options, the exercise price per share of the related TCI Stock Option assumed by TCI/Liberty as determined above and (B) in the case of a free standing TCI SAR, the base price per share of such TCI SAR immediately prior to the Effective Time. (iii) If the TCI/Liberty SIP (as defined in Section 2.7(e)) is approved (or deemed approved) by stockholders at the TCI Stockholders Meeting (as defined in Section 3.1) and the Liberty Stockholders Meeting (as defined in Section 3.2), respectively, the TCI Surviving Corporation shall use its reasonable best efforts to cause each holder of a TCI Stock Option or TCI SAR that is assumed by TCI/Liberty to surrender such TCI Stock Option or TCI SAR, as promptly as practicable after the Effective Time, to TCI/Liberty in exchange for a stock option or stock appreciation right, respectively, granted under the TCI/Liberty SIP, which stock option or stock appreciation right shall contain terms and conditions that are no less favorable to the holder thereof than those under such assumed TCI Stock Option or TCI SAR, as the case may be (subject to such changes as may be agreed to by TCI and Liberty and the holder of such TCI Stock Option or TCI SAR). (b) Liberty Stock Options and SARS. (i) At the Effective Time, each outstanding option to purchase shares of Liberty Class A Stock (a "Liberty Stock Option") issued by Liberty (whether pursuant to the Liberty Media Corporation 1991 Stock Incentive Plan (the "Liberty SIP") or otherwise), whether vested or unvested, shall be assumed by TCI/Liberty. Thereafter, each Liberty Stock Option shall be deemed to constitute an option to purchase, on the same terms and conditions as were applicable under such Liberty Stock Option, that number of shares of TCI/Liberty Class A Stock which is equal to the number of shares of Liberty Class A Stock that were subject to such Liberty Stock Option immediately prior to the Effective Time multiplied by .975, rounded up to the nearest whole number after taking into account all Liberty Stock Options held by the holder of such Liberty Stock Option, at an exercise price per share of TCI/Liberty Class A Stock equal to the amount determined by dividing the exercise price per share of Liberty Class A Stock subject to such Liberty Stock Option immediately prior to the Effective Time by .975, and rounding the resulting number down to the nearest whole cent. The assumption hereinabove provided for shall be accomplished in a manner that shall, in all respects, comply with the requirements of the Code with respect to each Liberty Stock Option that is an "incentive stock option" (as defined in Section 422(b) of the Code) including any requirement that the assumption of such Liberty Stock Option by TCI/Liberty shall not give to the holder any additional benefits that he did not have prior to such assumption, and TCI/Liberty may make any changes that it deems necessary 12 18 or desirable with respect to such assumption in order to satisfy the requirements of the Code. (ii) At the Effective Time, each outstanding stock appreciation right with respect to shares of Liberty Class A Stock (a "Liberty SAR") issued by Liberty pursuant to the Liberty SIP, or otherwise issued by Liberty, whether vested or unvested, shall be assumed by TCI/Liberty. Thereafter, each Liberty SAR shall be deemed to constitute a stock appreciation right, on the same terms and conditions as were applicable under such Liberty SAR, with respect to that number of shares of TCI/Liberty Class A Stock which is equal to the number of shares of Liberty Class A Stock that were subject to such Liberty SAR immediately prior to the Effective Time multiplied by .975, rounded up to the nearest whole number (after taking into account all stock appreciation rights owned by a holder), at an exercise price per stock appreciation right equal to (A) in the case of a Liberty SAR issued in tandem with Liberty Stock Options, the exercise price per share of the related Liberty Stock Option assumed by TCI/Liberty as determined above and (B) in the case of a free standing Liberty SAR, the amount determined by dividing the base price per share of such Liberty SAR immediately prior to the Effective Time by .975, and rounding the resulting number down to the nearest whole cent. (iii) If the TCI/Liberty SIP is approved (or deemed approved) by stockholders at the TCI Stockholders Meeting and the Liberty Stockholders Meeting, respectively, the Liberty Surviving Corporation shall use its reasonable best efforts to cause each holder of a Liberty Stock Option or Liberty SAR that is assumed by TCI/Liberty to surrender such Liberty Stock Option or Liberty SAR, as promptly as practicable after the Effective Time, to TCI/Liberty in exchange for a stock option or stock appreciation right, respectively, granted under the TCI/Liberty SIP, which stock option or stock appreciation right shall contain terms and conditions that are no less favorable to the holder thereof than those under such assumed Liberty Stock Option or Liberty SAR, as the case may be (subject to such changes as may be agreed to by TCI and Liberty and the holder of such Liberty Stock Option or Liberty SAR). Notwithstanding the foregoing, the terms of the TCI/Liberty stock options and stock appreciation rights issued under the TCI/Liberty SIP may contain such variations from the terms of any Liberty Stock Options or Liberty SAR's, respectively, exchanged therefor which were not issued under a plan complying with Rule 16b-3 under the Exchange Act, as TCI/Liberty may determine are necessary or desirable for such TCI/Liberty stock options and stock appreciation rights to comply with Rule 16b-3. (c) Actions by TCI and Liberty. Each of TCI and Liberty shall distribute to each holder of a TCI Stock Option or a TCI SAR, or a Liberty Stock Option or a Liberty SAR, as the case may be, not less than 10 business days prior to the TCI Stockholders Meeting and the Liberty Stockholders Meeting, respectively, (i) an appropriate notice setting forth such holder's rights under the related TCI Incentive Plan, TCI Predecessor Plan or Liberty SIP and/or the agreement between such holder and TCI or Liberty, as the case may be, evidencing the grant of such TCI Stock Option, TCI SAR, Liberty Stock Option or Liberty SAR to such holder and (ii) a form of assumption agreement between such holder and TCI/Liberty (an 13 19 "Assumption Agreement"), containing terms consistent with the provisions hereof. No holder of a TCI Stock Option, TCI SAR, Liberty Stock Option or Liberty SAR shall be entitled to receive upon exercise thereof following the Effective Time TCI/Liberty Class A Stock or any payment from TCI/Liberty in respect thereof unless such holder shall have executed and delivered an Assumption Agreement to TCI/Liberty. (d) Actions by TCI/Liberty. TCI/Liberty shall take all corporate action necessary to reserve for issuance a sufficient number of shares of TCI/Liberty Class A Stock for delivery upon exercise of (i) TCI Stock Options, Liberty Stock Options or Liberty SARS assumed by it pursuant to this Section 2.7 and the Assumption Agreements or (ii)(x) stock options exchanged for such TCI Stock Options and Liberty Stock Options and (y) stock appreciation rights exchanged for such Liberty SARS, in accordance with Sections 2.7(a)(iii) and 2.7(b)(iii). As soon as practicable after the Effective Time, TCI/Liberty shall file a registration statement on Form S-3 or Form S-8 (which may be filed as a post-effective amendment to the Registration Statement (as defined in Section 3.3)), as the case may be (or any successor forms), or another appropriate form with respect to the shares of TCI/Liberty Class A Stock subject to such options and stock appreciation rights, and shall use its best efforts to maintain the effectiveness of such registration statement or registration statements for so long as such options remain outstanding. (e) TCI/Liberty Stock Incentive Plan. TCI and Liberty shall cause TCI/Liberty to adopt a stock incentive plan (the "TCI/Liberty SIP") which satisfies the requirements of Rule 16b-3 under the Exchange Act. Each of TCI and Liberty shall cause the TCI Liberty SIP to be presented to their stockholders for approval at the TCI Stockholders Meeting and the Liberty Stockholders Meeting, respectively. The TCI/Liberty SIP shall contain terms and provisions that are substantially similar to those contained in the 1992 TCI SIP (with such changes thereto as may be necessary to provide the holders of stock appreciation rights granted by Liberty in 1991 to obtain substantially identical TCI/Liberty stock appreciation rights upon any exchange thereof in accordance with Section 2.7(b)(iii)). (f) Stock Plans. (i) TCI shall take all actions necessary to amend the Tele-Communications, Inc. Employee Stock Purchase Plan (the "TCI ESPP") prior to the Effective Time to provide that the TCI ESPP shall not purchase any capital stock of TCI or the TCI Surviving Corporation at or after the Effective Time. As of the Effective Time, the 1992 TCI SIP (except to the extent that the terms thereof are incorporated by reference in, or otherwise govern the construction, interpretation or administration of, any TCI Stock Options or TCI SARs assumed by TCI/Liberty) shall automatically terminate. TCI and its Subsidiaries shall comply with all requirements regarding withholding of taxes in connection with the cancellations, terminations and other actions described in this Section 2.7(f)(i). (ii) As of the Effective Time, the Liberty SIP (except to the extent that the terms thereof are incorporated by reference in, or otherwise govern the construction, interpretation or administration of, any Liberty Stock Options or Liberty SARs assumed by TCI/Liberty) shall automatically terminate. 14 20 (g) Other Employment Benefit Plans. The effects of the Mergers, if any, on the other employee benefit plans and arrangements of TCI and its Subsidiaries and Liberty and its Subsidiaries shall be as set forth on Exhibit G attached hereto. TCI and its Subsidiaries and Liberty and its Subsidiaries shall comply with all requirements regarding withholding of taxes in connection with any actions and matters described on Exhibit G. ARTICLE III Certain Actions 3.1 TCI Stockholder Meeting. Subject to the fiduciary duties of the Board of Directors of TCI (the "TCI Board") under applicable law (as determined by the TCI Board in good faith after consultation with and based upon advice of counsel) (i) TCI and the TCI Board will take all action necessary in accordance with applicable law and TCI's Restated Certificate of Incorporation and By-laws to duly call and hold, on a date to be mutually agreed upon by TCI and Liberty, a meeting of TCI's stockholders (the "TCI Stockholders Meeting") for the purpose of considering and voting upon (x) this Agreement (the "Merger Proposal") and (y) the TCI/Liberty SIP and (ii) the TCI Board will recommend that TCI's stockholders vote in favor of approval and adoption of the Merger Proposal and approval of the TCI/Liberty SIP, and TCI will use reasonable efforts to solicit from its stockholders proxies in favor of approval and adoption of the Merger Proposal and approval of the TCI/Liberty SIP. 3.2 Liberty Stockholder Meeting. Subject to the fiduciary duties of the Board of Directors of Liberty (the "Liberty Board") under applicable law (as determined by the Liberty Board in good faith after consultation with and based upon advice of counsel), (i) Liberty and the Liberty Board will take all action necessary in accordance with applicable law and Liberty's Restated Certificate of Incorporation and By-laws to duly call and hold, on a date to be mutually agreed upon by Liberty and TCI, a meeting of Liberty's stockholders (the "Liberty Stockholders Meeting") for the purpose of considering and voting upon (x) the Merger Proposal and (y) the TCI/Liberty SIP and (ii) the Liberty Board will recommend that Liberty's stockholders vote in favor of approval and adoption of the Merger Proposal and approval of the TCI/Liberty SIP, and Liberty will use reasonable efforts to solicit from its stockholders proxies in favor of approval and adoption of the Merger Proposal and approval of the TCI/Liberty SIP. 3.3 Proxy Statement and Registration Statement. TCI and Liberty shall prepare and file with the Securities and Exchange Commission (the "Commission") a preliminary joint proxy statement relating to the transactions contemplated by this Agreement (the "Joint Proxy Statement") as soon as reasonably practicable, and shall use their respective best efforts to promptly respond to the comments of the Commission thereon. TCI and Liberty shall prepare, and shall cause TCI/Liberty to file with the Commission as soon as practicable after the Commission clears the Joint Proxy Statement, a registration statement on Form S-4 (or any successor form), which shall include as a prospectus the Joint Proxy Statement in the form 15 21 cleared for mailing to stockholders by the Commission (the "Joint Proxy Statement/Prospectus"), with respect to the TCI/Liberty Common Stock and TCI/Liberty Class C Preferred Stock to be issued in the Mergers and the TCI/Liberty Class A Stock issuable upon exercise of (i) TCI Stock Options, Liberty Stock Options and Liberty SARs to be assumed by TCI/Liberty or (ii) TCI/Liberty stock options and TCI/Liberty stock appreciation rights granted under the TCI/Liberty SIP and exchanged for TCI Stock Options and Liberty Stock Options or TCI SARs and Liberty SARs, as the case may be (the "Registration Statement"). TCI and Liberty shall each use reasonable efforts to cause the Registration Statement to be declared effective as soon as practicable after such filing. As promptly as practicable after the Registration Statement is declared effective by the Commission, each of TCI and Liberty shall mail the Joint Proxy Statement/Prospectus to its respective stockholders. TCI and Liberty shall cause TCI/Liberty to take any reasonable actions required to be taken under applicable state securities or "blue sky" laws in connection with the issuance of the securities of TCI/Liberty to be covered by the Registration Statement. Each of TCI and Liberty shall notify the other promptly of the receipt of any comments of the Commission and of any request by the Commission for amendments or supplements to the Joint Proxy Statement, the Joint Proxy Statement/Prospectus or the Registration Statement or for additional information and shall supply one another with copies of all correspondence with the Commission with respect to any of the foregoing filings. If at any time prior to the TCI Stockholders Meeting or the Liberty Stockholders Meeting any event should occur relating to TCI or any of its Subsidiaries or any of their respective officers, directors or affiliates which should be described in an amendment of, or supplement to, the Joint Proxy Statement/Prospectus or the Registration Statement, TCI shall promptly inform Liberty. If at any time prior to the Liberty Stockholders Meeting or the TCI Stockholders Meeting any event should occur relating to Liberty or any of its Subsidiaries or any of their respective officers, directors or affiliates which should be described in an amendment of, or supplement to, the Joint Proxy Statement/Prospectus or the Registration Statement, Liberty shall promptly inform TCI. Whenever any event occurs which should be described in an amendment of, or a supplement to, the Joint Proxy Statement/Prospectus or the Registration Statement, TCI and Liberty shall, upon learning of such event, cooperate with each other to promptly prepare, file and clear with the Commission and (if required by applicable law) mail such amendment or supplement to the stockholders of TCI and Liberty. 3.4 Letters from Accountants. TCI will use its reasonable efforts to cause to be delivered to Liberty a letter of KPMG Peat Marwick, TCI's independent auditors, dated a date within two business days before the date on which the Registration Statement becomes effective and addressed to Liberty, in form reasonably satisfactory to Liberty and customary in scope and substance for letters delivered by nationally recognized independent auditors in connection with registration statements similar to the Registration Statement. Liberty will use its reasonable efforts to cause to be delivered to TCI a letter of KPMG Peat Marwick, Liberty's independent auditors, dated a date within two business days before the date on which the Registration Statement becomes effective and addressed to TCI, in form reasonably satisfactory to TCI and customary in scope and substance for letters delivered by nationally recognized independent auditors in connection with registration statements similar to the Registration Statement. 16 22 3.5 Release of Escrowed TCI Common Stock. Liberty and TCI shall use their respective reasonable efforts, and shall fully cooperate with each other, to cause the release to Liberty Surviving Corporation, or any wholly owned Subsidiary of Liberty Surviving Corporation, immediately after the Effective Time, of all shares of TCI Common Stock deposited with Chemical Bank, N.A. (as successor to Manufacturers Hanover Trust Company), as escrow agent, pursuant to that certain escrow agreement referenced in the terms of the Liberty Class B Preferred. 3.6 Identification of Affiliates. Each of TCI and Liberty shall deliver to the other a letter identifying all persons who such party knows are or such party has reason to believe may be, as of the date of the TCI Stockholders Meeting and Liberty Stockholders Meeting, its "affiliates" for purposes of Rule 145 under the Securities Act of 1933, as amended (the "Securities Act"). Each of TCI and Liberty shall use reasonable efforts to cause each person who is identified as an "affiliate" in the letter referred to above to deliver to the other party, on or prior to the Closing Date, a written agreement, in substantially the form annexed hereto as Exhibit H, that such person will not offer to sell or otherwise dispose of any of the shares of TCI/Liberty Common Stock or TCI/Liberty Preferred Stock issued to such person pursuant to the Mergers in violation of the Securities Act and the rules and regulations thereunder. 3.7 State Takeover Statutes. Liberty will, upon the request of TCI, take all reasonable steps to (i) exempt the Liberty Merger from the requirements of any applicable state takeover law and (ii) assist in any challenge by TCI to the validity or applicability to the Liberty Merger of any state takeover law. TCI will, upon the request of Liberty, take all reasonable steps to (x) exempt the TCI Merger from the requirements of any applicable state takeover law and (y) assist in any challenge by Liberty to the validity or applicability to the TCI Merger of any state takeover law. 3.8 Possible Restructuring. Each of the parties hereto shall use its reasonable efforts, and shall consult and fully cooperate with each other, to cause the transactions contemplated by this Agreement to be completely tax free for Federal income tax purposes to each of the parties to this Agreement and to the shareholders of TCI and Liberty (other than in respect of cash paid in lieu of fractional shares pursuant to Section 2.6(f) or for Dissenting Shares). Without limiting the generality of the foregoing, and subject to compliance with any legal requirements, if necessary to obtain an opinion of counsel to the foregoing effect the parties agree that either (i) TCI shall, and shall cause its Subsidiaries to, sell to Liberty or one or more Subsidiaries of Liberty, immediately prior to the TCI Merger, such properties and assets owned by TCI or such Subsidiaries as may be required to obtain such opinion (the "Asset Transfer Alternative") or (ii) Liberty shall be merged with and into TCI, with TCI continuing as the surviving corporation (the "Alternative Merger"). If the parties cannot mutually agree as to which of the foregoing alternatives to pursue or as to the valuation of properties and assets proposed to be sold pursuant to the Asset Transfer Alternative, then the parties shall pursue the Alternative Merger. Any sale of properties and assets in connection with the Asset Transfer Alternative shall be for the fair market value thereof, such value to be determined by mutual agreement of TCI and Liberty. In the event the Alternative Merger is pursued, the parties 17 23 agree to negotiate in good faith an amendment to this Agreement providing for (x) the Alternative Merger and (y) each holder of Liberty Common Stock or Liberty Preferred Stock receiving, in lieu of TCI/Liberty Common Stock or TCI Liberty Preferred Stock, shares of TCI Common Stock or a new series of TCI preferred stock, as the case may be, on substantially the same terms (and based on the same exchange ratios) as provided in Section 2.1. The parties agree that no further changes shall be made in any such amendment to the terms of this Agreement, except to the extent that changes are necessitated due to the structure of the Alternative Merger, in which event any such changes shall not alter materially the economic benefits of the provisions hereof to the respective stockholders of TCI or Liberty. 3.9 Reasonable Efforts. Subject to the terms and conditions of this Agreement and applicable law, each of the parties hereto shall use its reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things reasonably necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement as soon as reasonably practicable, including such actions or things as any other party hereto may reasonably request in order to cause any of the conditions to such other party's obligation to consummate such transactions specified in Article VIII to be fully satisfied. Without limiting the generality of the foregoing, the parties shall (and shall cause their respective Subsidiaries, and use their reasonable efforts to cause their respective affiliates, directors, officers, employees, agents, attorneys, accountants and representatives, to) consult and fully cooperate with and provide reasonable assistance to each other in (i) the preparation and filing with the Commission of the Joint Proxy Statement, the Joint Proxy Statement/Prospectus and the Registration Statement and any necessary amendments of, or supplements to, any thereof; (ii) seeking to have such Joint Proxy Statement cleared, and the Registration Statement declared effective, by the Commission as soon as reasonably practicable after filing with the Commission; (iii) taking such actions as may reasonably be required under applicable state securities or "blue sky" laws in connection with the issuance of the securities covered by the Registration Statement; (iv) obtaining all necessary consents, approvals, waivers, licenses, permits, authorizations, registrations, qualifications or other permission or action by, and giving all necessary notices to and making all necessary filings with and applications and submissions to, any Governmental Entity (as defined in Section 4.5(v)) or other person or entity; (v) filing all Notification and Report Forms required under the HSR Act (as defined in Section 4.5 (ii)(F)) as a result of the transactions contemplated by this Agreement and promptly complying with any requests for additional information and documentary material that may be requested pursuant to the HSR Act; (vi) lifting any permanent or preliminary injunction or restraining order or other similar order issued or entered by any court or Governmental Entity (an "Injunction") of any type referred to in Section 8.1(d); (vii) developing and implementing reasonable tax planning measures for TCI/Liberty and each of the Surviving Corporations in light of the transactions contemplated hereby; (viii) providing all such information about such party, its Subsidiaries and its officers, directors, partners and affiliates and making all applications and filings as may be necessary or reasonably requested in connection with any of the foregoing; and (ix) in general, consummating and making effective the transactions contemplated hereby; provided, however, that in order to obtain any consent, approval, waiver, license, permit, authorization, registration, qualification or other 18 24 permission or action or the lifting of any Injunction referred to in clause (iv) or (vi) of this sentence, (x) no party shall be required to pay any consideration, to divest itself of any of, or otherwise rearrange the composition of, its assets or to agree to any conditions or requirements which are materially adverse or burdensome and (y) without the other party's prior consent, each of Liberty and TCI shall not, and shall not permit any of its Subsidiaries or affiliates to, amend, or agree to amend, in any material respect any License (as defined in Section 4.9) or Contract (as defined in Section 4.5(iv)). Prior to making any application to or filing with any Governmental Entity or other person or entity in connection with this Agreement, each of TCI and Liberty shall provide the other party with drafts thereof and afford the other party a reasonable opportunity to comment on such drafts. 3.10 Quotation on Nasdaq NMS. TCI/Liberty shall use its reasonable best efforts to cause the shares of TCI/Liberty Common Stock and TCI/Liberty Class C Preferred Stock to be issued in the Mergers and upon exercise of TCI Stock Options, Liberty Stock Options and Liberty SARs (or TCI/Liberty stock options or stock appreciation rights exchanged therefor) to be included in the Nasdaq NMS upon issuance. 3.11 Voting Agreement. (a) TCI shall, and shall cause each of its Subsidiaries to, vote all shares of Liberty Common Stock and, if eligible to vote, shares of Liberty Preferred Stock owned by it, at any meeting of stockholders of Liberty or in connection with any action taken by written consent of stockholders of Liberty, (i) in favor of the transactions contemplated by this Agreement (including, at the Liberty Stockholders Meeting, in favor of the Merger Proposal and the TCI/Liberty SIP) and (ii), except as otherwise agreed by Liberty, against any action or agreement that would impede or interfere with the transactions contemplated by this Agreement. (b) Liberty shall, and shall cause each of its Subsidiaries to, vote all shares of TCI Common Stock owned by it at any meeting of stockholders of TCI or in connection with any action taken by written consent of stockholders of TCI, (i) in favor of the transactions contemplated by this Agreement (including, at the TCI Stockholders Meeting, in favor of the Merger Proposal and the TCI/Liberty SIP) and (ii), except as otherwise agreed by TCI, against any action or agreement that would impede or interfere with the transactions contemplated by this Agreement. 3.12 Restrictions on Transfer. (a) TCI shall not, and shall not permit any of its Subsidiaries to, prior to the Liberty Merger, sell, assign, transfer, pledge, hypothecate or otherwise dispose of, or grant any right (including, without limitation, as to voting) with respect to, any shares of Liberty Common Stock or Liberty Preferred Stock owned by it; provided, that the foregoing shall not (i) prevent TCI from transferring any such shares to one or more Subsidiaries of TCI, or a Subsidiary of TCI from transferring any such shares to TCI and/or one or more other 19 25 Subsidiaries of TCI or (ii) be violated by any pledge or other hypothecation in effect on the date of this Agreement. (b) Liberty shall not, and shall not permit any of its Subsidiaries to, prior to the TCI Merger, sell, assign, transfer, pledge, hypothecate or otherwise dispose of, or grant any right (including, without limitation, as to voting) with respect to, any shares of TCI Common Stock owned by it; provided, that the foregoing shall not (i) prevent Liberty from transferring any such shares to one or more Subsidiaries of Liberty, or a Subsidiary of Liberty from transferring any such shares to Liberty and/or one or more other Subsidiaries of Liberty or (ii) be violated by any pledge or other hypothecation in effect on the date of this Agreement or the escrow of shares of TCI Class A Stock pursuant to the terms of the Liberty Class B Preferred. 3.13 Directors and Executive Officers of TCI/Liberty at the Effective Time. TCI and Liberty shall take such action as may be necessary to cause the directors and executive officers of TCI/Liberty, immediately prior to the Effective Time, to consist solely of those persons indicated on Exhibit I hereto. ARTICLE IV Representations and Warranties of Liberty Liberty hereby represents and warrants to each of TCI and TCI/Liberty as follows: 4.1 Organization and Qualification. Each of Liberty and its "significant subsidiaries" (as defined in Rule 1-02 of Regulation S-X of the Rules and Regulations of the Commission) (i) is a corporation or partnership duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, (ii) has all requisite corporate or partnership power and authority to own, lease and operate its properties and to carry on its business as it is now being conducted and (iii) is duly qualified or licensed and in good standing to do business in each jurisdiction in which the properties owned, leased or operated by it or the nature of the business conducted by it makes such qualification or license necessary, except in such jurisdictions where the failure to be so duly qualified or licensed or in good standing has not had, either individually or in the aggregate, a material adverse effect on the business, assets, results of operations or financial condition of Liberty and its Subsidiaries, taken as a whole. Each entity in which Liberty, directly or through one or more of its Subsidiaries, has an investment accounted for by the equity method which is material to the business, assets, results of operations or financial condition of Liberty and its Subsidiaries, taken as a whole (the "Liberty Equity Affiliates"), to the knowledge of Liberty, is a corporation or partnership (A) duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, (B) has all requisite corporate or partnership power and authority to own, lease and operate its properties and to carry on its business as it is now being conducted and (C) is duly qualified to do business and is in good standing in each jurisdiction in which the properties owned, leased or operated by it, or the nature of its 20 26 activities, makes such qualification necessary, except in each case where such failure to be so existing and in good standing or to have such power and authority or to be so qualified to do business and be in good standing has not had, individually or in the aggregate, a material adverse effect on the business, assets, results of operations or financial condition of Liberty and its Subsidiaries, taken as a whole. Liberty has delivered to TCI true and complete copies of its Restated Certificate of Incorporation and By-laws, as amended through and in effect on the date hereof. 4.2 Authorization and Validity of Agreement. Liberty has all requisite corporate power and authority to enter into this Agreement and, subject to obtaining the approval of its stockholders specified in Section 4.15, to perform its obligations hereunder and consummate the transactions contemplated hereby. The execution, delivery and performance by Liberty of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by the Liberty Board and by all other necessary corporate action on the part of Liberty, subject, in the case of the consummation by it of the Liberty Merger, to such approval of Liberty's stockholders. This Agreement has been duly executed and delivered by Liberty and is a valid and binding obligation of Liberty, enforceable in accordance with its terms (except insofar as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally, or by principles governing the availability of equitable remedies). 4.3 Capitalization. The authorized capital stock of Liberty consists of 300 million shares of Liberty Class A Stock, 100 million shares of Liberty Class B Stock, 11,000 shares of Class A Redeemable Convertible Preferred Stock ("Liberty Class A Preferred"), 106,000 shares of Liberty Class B Preferred, 400,000 shares of Class C Redeemable Exchangeable Preferred Stock ("Liberty Class C Preferred"), 18,000 shares of Liberty Class D Preferred, two million shares of Liberty Class E Preferred and five million shares of Class F Serial Preferred Stock ("Liberty Class F Preferred"). As of the close of business on January 18, 1994, (i) 87,513,778 shares of Liberty Class A Stock were issued and outstanding, 56,000 shares were reserved for issuance upon exercise of outstanding Liberty Stock Options and no shares were held by Liberty in its treasury or by any Subsidiary of Liberty; (ii) 43,340,320 shares of Liberty Class B Stock were issued and outstanding and no shares were issued and held by Liberty in its treasury or by any Subsidiary of Liberty; (iii) no shares of Liberty Class A Preferred were issued and outstanding or held by Liberty in its treasury or by any Subsidiary of Liberty; (iv) 105,353 shares of Liberty Class B Preferred were issued and outstanding and no shares were held by Liberty in its treasury or by any Subsidiary of Liberty; (iv) no shares of Liberty Class C Preferred were issued or outstanding or held by Liberty in its treasury or by any Subsidiary of Liberty; (v) 17,238 shares of Liberty Class D Preferred were issued and outstanding and no shares were held by Liberty in its treasury or by any Subsidiary of Liberty; (vi) 1,675,096 shares of Liberty Class E Preferred were issued and outstanding and no shares were held by Liberty in its treasury or by any Subsidiary of Liberty; and (vii) no shares of Liberty Class F Preferred were issued and outstanding or held by Liberty in its treasury or by any Subsidiary of Liberty. All issued and outstanding shares of Liberty Common Stock and Liberty Preferred Stock have been validly issued and are fully paid and nonassessable, are not 21 27 subject to and have not been issued in violation of any preemptive rights and have not been issued in violation of any Federal or state securities laws. There are no issued or outstanding bonds, debentures, notes or other indebtedness of Liberty or any of its Subsidiaries which have the right to vote (or which are convertible into other securities having the right to vote) on any matters on which stockholders may vote ("Voting Debt"). Except as set forth on Schedule 4.3, there are not as of the date hereof, and will not at any time to and including the Effective Time be, any outstanding or authorized subscriptions, options, warrants, calls, rights, commitments or any other agreements of any character to or by which Liberty or any of its Subsidiaries is a party or is bound which, directly or indirectly, obligate Liberty or any of its Subsidiaries to issue, deliver or sell or cause to be issued, delivered or sold any additional shares of Liberty Common Stock or Liberty Preferred Stock or any other capital stock, equity interest or Voting Debt of Liberty or any Subsidiary of Liberty or any securities convertible into, or exercisable or exchangeable for, or evidencing the right to subscribe for any such shares, interests or Voting Debt or obligating Liberty or any of its Subsidiaries to grant, extend or enter into any such subscription, option, warrant, call or right. Since the close of business on January 18, 1994, no shares of capital stock of Liberty have been issued or have been transferred from Liberty's treasury. Immediately after the Effective Time, there will be no subscription, option, warrant, call, right, commitment or agreement which will entitle (conditionally or unconditionally) any person or entity to purchase or otherwise acquire, or will obligate (conditionally or unconditionally) the Liberty Surviving Corporation (as Liberty's successor) or any Subsidiary of the Liberty Surviving Corporation that was a Subsidiary of Liberty to sell, issue or deliver, any shares of capital stock, any other equity interest or any Voting Debt of the Liberty Surviving Corporation or obligating the Liberty Surviving Corporation or any such Subsidiary to grant, extend or enter into any such subscription, warrant, call, right, commitment or agreement. Except for the Liberty SIP and except as set forth on Schedule 4.3 or Schedule 4.12(a), neither Liberty nor any of its Subsidiaries has adopted, authorized or assumed any plans, arrangements or practices for the benefit of its officers, employees or directors which require or permit the issuance, sale, purchase or grant of any capital stock, other equity interests or Voting Debt of Liberty or any Subsidiary of Liberty, any other securities convertible into, or exercisable or exchangeable for, any such stock, interests or Voting Debt or any phantom shares, phantom equity interests or stock or equity appreciation rights. Except as set forth on Schedule 4.3, all shares of capital stock of and all partnership or other equity interests in each Subsidiary of Liberty and in each Liberty Equity Affiliate owned directly or indirectly by Liberty are owned free and clear of any lien, security interest, pledge, charge, claim, option, right to acquire, restriction on transfer, voting restriction or agreement, or any other restriction or encumbrance of any nature whatsoever (a "Lien") and the shares of capital stock of each corporate Subsidiary of Liberty are validly issued, fully paid and nonassessable. Except as set forth on Schedule 4.3, there are not, and immediately after the Effective Time there will not be, any outstanding or authorized subscriptions, options, warrants, calls, rights, commitments or other agreements of any character that, directly or indirectly, (x) call for or relate to the sale, pledge, transfer or other disposition by Liberty or Liberty Surviving Corporation or any Subsidiary of Liberty or Liberty Surviving Corporation of any shares of capital stock, any partnership or other equity interests or any Voting Debt of any Subsidiary of Liberty or Liberty Surviving Corporation or of any Liberty Equity Affiliate owned directly 22 28 or indirectly by Liberty or Liberty Surviving Corporation or any Subsidiary of Liberty or Liberty Surviving Corporation, or (y) relate to the voting or control of such capital stock, partnership or other equity interests or Voting Debt. 4.4 Reports and Financial Statements. Liberty has heretofore made available to TCI true and complete copies of all reports, registration statements, definitive proxy statements and other documents (in each case together with all amendments thereto) filed by Liberty with the Commission since June 30, 1991 (such reports, registration statements, definitive proxy statements and other documents, together with any amendments thereto, are sometimes collectively referred to as the "Liberty Commission Filings"). The Liberty Commission Filings constitute all of the documents (other than preliminary material) that Liberty was required to file with the Commission since such date. As of their respective dates, each of the Liberty Commission Filings complied in all material respects with the applicable requirements of the Securities Act, the Exchange Act and the rules and regulations under each such Act, and none of the Liberty Commission Filings contained as of such date any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (except that no representation or warranty is made with respect to any information regarding TCI included in the Liberty Commission Filings which was furnished by TCI expressly for use therein). When filed with the Commission, the financial statements included in the Liberty Commission Filings complied as to form in all material respects with the applicable rules and regulations of the Commission and were prepared in accordance with generally accepted accounting principles (as in effect from time to time) applied on a consistent basis (except as may be indicated therein or in the notes or schedules thereto), and such financial statements fairly present the consolidated financial position of Liberty and its consolidated Subsidiaries as at the dates thereof and the consolidated results of their operations and their consolidated cash flows for the periods then ended, subject, in the case of the unaudited interim financial statements, to normal, recurring year-end audit adjustments. Except as and to the extent reflected or reserved against in the financial statements included in Liberty's Quarterly Report on Form 10-Q for the quarter ended September 30, 1993 or as disclosed therein and except as set forth on Schedule 4.4, none of Liberty, any Subsidiary of Liberty or, to the knowledge of Liberty, any Liberty Equity Affiliate had as of such date any liability or obligation of any kind required to be reflected on a balance sheet of Liberty and its consolidated subsidiaries prepared in accordance with the applicable rules and regulations of the Commission which was material to the business, assets, results of operations or financial condition of Liberty and its Subsidiaries, taken as a whole. Since September 30, 1993, except as disclosed in the Liberty Commission Filings filed with the Commission prior to the date hereof and except as set forth on Schedule 4.4, none of Liberty, any Subsidiary of Liberty or, to the knowledge of Liberty, any Liberty Equity Affiliate has incurred any liability or obligation of any kind which, in any case or in the aggregate, is material to the business, assets, results of operations or financial condition of Liberty and its Subsidiaries, taken as a whole. 4.5 No Approvals or Notices Required; No Conflict with Instruments. Except as set forth on Schedule 4.5, the execution and delivery by Liberty of this Agreement do not, and the 23 29 performance by Liberty of its obligations hereunder and the consummation of the transactions contemplated hereby will not: (i) assuming approval of the Merger Proposal by Liberty's stockholders as contemplated by Section 4.15, conflict with or violate the Restated Certificate of Incorporation or By-laws of Liberty or the charter or bylaws of any corporate Subsidiary of Liberty or the partnership agreement of any partnership Subsidiary of Liberty; (ii) require any consent, approval, order or authorization of or other action by any Governmental Entity (as defined in clause (v) of this Section 4.5) (a "Government Consent") or any registration, qualification, declaration or filing with or notice to any Governmental Entity (a "Governmental Filing"), in each case on the part of or with respect to Liberty, any Subsidiary of Liberty or, to the knowledge of Liberty, any Liberty Equity Affiliate, the absence or omission of which would, either individually or in the aggregate, have a material adverse effect on the transactions contemplated hereby or on the business, assets, results of operations or financial condition of Liberty and its Subsidiaries, taken as a whole, or the Liberty Surviving Corporation and its Subsidiaries, taken as a whole, except for (A) the filing with the Commission of the Joint Proxy Statement and the Registration Statement and such reports under Sections 13(a) and 16(a) of the Exchange Act as may be required in connection with this Agreement and the transactions contemplated hereby, (B) the filing of the Liberty Certificate of Merger with the Secretary of State of the State of Delaware and appropriate documents with the relevant authorities of other states in which Liberty is qualified to do business, (C) such Government Consents and Governmental Filings (the "FCC Approvals") as may be required under the Communications Act of 1934, as amended (the "Communications Act"), (D) such Government Consents and Governmental Filings (the "Local Approvals") with foreign, state and local governmental authorities (including foreign, state and local authorities granting franchises to operate cable systems) as may be required with respect to the Licenses (as defined in Section 4.9) held by Liberty, any of its Subsidiaries or, to the knowledge of Liberty, any of the Liberty Equity Affiliates or as may otherwise be required under laws applicable to the conduct of the businesses of Liberty and its Subsidiaries in the ordinary course, (E) the Governmental Filings to be made on the part of or with respect to TCI referred to in clauses (ii)(A) and (ii)(B) of Section 5.5, as applicable, and such Government Consents and Governmental Filings as may be required in connection with the issuance of TCI/Liberty stock as contemplated hereby pursuant to state securities and blue sky laws; and (F) the Governmental Filings required pursuant to the pre-merger notification requirements of the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended, and the rules and regulations thereunder (the "HSR Act"); (iii) require, on the part of Liberty, any Subsidiary of Liberty, or, to the knowledge of Liberty, any Liberty Equity Affiliate, any consent by or approval of (a "Contract Consent") or notice to (a "Contract Notice") any other person or entity 24 30 (other than a Governmental Entity), whether under any License or other Contract (as defined in clause (iv) of this Section 4.5) or otherwise, the absence or omission of which would, either individually or in the aggregate, have a material adverse effect on the transactions contemplated hereby or on the business, assets, results of operations or financial condition of Liberty and its Subsidiaries, taken as a whole, or the Liberty Surviving Corporation and its Subsidiaries, taken as a whole; (iv) assuming that the Contract Consents and Contract Notices described on Schedule 4.5 are obtained and given and that any Government Consents and Governmental Filings required under any Licenses (as defined in Section 4.9) are obtained or made, conflict with, result in any violation or breach of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or the loss of any material benefit under or the creation of a Lien or other encumbrance on any assets pursuant to (any such conflict, violation, breach, default, right of termination, cancellation or acceleration, loss or creation, a "Violation") any Contract (which term shall mean and include any note, bond, indenture, mortgage, deed of trust, lease, franchise, permit, authorization, license, contract, instrument, employee benefit plan or practice, or other agreement, obligation, commitment or concession of any nature) to which Liberty, any Subsidiary of Liberty or, to the knowledge of Liberty, any Liberty Equity Affiliate is a party, by which Liberty, any Subsidiary of Liberty or, to the knowledge of Liberty, any Liberty Equity Affiliate or any of their respective assets or properties is bound or affected or pursuant to which Liberty, any Subsidiary of Liberty or, to the knowledge of Liberty, any Liberty Equity Affiliate is entitled to any rights or benefits (including the Licenses), except for such Violations which would not, either individually or in the aggregate, have a material adverse effect on the transactions contemplated hereby or on the business, assets, results of operations or financial condition of Liberty and its Subsidiaries, taken as a whole, or the Liberty Surviving Corporation and its Subsidiaries, taken as a whole; or (v) assuming that the Merger Proposal is approved by Liberty's stockholders and assuming that the Government Consents and Governmental Filings specified in clause (ii) of this Section 4.5 are obtained, made and given, result in a Violation of, under or pursuant to any law, rule, regulation, order, judgment or decree applicable to Liberty, any Subsidiary of Liberty or, to the knowledge of Liberty, any Liberty Equity Affiliate or by which any of their respective properties or assets are bound or affected, except for such Violations which would not, either individually or in the aggregate, have a material adverse effect on the transactions contemplated hereby or on the business, assets, results of operations or financial condition of Liberty and its Subsidiaries, taken as a whole, or the Liberty Surviving Corporation and its Subsidiaries, taken as a whole. As used herein, the term "Governmental Entity" means and includes any court, administrative agency or commission or other governmental authority or instrumentality, domestic or foreign. 25 31 4.6 Absence of Certain Changes or Events. Except as otherwise disclosed in the Liberty Commission Filings filed with the Commission prior to the date hereof or as set forth on Schedule 4.6, during the period commencing on October 1, 1993 and ending on the date of this Agreement, (i) there has not been any material adverse change in, and no event has occurred and no condition exists which, individually or together with other events or conditions, has had a material adverse effect on, the business, assets, results of operations or financial condition of Liberty and its Subsidiaries, taken as a whole (excluding events or conditions generally affecting the cable television or cable programming industries in the United States or affecting general business or economic conditions in the United States) and (ii) neither Liberty nor any of its Subsidiaries has taken any action which, if taken after the date of this Agreement without the consent of TCI, would violate Section 7.4 hereof. 4.7 Registration Statement; Proxy Statement. None of the information supplied or to be supplied by Liberty or any of its affiliates, directors, officers, employees, agents or representatives in writing specifically for inclusion or incorporation by reference in, and which is included or incorporated by reference in, (i) the Registration Statement or any amendment or supplement thereto filed or to be filed by TCI/Liberty with the Commission under the Securities Act, (ii) the Joint Proxy Statement/Prospectus or (iii) any other documents filed or to be filed with the Commission or any other Governmental Entity in connection with the transactions contemplated hereby, will, at the respective times such documents are filed, and, in the case of the Registration Statement or any amendment or supplement thereto, when the same becomes effective, at the time of the TCI Stockholders Meeting or the Liberty Stockholders Meeting or any other meeting of Liberty's stockholders or TCI's stockholders to be held in connection with the Mergers or at the Effective Time, and, in the case of the Joint Proxy Statement/Prospectus or any amendment or supplement thereto, at the time of mailing of the Joint Proxy Statement/Prospectus to Liberty's stockholders and TCI's stockholders or at the time of the Liberty Stockholders Meeting or the TCI Stockholders Meeting or any other meeting of Liberty's stockholders or TCI's stockholders to be held in connection with the Mergers, be false or misleading with respect to any material fact, or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading or necessary to correct any statement in any earlier communication with respect to the solicitation of any proxy for the Liberty Stockholders Meeting or the TCI Stockholders Meeting. For this purpose, any such information included or incorporated by reference in any such document will be deemed to have been so supplied in writing specifically for inclusion or incorporation therein if such document was available for review by Liberty a reasonable time before such document was filed (but the foregoing shall not be the exclusive manner in which it may be established that such information was so supplied). The Registration Statement and the Joint Proxy Statement/Prospectus will comply as to form in all material respects with the applicable provisions of the Securities Act, the Exchange Act and the respective rules and regulations under each such Act. 4.8 Legal Proceedings. Except as set forth in the Liberty Commission Filings filed with the Commission prior to the date hereof or as set forth on Schedule 4.8, (i) there is no suit, action or proceeding pending or, to the knowledge of Liberty, any investigation pending 26 32 or any suit, action, proceeding or investigation threatened, against, involving or affecting Liberty, any Subsidiary of Liberty or, to the knowledge of Liberty, any Liberty Equity Affiliate or any of its or their properties or rights (excluding suits, actions, proceedings or investigations generally affecting the cable television or cable programming industries in a particular state or in the United States and to which neither Liberty nor any Subsidiary of Liberty is a party), which, if adversely determined, is, insofar as Liberty can reasonably foresee, reasonably likely to have, either individually or in the aggregate, a material adverse effect on the business, assets, results of operations or financial condition of Liberty and its Subsidiaries, taken as a whole; (ii) there is no judgment, decree, Injunction, rule or order of any court, governmental department, commission, agency, instrumentality or arbitrator applicable to Liberty, any Subsidiary of Liberty or, to the knowledge of Liberty, any Liberty Equity Affiliate having, or which, insofar as Liberty can reasonably foresee, is reasonably likely to have, either individually or in the aggregate, any such effect; and (iii) to the knowledge of Liberty, there is no action, suit, proceeding or investigation pending or threatened against Liberty which seeks to restrain, enjoin or delay the consummation of either Merger or any of the other transactions contemplated hereby or which seeks damages in connection therewith, and no Injunction of any type referred to in Section 8.1(d) has been entered or issued. The term "order" as used in the immediately preceding sentence shall not be deemed to include any Licenses. 4.9 Licenses; Compliance With Regulatory Requirements; Intangible Property. Liberty, its Subsidiaries and, to the knowledge of Liberty, the Liberty Equity Affiliates, hold all licenses, franchises, ordinances, authorizations, permits, certificates, variances, exemptions, orders and approvals, domestic or foreign (collectively, the "Licenses") which are material to the operation of the businesses of Liberty and its Subsidiaries, taken as a whole. Each of Liberty, its Subsidiaries and, to the knowledge of Liberty, the Liberty Equity Affiliates is in compliance with, and has conducted its business so as to comply with, the terms of their respective Licenses and with all applicable laws, rules, regulations, ordinances and codes, domestic or foreign, including laws, rules, regulations, ordinances and codes relating to the protection of the environment, except where the failure so to comply has not had, either individually or in the aggregate, a material adverse effect on the business, assets, results of operations or financial condition of Liberty and its Subsidiaries, taken as a whole. Without limiting the generality of the foregoing, Liberty, its Subsidiaries and, to the knowledge of Liberty, the Liberty Equity Affiliates, (i) have all Licenses (the "FCC Licenses") issued by the Federal Communications Commission (the "FCC") and all Licenses of foreign, state and local governmental authorities (the "Franchises") required for the operation of the cable television systems and related facilities (the "CATV Systems") being operated on the date hereof by Liberty, any of its Subsidiaries or, to the knowledge of Liberty, any of the Liberty Equity Affiliates, (ii) have duly and currently filed all reports and other information required to be filed by the FCC or any other Governmental Entity in connection with such FCC Licenses and Franchises and (iii) are not in violation of any of such FCC Licenses or Franchises, other than the lack of FCC Licenses or Franchises, delays in filing reports or possible violations which have not had and, insofar as can reasonably be foreseen, in the future will not have a material adverse effect on the business, assets, results of operations or financial condition of Liberty and its Subsidiaries, taken as a whole. Except as Liberty shall have previously advised TCI in 27 33 writing, Liberty and its Subsidiaries own or have adequate rights to use all patents, trademarks, trade names, service marks, trade secrets, copyrights and other proprietary intellectual property rights as are material in connection with the businesses of Liberty and its Subsidiaries, taken as a whole. 4.10 Brokers or Finders. No agent, broker, investment banker, financial advisor or other person or entity is or will be entitled, by reason of any agreement, act or statement by Liberty or any of its Subsidiaries, directors, officers, employees or affiliates, to any financial advisory, broker's, finder's or similar fee or commission, to reimbursement of expenses or to indemnification or contribution in connection with any of the transactions contemplated by this Agreement, except Merrill Lynch & Co ("Merrill Lynch"), whose fees and expenses and claims for indemnification and contribution will be paid by Liberty in accordance with Liberty's agreement with such firm (a copy of which has provided to TCI prior to the date hereof), and Liberty agrees to indemnify and hold TCI and TCI/Liberty harmless from and against any and all claims, liabilities or obligations with respect to any such fees, commissions, expenses or claims for indemnification or contribution asserted by any person on the basis of any act or statement made or alleged to have been made by Liberty or any of its Subsidiaries, directors, officers, employees or affiliates. 4.11 Tax Matters. Except as set forth on Schedule 4.11, to the knowledge of Liberty (i) there has been duly filed by or on behalf of Liberty and each of its Subsidiaries (and each of their respective predecessors (except that no representation or warranty is made as to TCI or any of its Subsidiaries)), or filing extensions from the appropriate Federal, state, foreign and local Governmental Entities have been obtained with respect to, all material Federal, state, foreign and local tax returns and reports required to be filed on or prior to the date hereof, (ii) payment in full or adequate provision for the payment of all taxes required to be paid in respect of the periods covered by such tax returns and reports has been made (except in respect of state, local and foreign taxes which are in the aggregate immaterial in amount) and (iii) a reserve which Liberty reasonably believes to be adequate has been set up for the payment of all such taxes anticipated to be payable in respect of periods through the date hereof. None of the Federal income tax returns required to be filed by or on behalf of Liberty and each of its Subsidiaries consolidated in such returns (and their respective predecessors (except that no representation or warranty is made as to TCI or any of its Subsidiaries)) under the Code or any predecessor statute (the "Liberty Consolidated Returns") are currently under examination by the Internal Revenue Service ("IRS"). There have not been any deficiencies or assessments asserted in writing by the IRS with respect to the Liberty Consolidated Returns. Except as set forth on Schedule 4.11, neither Liberty nor any of its Subsidiaries (nor any of their respective predecessors (except that no representation or warranty is made as to TCI or any of its Subsidiaries)) has, with regard to any assets or property held, acquired or to be acquired by Liberty or any of its Subsidiaries, filed a consent pursuant to Section 341(f) of the Code or any predecessor statute. For the purpose of this Agreement, the term "tax" (including, with correlative meaning, the terms "taxes" and "taxable") shall include all Federal, state, local and foreign income, profits, franchise, gross receipts, payroll, sales, employment, use, property, withholding, excise and other taxes, duties or assessments of any nature whatsoever, together 28 34 with all interest, penalties and additions imposed with respect to such amounts. 4.12 Employee Benefit Plans; ERISA. (a) Schedule 4.12(a) contains a true and complete list of each bonus, deferred compensation, incentive compensation, stock purchase, stock option, severance or termination pay, hospitalization, medical, life or other insurance, supplemental unemployment benefits, profit-sharing, pension or retirement plan, program, agreement or arrangement, and each other employee benefit plan, program, agreement or arrangement, sponsored, maintained or contributed to or required to be contributed to at any time since January 1, 1993 by Liberty or by any trade or business, whether or not incorporated (a "Liberty ERISA Affiliate"), that together with Liberty would be deemed a "single employer" within the meaning of Section 4001 of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), for the benefit of any employee or former employee of Liberty or any Liberty ERISA Affiliate including any such type of plan established, maintained or contributed to under the laws of any foreign country (the "Liberty Plans"). Schedule 4.12(a) identifies each Liberty Plan that is an "employee benefit plan," as defined in Section 3(3) of ERISA. Liberty has heretofore delivered to TCI true and complete copies of each Liberty Plan and, if the Liberty Plan is funded through a trust or any third party funding vehicle, a copy of the trust or other funding document. (b) Except as set forth in Schedule 4.12(b), (i) no Liberty Plan is subject to Title IV of ERISA or Section 412 of the Code and (ii) neither Liberty nor any Liberty ERISA Affiliate made, or was required to make, contributions to any employee benefit plan subject to Title IV of ERISA during the five year period ending on the Effective Time. (c) Concerning each Liberty Plan that is or has been subject to the funding requirements of Title I, Subtitle B, Part 3 of ERISA, the funding method used in connection with such Liberty Plan is, and at all times has been, acceptable under ERISA, each of the actuarial assumptions employed in connection with determining the funding of each such Liberty Plan is, and at all times has been, reasonable and satisfies the requirements of Section 412(c)(3) of the Code and Section 302(c)(3) of ERISA, and Schedule 4.12(c) sets forth, as of the date hereof, (A) the actuarially determined present value of all benefit liabilities within the meaning of Section 4001(a)(16) of ERISA ("Liberty Benefit Liabilities") determined on an ongoing plan basis, employing in making such determination the same actuarial assumptions as were used in determining plan fundings for the most recently completed plan year unless any such assumption is not reasonable, in which event such assumption has been changed to a reasonable assumption, (B) the actuarially determined present value of all Liberty Benefit Liabilities under each such Liberty Plan employing in such determination the same actuarial assumptions, except turnover assumptions, as were used in determining funding for such plan for the most recently completed plan year unless any such assumption is not reasonable, in which event such assumption has been changed to a reasonable assumption, (C) the fair market value of the assets held to fund each such Liberty Plan, (D) the funding method used in connection with each such Liberty Plan and (E) identification of the amount and related plan with respect to which there is or has been any "accumulated funding deficiency," as defined 29 35 in Section 302(a)(2) of ERISA. Schedule 4.12(c) sets forth a reasonable good faith estimate of material changes between January 1, 1993 and the date hereof in the value of benefits or plan assets described in the preceding clause (A), (B) or (C); Schedule 4.12(c) sets forth the information described in said clauses (A), (B), (C) and (D) as of the date hereof, including a separate statement of liabilities attributable to unpredictable contingent event benefits within the meaning of Section 412(l)(7)(B)(ii) of the Code and Section 302(d)(7)(B)(ii) of ERISA. The sum of the amount of unfunded Liberty Benefit Liabilities under all Liberty Plans (excluding each such plan with an amount of unfunded Liberty Benefit Liabilities of zero or less) is not more than $1,000,000; all contributions required by Section 515 of ERISA to be made by Liberty or any Liberty ERISA Affiliate to Liberty Plans have been timely made; with respect to any such Liberty Plan and concerning each Liberty Plan which is in whole or in part an "individual account plan" (as defined in Section 3(34) of ERISA), there is set forth in Schedule 4.12(c) (A) the amount of any liability of Liberty or any Liberty ERISA Affiliate for contributions due or to become due with respect to each such Liberty Plan for periods up to the date hereof, and the date any such amounts were paid and (B) the amount of any contribution accrued or paid or expected to be accrued or paid with respect to such Liberty Plan for the plan year in which the Effective Time occurs; with respect to any such Liberty Plan no such plan has been terminated or subject to a "spin-off" or "spin-off termination" or partial termination and no assets of any such Liberty Plan have been used or employed in a manner so as to subject them to an excise tax imposed under Section 4980 of the Code; each such Liberty Plan permits termination thereof, and distribution of any assets in excess of those required to pay Liberty Benefit Liabilities may be distributed to or for the benefit of Liberty or any Liberty ERISA Affiliate, and Section 4044(d) of ERISA would not prevent such reversion; and with respect to any such Liberty Plan, any reduction in benefits was preceded by an adequate and appropriate notice to the parties described in and as required by Section 204(h) of ERISA. There are no former employees or participants who are entitled to earn additional pension benefits by reason of "grow in" or other rights with respect to service or time periods after such employees have been terminated from employment with Liberty, or any Liberty ERISA Affiliates. (d) Neither Liberty nor any Liberty ERISA Affiliate has engaged in any transaction described under Section 4069 of ERISA nor can any claim, encumbrance or other lien be imposed on Liberty, any Liberty ERISA Affiliates or assets of any of the foregoing under Section 4068 of ERISA. (e) Each Liberty Plan that utilizes a funding vehicle described in Section 501(c)(9) of the Code or is subject to the provisions of Section 505 of the Code has been the subject of a notification by the IRS that such funding vehicle qualifies for tax-exempt status under Section 501(c)(9) of the Code and/or such Liberty Plan complies with Section 505 of the Code, unless the IRS does not as a matter of policy issue such notification with respect to that particular type of plan. Each such Liberty Plan satisfies, where appropriate, the requirements of Sections 501(c)(9) and 505 of the Code. (f) Schedule 4.12(f) contains a list of, and Liberty has delivered to TCI true 30 36 and complete copies of, all other material personnel policy, stock option plan, collective bargaining agreement, bonus, incentive award, vacation pay, severance pay, consulting agreement or any other employee benefit plan, agreement, arrangement or understanding which Liberty or any Liberty ERISA Affiliate maintains, or to which Liberty or any Liberty ERISA Affiliate contributes, is required to contribute or has contributed since January 1, 1993, and which is not required under paragraph (a) or (b) above to be listed in Schedule 4.12(a) or (b), respectively (including, without limitation, with respect to any plans which are unwritten, a detailed written description of eligibility, participation, benefits, funding arrangements, assets and any other matters which relate to the obligations of Liberty or any Liberty ERISA Affiliate). (g) Liberty and each Liberty ERISA Affiliate have complied in all material respects with all requirements for premium payments, including any interest and penalty charges for late payment, due the Pension Benefit Guaranty Corporation ("PBGC") with respect to each Liberty Plan and each separate plan year for which any premiums are required. Except as set forth in Schedule 4.12(g), and except for transactions required by this Agreement, from the period commencing January 1, 1987 through the Effective Time there has been no "reportable event" (as defined in Section 4043(b) of ERISA and the regulations promulgated by the PBGC thereunder) with respect to any Liberty Plan subject to Title IV of ERISA for which notice to the PBGC has not, by rule or regulation, been waived. There is not any unsatisfied material liability to the PBGC which has been incurred by Liberty or any Liberty ERISA Affiliate on account of any Liberty Plan subject to Title IV of ERISA. From the period commencing January 1, 1987 through the Effective Time, no filing has been or will be made by Liberty or any Liberty ERISA Affiliate with the PBGC to terminate, nor has any proceeding been commenced by the PBGC to terminate, any Liberty Plan subject to Title IV of ERISA which was maintained, or wholly or partially funded, by Liberty or any Liberty ERISA Affiliate. Neither Liberty nor any Liberty Equity Affiliate (i) has ceased operations at a facility so as to become subject to the provisions of Section 4062(e) of ERISA, (ii) has withdrawn from any Liberty Plan with respect to which it is a substantial employer so as to become subject to the provisions of Section 4063 of ERISA, (iii) has ceased contributions on or before the Effective Time to any Liberty Plan subject to Section 4064(a) of ERISA to which Liberty or any Liberty ERISA Affiliate has made contributions during the five calendar years prior to the Effective Time, or (iv) has incurred a complete or partial withdrawal from any Liberty Plan that is a multiemployer plan (as defined in either Section 3(37) or Section 4001(a)(3) of ERISA (a "Multiemployer Plan")) so as to incur withdrawal liability as defined in Section 4201 of ERISA (without regard to any subsequent reduction or waiver of such liability under Section 4207 or 4208 of ERISA). No employee pension benefit plan which is a Multiemployer Plan to which Liberty or any Liberty ERISA Affiliate contributes is in "reorganization" (as defined in Section 4241 of ERISA) or "insolvent" (as defined in Section 4245 of ERISA). There is not now, nor can there ever be, any liability under Section 4064 of ERISA to Liberty or any Liberty ERISA Affiliate by reason of participation in any Liberty Plan by Liberty or any Liberty ERISA Affiliate on or prior to the Effective Time. There has been no amendment to any Liberty Plan that would require the furnishing of security under Section 401(a)(29) of the Code. There has been no event or circumstance and there can be no 31 37 event or circumstance which has or may result in any liability being asserted by any Liberty Plan, the PBGC or any other person or entity under Title IV of ERISA against Liberty or any Liberty ERISA Affiliate or against TCI/Liberty (assuming consummation of the Mergers). Neither Liberty nor any Liberty ERISA Affiliate has any liability to any Liberty Plan for contributions under Section 412(m) of the Code or Section 302(e) of ERISA, nor has any claim, encumbrance or other lien been imposed under Section 412(n) of the Code or Section 302(f) of ERISA nor is there any liability for excise taxes imposed under Section 4971 of the Code, and all liabilities arising under Section 412(c)(11) of the Code with respect to contributions to any Liberty Plan have been set forth in Schedule 4.12(g). Copies of any notices to the PBGC under Section 412(n) of the Code or Section 302(f) of ERISA with respect to any Liberty Plan have been delivered to TCI; and copies of notices required to be given to participants under Section 101(d) of ERISA with respect to any Liberty Plan have previously been delivered to TCI. (h) True and complete copies of each plan, agreement, arrangement or understanding referred to in Schedule 4.12(g), the most recent determination letter issued by the IRS with respect to each Liberty Plan, annual reports on Form 5500 required to be filed with any Governmental Entity for each Liberty Plan which is an employee pension benefit plan for the three most recent plan years and all actuarial reports for the last two plan years of each Liberty Plan, other than an "individual account plan," have heretofore been delivered by Liberty to TCI. (i) Except as set forth in Schedule 4.12(i), neither Liberty nor any Liberty ERISA Affiliate is a party to or bound by the terms of any collective bargaining agreement. Liberty and each Liberty ERISA Affiliate is in compliance in all material respects with all applicable laws respecting the employment and employment practices, terms and conditions of employment and wage and hours of its employees and is not engaged in any unfair labor practice. To the knowledge of Liberty, all of the employees of Liberty and the Liberty ERISA Affiliates who work in the United States are lawfully authorized to work in the United States according to federal immigration laws. There is no labor strike or labor disturbance pending or, to the knowledge of Liberty threatened against Liberty or any Liberty ERISA Affiliate, and during the past five years neither Liberty nor any Liberty ERISA Affiliate has experienced a work stoppage. (j) Each Liberty Plan has been operated and administered in all material respects in accordance with its terms and applicable law, including, but not limited to, Section 406 of ERISA and Section 4975 of the Code. (k) Each Liberty Plan which is intended to be "qualified" within the meaning of Section 401(a) of the Code is so qualified and the trusts maintained thereunder are exempt from taxation under Section 501(a) of the Code. (l) Except as set forth in Schedule 4.12(l), no Liberty Plan provides benefits, including without limitation death or medical benefits, with respect to current or former 32 38 employees of Liberty or any Liberty ERISA Affiliate beyond their retirement or other termination of service (other than (i) coverage mandated by applicable law and (ii) death benefits or retirement benefits under any "employee pension plan," as that term is defined in Section 3(2) of ERISA). (m) Except as set forth in Schedule 4.12(m), there are no material pending, threatened or anticipated claims by or on behalf of any Liberty Plan, by any employee or beneficiary covered under an such Liberty Plan, or otherwise involving any such Plan (other than routine claims for benefits). 4.13 Fairness Opinion. On January 24, 1994, Liberty received a written opinion of Merrill Lynch, to the effect that, as of such date, the respective exchange ratios in the Liberty Merger and the TCI Merger, taken together, are fair to the holders of the shares of Liberty Common Stock (other than TCI or its affiliates) from a financial point of view. 4.14 Recommendation of Liberty Board. The Liberty Board at a meeting duly called and held on January 24, 1994, and acting on the unanimous recommendation of a special committee of outside directors, has, by resolutions adopted by at least 75% of the members of the entire Liberty Board, (i) determined that the Merger Proposal is fair to, and in the best interests of, the stockholders of Liberty (other than TCI and its Subsidiaries), (ii) approved this Agreement and the transactions contemplated hereby and (iii) recommended that the stockholders of Liberty approve and adopt the Merger Proposal. 4.15 Vote Required. The only vote of stockholders of Liberty required under the DGCL and Liberty's Restated Certificate of Incorporation and By-laws in order to approve and adopt the Merger Proposal is the affirmative vote of the holders of (i) a majority of the aggregate voting power of the issued and outstanding shares of Liberty Class A Stock and Liberty Class B Stock voting together as a single class, (ii) at least 66-2/3% of the number of shares of Liberty Class B Preferred voting as a separate class and (iii) at least 66-2/3% of the number of shares of Liberty Class D Preferred voting as a separate class, and no vote or approval of or other action by the holders of any other class of the Liberty Preferred Stock is required. ARTICLE V Representations and Warranties of TCI TCI hereby represents and warrants to each of Liberty and TCI/Liberty as follows: 5.1 Organization. Each of TCI and TCI's "significant subsidiaries" (as defined in Rule 1-02 of Regulation S-X, but excluding Liberty and its Subsidiaries) (i) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (ii) has all requisite corporate power and authority to own, lease and operate its 33 39 properties and to carry on its business as now being conducted and (iii) is duly qualified or licensed and in good standing to do business in each jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification or license necessary, except in such jurisdictions where the failure to be so duly qualified or licensed or in good standing has not had, either individually or in the aggregate, a material adverse effect on the business, assets, results of operations or financial condition of TCI and its Subsidiaries, taken as a whole. Each entity (excluding Liberty and its Subsidiaries) in which TCI, directly or through one or more of its Subsidiaries, has an investment accounted for by the equity method which is material to the business, assets, results of operations or financial condition of TCI and its Subsidiaries, taken as a whole (the "TCI Equity Affiliates"), to the knowledge of TCI, is a corporation or partnership (A) duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, (B) has all requisite corporate or partnership power and authority to own, lease and operate its properties and to carry on its business as it is now being conducted and (C) is duly qualified to do business and is in good standing in each jurisdiction in which the properties owned, leased or operated by it, or the nature of its activities, makes such qualification necessary, except in each case where such failure to be so existing and in good standing or to have such power and authority or to be so qualified to do business and be in good standing has not had, individually or in the aggregate, a material adverse effect on the business, assets, results of operations or financial condition of TCI and its Subsidiaries, taken as a whole. TCI has delivered to Liberty true and complete copies of its Restated Certificate of Incorporation and By-laws, as amended through and in effect on the date hereof. 5.2 Authorization and Validity of Agreement. TCI has all requisite corporate power and authority to enter into this Agreement and, subject to obtaining the approval of its stockholders specified in Section 5.15, perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution, delivery and performance by TCI of this Agreement and the consummation by TCI of the transactions contemplated hereby have been duly authorized by the TCI Board and by all other necessary corporate action on its part, subject, in the case of consummation by it of the TCI Merger, to such approval of TCI's stockholders. This Agreement has been duly executed and delivered by TCI and is a valid and binding obligation of TCI, enforceable in accordance with its terms (except insofar as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally, or by principles governing the availability of equitable remedies). 5.3 Capitalization of TCI. The authorized capital stock of TCI consists of one billion shares of TCI Class A Stock, 100 million shares of TCI Class B Stock and ten million shares of "blank-check" preferred stock, of which 6,201 shares have been designated "Convertible Preferred Stock Series C" pursuant to Section 151(g) of the DGCL. As of the close of business on December 31, 1993, (i) 481,836,852 shares of TCI Class A Stock were issued and outstanding, 8,321,186 shares were reserved for issuance upon exercise of TCI Stock Options, 1,265,004 shares were reserved for issuance upon conversion of the TCI Preferred Stock, 41,060,990 shares were reserved for issuance upon conversion of outstanding 34 40 convertible debt securities and 79,335,038 shares were held by TCI in its treasury or by its Subsidiaries; (ii) 47,258,787 shares of TCI Class B Stock were issued and outstanding and no shares were held by TCI in its treasury or by any Subsidiary; and (iii) 6,201 shares of TCI Preferred Stock were issued and outstanding and no shares were held by TCI in its treasury or by its Subsidiaries. All issued and outstanding shares of TCI Common Stock and TCI Preferred Stock have been validly issued and are fully paid and nonassessable, are not subject to and have not been issued in violation of any preemptive rights and have not been issued in violation of any Federal or state securities laws. TCI has no issued or outstanding Voting Debt. Except as set forth on Schedule 5.3, there are not, as of the date hereof, and will not at any time to and including the Effective Time be, any outstanding or authorized subscriptions, options, warrants, calls, rights, commitments or any other agreement of any character to or by which TCI or any of its Subsidiaries is a party or is bound which, directly or indirectly, obligate TCI or any of its Subsidiaries to issue, deliver or sell or cause to be issued, delivered or sold any additional shares of TCI Class A Stock, TCI Class B Stock, TCI Preferred Stock or any other capital stock, equity interest or Voting Debt of TCI or any Subsidiary of TCI or any other securities convertible into, or exercisable or exchangeable for, or evidencing the right to subscribe for any such shares, interests or Voting Debt or obligating TCI or any of its Subsidiaries to grant, extend or enter into any such subscription, option, warrant, call or right. Except as set forth on Schedule 5.3, since the close of business on December 31, 1993, no shares of capital stock of TCI have been issued or have been transferred from TCI's treasury. Immediately after the Effective Time, there will be no subscription, option, warrant, call, right, commitment or agreement which will entitle (conditionally or unconditionally) any person or entity to purchase or otherwise acquire, or will obligate (conditionally or unconditionally) the TCI Surviving Corporation (as TCI's successor) or any Subsidiary of the TCI Surviving Corporation that was a Subsidiary of TCI to sell, issue or deliver, any shares of capital stock, any other equity interest or any Voting Debt of the TCI Surviving Corporation or obligating the TCI Surviving Corporation or any such Subsidiary to grant, extend or enter into any such subscription, warrant, call, right, commitment or agreement. Except for the TCI Incentive Plans and except as set forth on Schedule 5.3 or Schedule 5.12(a), neither TCI nor any of its Subsidiaries has adopted, authorized or assumed any plans, arrangements or practices for the benefit of its officers, employees or directors which require or permit the issuance, sale, purchase or grant of any capital stock, other equity interests or Voting Debt of TCI or any Subsidiary of TCI, any other securities convertible into, or exercisable or exchangeable for, any such stock, interests or Voting Debt or any phantom shares, phantom equity interests or stock or equity appreciation rights. Except as set forth on Schedule 5.3, all shares of capital stock of and all partnership or other equity interests in each Subsidiary of TCI and in each TCI Equity Affiliate owned directly or indirectly by TCI are owned free and clear of any Lien and the shares of capital stock of each corporate Subsidiary of TCI are validly issued, fully paid and nonassessable. Except as set forth on Schedule 5.3, there are not, and immediately after the Effective Time there will not be, any outstanding or authorized subscriptions, options, warrants, calls, rights, commitments or other agreements of any character that, directly or indirectly, (x) call for or relate to the sale, pledge, transfer or other disposition by TCI or TCI Surviving Corporation or any Subsidiary of TCI or TCI Surviving Corporation of any shares of capital stock, any partnership or other equity interests or any Voting Debt of any Subsidiary 35 41 of TCI or TCI Surviving Corporation or of any TCI Equity Affiliate owned directly or indirectly by TCI or TCI Surviving Corporation or any Subsidiary of TCI or TCI Surviving Corporation, or (y) relate to the voting or control of such capital stock, partnership or other equity interests or Voting Debt. 5.4 TCI Reports and Financial Statements. TCI has heretofore made available to Liberty true and complete copies of all reports, registration statements, definitive proxy statements and other documents (in each case together with all amendments thereto) filed by TCI with the Commission since January 1, 1991 (such reports, registration statements, definitive proxy statements and other documents, together with any amendments thereto, are sometimes collectively referred to as the "TCI Commission Filings"). The TCI Commission Filings constitute all of the documents (other than preliminary material) that TCI was required to file with the Commission since such date. As of their respective dates, each of the TCI Commission Filings complied in all material respects with the applicable requirements of the Securities Act, the Exchange Act and the rules and regulations under each such Act, and none of the TCI Commission Filings contained as of such date any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (except that no representation or warranty is made with respect to any information regarding Liberty included in the TCI Commission Filings which was furnished by Liberty expressly for use therein). When filed with the Commission, the financial statements included in the TCI Commission Filings complied as to form in all material respects with the applicable rules and regulations of the Commission and were prepared in accordance with generally accepted accounting principles (as in effect from time to time) applied on a consistent basis (except as may be indicated therein or in the notes or schedules thereto), and such financial statements fairly present the consolidated financial position of TCI and its consolidated Subsidiaries as at the dates thereof and the consolidated results of their operations and their consolidated cash flows for the periods then ended, subject, in the case of the unaudited interim financial statements, to normal, recurring year-end audit adjustments. Except as and to the extent reflected or reserved against in the 36 42 financial statements included in TCI's Quarterly Report on Form 10-Q for the quarter ended September 30, 1993 or as disclosed therein and except as set forth on Schedule 5.4, none of TCI, any of TCI's Subsidiaries or, to the knowledge of TCI, any TCI Equity Affiliate had as of such date any liability or obligation of any kind required to be reflected on a balance sheet of TCI and its consolidated Subsidiaries prepared in accordance with the applicable rules and regulations of the Commission which was material to the business, assets, results of operations or financial condition of TCI and its Subsidiaries, taken as a whole. Since September 30, 1993, except as disclosed in the TCI Commission Filings filed with the Commission prior to the date hereof and except as set forth on Schedule 5.4, none of TCI, any of TCI's Subsidiaries or, to the knowledge of TCI, any TCI Equity Affiliate has incurred any liability or obligation of any kind which, in any case or in the aggregate, is material to the business, assets, results of operations or financial condition of TCI and its Subsidiaries, taken as a whole. 5.5 No Approvals or Notices Required; No Conflict with Instruments. Except as set forth on Schedule 5.5, the execution and delivery by TCI of this Agreement do not, and the performance by TCI of its obligations hereunder and the consummation of the transactions contemplated hereby will not: (i) assuming approval of the Merger Proposal by TCI's stockholders as contemplated by Section 5.15, conflict with or violate the Restated Certificate of Incorporation or By-laws of TCI or any corporate Subsidiary of TCI or the partnership agreement or any partnership Subsidiary or TCI; (ii) require any Government Consent or Governmental Filing, in each case on the part of or with respect to TCI, any Subsidiary of TCI or, to the knowledge of TCI, any TCI Equity Affiliate, the absence or omission of which would, either individually or in the aggregate, have a material adverse effect on the transactions contemplated hereby or on the business, assets, results of operations or financial condition of TCI and its Subsidiaries, taken as a whole, or the TCI Surviving Corporation and its Subsidiaries, taken as a whole, except for (A) the filing with the Commission of the Joint Proxy Statement, the Registration Statement, and such reports and other documents, if any, under Sections 12(g), 13(a), 13(d) and 16(a) of the Exchange Act as may be required in connection with this Agreement and the transactions contemplated hereby, (B) the filing of the TCI Certificate of Merger with the Secretary of State of the State of Delaware, and appropriate documents with the relevant authorities of other states in which TCI is qualified to do business, (C) the FCC Approvals and the Local Approvals, (D) such Government Consents and Governmental Filings as may be required in connection with the issuance of TCI/Liberty stock as contemplated hereby pursuant to state securities and blue sky laws, (E) the Governmental Filings to be made on the part of or with respect to Liberty referred to in clauses (ii)(A) and (B) of Section 4.5 and (F) the Governmental Filings required pursuant to the pre-merger notification requirements of the HSR Act; (iii) require, on the part of TCI, any Subsidiary of TCI or, to the knowledge 37 43 of TCI, any TCI Equity Affiliate, any Contract Consent or Contract Notice, the absence or omission of which would, either individually or in the aggregate, have a material adverse effect on the transactions contemplated hereby or on the business, assets, results of operations or financial condition of TCI and its Subsidiaries, taken as a whole, or the TCI Surviving Corporation and its Subsidiaries, taken as a whole; (iv) assuming that the Contract Consents and Contract Notices described on Schedule 5.5 are obtained and given and that any Government Consents and Governmental Filings required under any Licenses are obtained or made, result in any Violation of any Contract to which TCI, any Subsidiary of TCI or, to the knowledge of TCI, any TCI Equity Affiliate is a party, by which TCI, any Subsidiary of TCI or, to the knowledge of TCI, any TCI Equity Affiliate or any of their respective assets or properties is bound or affected or pursuant to which TCI, any Subsidiary of TCI or, to the knowledge of TCI, any TCI Equity Affiliate is entitled to any rights or benefits, except for such Violations which would not, either individually or in the aggregate, have a material adverse effect on the transactions contemplated hereby or on the business, assets, results of operations or financial condition of TCI and its Subsidiaries, taken as a whole, or the TCI Surviving Corporation and its Subsidiaries, taken as a whole; or (v) assuming that the Merger Proposal is approved by TCI's stockholders and assuming that the Government Consents and Governmental Filings specified in clause (ii) of this Section 5.5 are obtained, made and given, result in a Violation of, under or pursuant to any law, rule, regulation, order, judgment or decree applicable to TCI, any Subsidiary of TCI or, to the knowledge of TCI, any TCI Equity Affiliate or by which any of their respective properties or assets are bound or affected, except for such Violations which would not, either individually or in the aggregate, have a material adverse effect on the transactions contemplated hereby or on the business, assets, results of operations or financial condition of TCI and its Subsidiaries, taken as a whole, or the TCI Surviving Corporation and its Subsidiaries, taken as a whole. 5.6 Absence of Certain Changes or Events. Except as otherwise disclosed in the TCI Commission Filings filed with the Commission prior to the date hereof or as set forth on Schedule 5.6, during the period commencing on October 1, 1993 and ending on the date of this Agreement, (i) there has not been any material adverse change in, and no event has occurred and no condition exists which, individually or together with other events or conditions, has had a material adverse effect on, the business, assets, results of operations or financial condition of TCI and its Subsidiaries, taken as a whole (excluding events or conditions generally affecting the cable television or cable programming industries in the United States or affecting general business or economic conditions in the United States) and (ii) neither TCI nor any of its Subsidiaries has taken any action which, if taken after the date of this Agreement without the consent of Liberty, would violate Section 7.4 hereof. 5.7 Registration Statement; Proxy Statement. None of the information supplied or 38 44 to be supplied by TCI or any of its affiliates, directors, officers, employees, agents or representatives in writing specifically for inclusion or incorporation by reference in, and which is included or incorporated by reference in, (i) the Registration Statement or any amendment or supplement thereto, (ii) the Joint Proxy Statement/Prospectus or (iii) any other documents filed or to be filed with the Commission or any other Governmental Entity in connection with the transactions contemplated hereby, will, at the respective times such documents are filed, and, in the case of the Registration Statement or any amendment or supplement thereto, when the same becomes effective, at the time of the TCI Stockholders Meeting or the Liberty Stockholders Meeting or any other meeting of TCI's stockholders or Liberty's stockholders to be held in connection with the Mergers or at the Effective Time, and, in the case of the Joint Proxy Statement/Prospectus or any amendment or supplement thereto, at the time of mailing of the Joint Proxy Statement/Prospectus to TCI's and Liberty's stockholders or at the time of the TCI Stockholders Meeting or the Liberty Stockholders Meeting, or any other meeting of TCI's stockholders or Liberty's stockholders to be held in connection with the Mergers, be false or misleading with respect to any material fact, or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading or necessary to correct any statement in any earlier communication with respect to the solicitation of any proxy for the Liberty Stockholders Meeting or the TCI Stockholders Meeting. For this purpose, any such information included or incorporated by reference in any such document will be deemed to have been so supplied in writing specifically for inclusion or incorporation therein if such document was available for review by TCI a reasonable time before such document was filed (but the foregoing shall not be the exclusive manner in which it may be established that such information was so supplied). The Registration Statement and the Joint Proxy Statement/Prospectus will comply as to form in all material respects with the applicable provisions of the Securities Act and the Exchange Act and the respective rules and regulations under each such Act. 5.8 Legal Proceedings. Except as set forth in the TCI Commission Filings filed with the Commission prior to the date hereof or as set forth on Schedule 5.8, (i) there is no suit, action or proceeding pending or, to the knowledge of TCI, any investigation pending or any suit, action, proceeding or investigation threatened, against, involving or affecting TCI, any Subsidiary of TCI or, to the knowledge of TCI, any TCI Equity Affiliate or any of its or their properties or rights (excluding suits, actions, proceedings or investigations generally affecting the cable television industry in a particular state or in the United States and to which neither TCI nor any Subsidiary of TCI is a party), which, if adversely determined, is, insofar as TCI can reasonably foresee, reasonably likely to have, either individually or in the aggregate, a material adverse effect on the business, assets, results of operations or financial condition of TCI and its Subsidiaries, taken as a whole; (ii) there is no judgment, decree, Injunction, rule or order of any court, governmental department, commission, agency, instrumentality or arbitrator applicable to TCI, any Subsidiary of TCI or, to the knowledge of TCI, any TCI Equity Affiliate having, or which, insofar as TCI can reasonably foresee, is reasonably likely to have, either individually or in the aggregate, any such effect; and (iii) to the knowledge of TCI, there is no action, suit, proceeding or investigation pending or threatened against TCI which seeks to restrain, enjoin or delay the consummation of either Merger or any of the other 39 45 transactions contemplated hereby or which seeks damages in connection therewith, and no Injunction of any type referred to in Section 8.1(d) has been entered or issued. The term "order" as used in the immediately preceding sentence shall not be deemed to include any Licenses. 5.9 Licenses; Compliance with Regulatory Requirements; Intangible Property. TCI, its Subsidiaries and, to the knowledge of TCI, the TCI Equity Affiliates hold all Licenses which are material to the operation of the businesses of TCI and its Subsidiaries, taken as a whole. Each of TCI, its Subsidiaries and, to the knowledge of TCI, the TCI Equity Affiliates is in compliance with, and has conducted its business so as to comply with, the terms of their respective Licenses and with all applicable laws, rules, regulations, ordinances and codes, domestic or foreign, including laws, rules, regulations, ordinances and codes relating to the protection of the environment, except where the failure so to comply has not had, either individually or in the aggregate, a material adverse effect on the business, assets, results of operations or financial condition of TCI and its Subsidiaries, taken as a whole. Without limiting the generality of the foregoing, TCI, its Subsidiaries and, to the knowledge of TCI, the TCI Equity Affiliates (i) have all FCC Licenses and Franchises required for the operation of the CATV Systems being operated on the date hereof by TCI, any of its Subsidiaries, or, to the knowledge of TCI, any TCI Equity Affiliate, (ii) have duly and currently filed all reports and other information required to be filed by the FCC or any other Governmental Entity in connection with such FCC Licenses and Franchises and (iii) are not in violation of any of such FCC Licenses or Franchises, other than the lack of FCC Licenses or Franchises, delays in filing reports or possible violations which have not had and, insofar as can reasonably be foreseen, in the future will not have a material adverse effect on the business, assets, results of operations or financial condition of TCI and its Subsidiaries, taken as a whole. TCI and its Subsidiaries own or have adequate rights to use all patents, trademarks, trade names, service marks, trade secrets, copyrights and other proprietary intellectual property rights as are material in connection with the businesses of TCI and its Subsidiaries, taken as a whole. 5.10 Brokers or Finders. No agent, broker, investment banker, financial advisor or other person or entity is or will be entitled, by reason of any agreement, act or statement by TCI or any of its Subsidiaries, directors, officers, employees or affiliates, to any financial advisory, broker's, finder's or similar fee or commission, to reimbursement of expenses or to indemnification or contribution in connection with any of the transactions contemplated by this Agreement, except CS First Boston, whose fees and expenses and claims for indemnification and contribution will be paid by TCI in accordance with TCI's agreement with such firm (a copy of which has been (or following its execution by TCI will promptly be) provided to Liberty), and TCI agrees to indemnify and hold Liberty and TCI/Liberty harmless from and against any and all claims, liabilities or obligations with respect to any such fees, commissions, expenses or claims for indemnification or contribution asserted by any person on the basis of any act or statement made or alleged to have been made by TCI or any of its Subsidiaries, directors, officers, employees or affiliates. 5.11 Tax Matters. Except as set forth on Schedule 5.11, to the knowledge of TCI, 40 46 (i) there has been duly filed by or on behalf of TCI and each of its Subsidiaries (and each of their respective predecessors (except that no representation or warranty is made as to Liberty or any of its Subsidiaries)), or filing extensions from the appropriate Federal, state, foreign and local Governmental Entities have been obtained with respect to, all material Federal, state, foreign and local tax returns and reports required to be filed on or prior to the date hereof, (ii) payment in full or adequate provision for the payment of all taxes required to be paid in respect of the periods covered by such tax returns and reports has been made (except in respect of state, local and foreign taxes which are in the aggregate immaterial in amount) and (iii) a reserve which TCI reasonably believes to be adequate has been set up for the payment of all such taxes anticipated to be payable in respect of periods through the date hereof. Except as set forth on Schedule 5.11, none of the Federal income tax returns required to be filed by or on behalf of TCI and each of its Subsidiaries consolidated in such returns (and their respective predecessors (except that no representation or warranty is made as to Liberty or any of its Subsidiaries)) under the Code or any predecessor statute (the "TCI Consolidated Returns") are currently under examination by the IRS. There have not been any deficiencies or assessments asserted in writing by the IRS with respect to the TCI Consolidated Returns. Except as set forth on Schedule 5.11, neither TCI nor any of its Subsidiaries (nor any of their respective predecessors (except that no representation or warranty is made as to Liberty or any of its Subsidiaries)) has, with regard to any assets or property held, acquired or to be acquired by TCI or any of its Subsidiaries, filed a consent pursuant to Section 341(f) of the Code or any predecessor statute. 5.12 Employee Benefit Plans; ERISA. (a) Schedule 5.12(a) contains a true and complete list of each bonus, deferred compensation, incentive compensation, stock purchase, stock option, severance or termination pay, hospitalization, medical, life or other insurance, supplemental unemployment benefits, profit-sharing, pension or retirement plan, program, agreement or arrangement, and each other employee benefit plan, program, agreement or arrangement, sponsored, maintained or contributed to or required to be contributed to at any time since January 1, 1993 by TCI or by any trade or business, whether or not incorporated (a "TCI ERISA Affiliate"), that together with TCI would be deemed a "single employer" within the meaning of Section 4001 of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), for the benefit of any employee or former employee of TCI or any TCI ERISA Affiliate including any such type of plan established, maintained or contributed to under the laws of any foreign country (the "TCI Plans"). Schedule 5.12(a) identifies each TCI Plan that is an "employee benefit plan," as defined in Section 3(3) of ERISA. TCI has heretofore delivered to Liberty true and complete copies of each TCI Plan and, if the TCI Plan is funded through a trust or any third party funding vehicle, a copy of the trust or other funding document. (b) Except as set forth in Schedule 5.12(b), (i) no TCI Plan is subject to Title IV of ERISA or Section 412 of the Code and (ii) neither TCI nor any TCI ERISA Affiliate made, or was required to make, contributions to any employee benefit plan subject to Title IV of ERISA during the five year period ending on the Effective Time. 41 47 (c) Concerning each TCI Plan that is or has been subject to the funding requirements of Title I, Subtitle B, Part 3 of ERISA, the funding method used in connection with such TCI Plan is, and at all times has been, acceptable under ERISA, each of the actuarial assumptions employed in connection with determining the funding of each such TCI Plan is, and at all times has been, reasonable and satisfies the requirements of Section 412(c)(3) of the Code and Section 302(c)(3) of ERISA, and Schedule 5.12(c) sets forth, as of the date hereof, (A) the actuarially determined present value of all benefit liabilities within the meaning of Section 4001(a)(16) of ERISA ("TCI Benefit Liabilities") determined on an ongoing plan basis, employing in making such determination the same actuarial assumptions as were used in determining plan fundings for the most recently completed plan year unless any such assumption is not reasonable, in which event such assumption has been changed to a reasonable assumption, (B) the actuarially determined present value of all TCI Benefit Liabilities under each such TCI Plan employing in such determination the same actuarial assumptions, except turnover assumptions, as were used in determining funding for such plan for the most recently completed plan year unless any such assumption is not reasonable, in which event such assumption has been changed to a reasonable assumption, (C) the fair market value of the assets held to fund each such TCI Plan, (D) the funding method used in connection with each such TCI Plan and (E) identification of the amount and related plan with respect to which there is or has been any "accumulated funding deficiency," as defined in Section 302(a)(2) of ERISA. Schedule 5.12(c) sets forth a reasonable good faith estimate of material changes between January 1, 1993 and the date hereof in the value of benefits or plan assets described in the preceding clause (A), (B) or (C); Schedule 5.12(c) sets forth the information described in said clauses (A), (B), (C) and (D) as of the date hereof, including a separate statement of liabilities attributable to unpredictable contingent event benefits within the meaning of Section 412(l)(7)(B)(ii) of the Code and Section 302(d)(7)(B)(ii) of ERISA. The sum of the amount of unfunded TCI Benefit Liabilities under all TCI Plans (excluding each such plan with an amount of unfunded Benefit Liabilities of zero or less) is not more than $1,000,000; all contributions required by Section 515 of ERISA to be made by TCI or any TCI ERISA Affiliate to TCI Plans have been timely made; with respect to any such TCI Plan and concerning each TCI Plan which is in whole or in part an "individual account plan" (as defined in Section 3(34) of ERISA), there is set forth in Schedule 5.12(c) (A) the amount of any liability of TCI or any TCI ERISA Affiliate for contributions due or to become due with respect to each such TCI Plan for periods up to the date hereof, and the date any such amounts were paid and (B) the amount of any contribution accrued or paid or expected to be accrued or paid with respect to such TCI Plan for the plan year in which the Effective Time occurs; with respect to any such TCI Plan no such plan has been terminated or subject to a "spin-off" or "spin-off termination" or partial termination and no assets of any such TCI Plan have been used or employed in a manner so as to subject them to an excise tax imposed under Section 4980 of the Code; each such TCI Plan permits termination thereof, and distribution of any assets in excess of those required to pay TCI Benefit Liabilities may be distributed to or for the benefit of TCI or any TCI ERISA Affiliate, and Section 4044(d) of ERISA would not prevent such reversion; and with respect to any such TCI Plan, any reduction in benefits was preceded by an adequate and appropriate notice to the parties described in and as required by 42 48 Section 204(h) of ERISA. There are no former employees or participants who are entitled to earn additional pension benefits by reason of "grow in" or other rights with respect to service or time periods after such employees have been terminated from employment with TCI, or any TCI ERISA Affiliates. (d) Neither TCI nor any TCI ERISA Affiliate has engaged in any transaction described under Section 4069 of ERISA nor can any claim, encumbrance or other lien be imposed on TCI, any TCI ERISA Affiliates or assets of any of the foregoing under Section 4068 of ERISA. (e) Each TCI Plan that utilizes a funding vehicle described in Section 501(c)(9) of the Code or is subject to the provisions of Section 505 of the Code has been the subject of a notification by the IRS that such funding vehicle qualifies for tax-exempt status under Section 501(c)(9) of the Code and/or such TCI Plan complies with Section 505 of the Code, unless the IRS does not as a matter of policy issue such notification with respect to that particular type of plan. Each such TCI Plan satisfies, where appropriate, the requirements of Sections 501(c)(9) and 505 of the Code. (f) Schedule 5.12(f) contains a list of, and TCI has delivered to Liberty true and complete copies of, all other material personnel policy, stock option plan, collective bargaining agreement, bonus, incentive award, vacation pay, severance pay, consulting agreement or any other employee benefit plan, agreement, arrangement or understanding which TCI or any TCI ERISA Affiliate maintains, or to which TCI or any TCI ERISA Affiliate contributes, is required to contribute or has contributed since January 1, 1993, and which is not required under paragraph (a) or (b) above to be listed in Schedule 5.12(a) or (b), respectively (including, without limitation, with respect to any plans which are unwritten, a detailed written description of eligibility, participation, benefits, funding arrangements, assets and any other matters which relate to the obligations of TCI or any TCI ERISA Affiliate). (g) TCI and each TCI ERISA Affiliate have complied in all material respects with all requirements for premium payments, including any interest and penalty charges for late payment, due the Pension Benefit Guaranty Corporation ("PBGC") with respect to each TCI Plan and each separate plan year for which any premiums are required. Except as set forth in Schedule 5.12(g), and except for transactions required by this Agreement, from the period commencing January 1, 1987 through the Effective Time there has been no "reportable event" (as defined in Section 4043(b) of ERISA and the regulations promulgated by the PBGC thereunder) with respect to any TCI Plan subject to Title IV of ERISA for which notice to the PBGC has not, by rule or regulation, been waived. There is not any unsatisfied material liability to the PBGC which has been incurred by TCI or any TCI ERISA Affiliate on account of any TCI Plan subject to Title IV of ERISA. From the period commencing January 1, 1987 through the Effective Time, no filing has been or will be made by TCI or any TCI ERISA Affiliate with the PBGC to terminate, nor has any proceeding been commenced by the PBGC to terminate, any TCI Plan subject to Title IV of ERISA which was maintained, or wholly or partially funded, by TCI or any TCI ERISA Affiliate. Neither TCI nor any TCI Equity 43 49 Affiliate (i) has ceased operations at a facility so as to become subject to the provisions of Section 4062(e) of ERISA, (ii) has withdrawn from any TCI Plan with respect to which it is a substantial employer so as to become subject to the provisions of Section 4063 of ERISA, (iii) has ceased contributions on or before the Effective Time to any TCI Plan subject to Section 4064(a) of ERISA to which TCI or any TCI ERISA Affiliate has made contributions during the five calendar years prior to the Effective Time, or (iv) has incurred a complete or partial withdrawal from any TCI Plan that is a multiemployer plan (as defined in either Section 3(37) or Section 4001(a)(3) of ERISA (a "Multiemployer Plan")) so as to incur withdrawal liability as defined in Section 4201 of ERISA (without regard to any subsequent reduction or waiver of such liability under Section 4207 or 4208 of ERISA). No employee pension benefit which is a Multiemployer Plan to which TCI or any TCI ERISA Affiliate contributes is in "reorganization" (as defined in Section 4241 of ERISA) or "insolvent" (as defined in Section 4245 of ERISA). There is not now, nor can there ever be, any liability under Section 4064 of ERISA to TCI or any TCI ERISA Affiliate by reason of participation in any TCI Plan by TCI or any TCI ERISA Affiliate on or prior to the Effective Time. There has been no amendment to any TCI Plan that would require the furnishing of security under Section 401(a)(29) of the Code. There has been no event or circumstance and there can be no event or circumstance which has or may result in any liability being asserted by any TCI Plan, the PBGC or any other person or entity under Title IV of ERISA against TCI or any TCI ERISA Affiliate or against TCI/Liberty (assuming consummation of the Mergers). Neither TCI nor any TCI ERISA Affiliate has any liability to any TCI Plan for contributions under Section 412(m) of the Code or Section 302(e) of ERISA, nor has any claim, encumbrance or other lien been imposed under Section 412(n) of the Code or Section 302(f) of ERISA nor is there any liability for excise taxes imposed under Section 4971 of the Code, and all liabilities arising under Section 412(c)(11) of the Code with respect to contributions to any TCI Plan have been set forth in Schedule 5.12(g). Copies of any notices to the PBGC under Section 412(n) of the Code or Section 302(f) of ERISA with respect to any TCI Plan have been delivered to Liberty; and copies of notices required to be given to participants under Section 101(d) of ERISA with respect to any TCI Plan have previously been delivered to Liberty. (h) True and complete copies of each plan, agreement, arrangement or understanding referred to in Schedule 5.12(g), the most recent determination letter issued by the IRS with respect to each TCI Plan, annual reports on Form 5500 required to be filed with any Governmental Entity for each TCI Plan which is an employee pension benefit plan for the three most recent plan years and all actuarial reports for the last two plan years of each TCI Plan, other than an "individual account plan," have heretofore been delivered by TCI to Liberty. (i) Except as set forth in Schedule 5.12(i), neither TCI nor any TCI ERISA Affiliate is a party to or bound by the terms of any collective bargaining agreement. TCI and each TCI ERISA Affiliate is in compliance in all material respects with all applicable laws respecting the employment and employment practices, terms and conditions of employment and wage and hours of its employees and is not engaged in any unfair labor practice. To the knowledge of TCI, all of the employees of TCI and the TCI ERISA Affiliates who work in the 44 50 United States are lawfully authorized to work in the United States according to federal immigration laws. There is no labor strike or labor disturbance pending or, to the knowledge of TCI threatened against TCI or any TCI ERISA Affiliate, and during the past five years neither TCI nor any TCI ERISA Affiliate has experienced a work stoppage. (j) Each TCI Plan has been operated and administered in all material respects in accordance with its terms and applicable law, including, but not limited to, Section 406 of ERISA and Section 4975 of the Code. (k) Each TCI Plan which is intended to be "qualified" within the meaning of Section 401(a) of the Code is so qualified and the trusts maintained thereunder are exempt from taxation under Section 501(a) of the Code. (l) Except as set forth in Schedule 5.12(l), no TCI Plan provides benefits, including without limitation death or medical benefits, with respect to current or former employees of TCI or any TCI ERISA Affiliate beyond their retirement or other termination of service (other than (i) coverage mandated by applicable law and (ii) death benefits or retirement benefits under any "employee pension plan," as that term is defined in Section 3(2) of ERISA). (m) Except as set forth in Schedule 5.12(m), there are no material pending, threatened or anticipated claims by or on behalf of any TCI Plan, by any employee or beneficiary covered under an such TCI Plan, or otherwise involving any such TCI Plan (other than routine claims for benefits). 5.13 Fairness Opinion. On January 24, 1994, TCI received an oral opinion of CS First Boston to the effect that, as of such date, the consideration to be received by the holders of TCI Common Stock (other than Liberty and its affiliates) in the TCI Merger is fair, from a financial point of view, to such stockholders. 5.14 Recommendation of TCI Board. The TCI Board at a meeting duly called and held on January 24, 1994, has, by resolutions adopted by at least 75% of the members of the entire TCI Board, (i) determined that the Merger Proposal is fair to, and in the best interests of, the stockholders of TCI (other than Liberty and its Subsidiaries), (ii) approved this Agreement and the transactions contemplated hereby and (iii) recommended that the stockholders of TCI approve and adopt the Merger Proposal. 5.15 Vote Required. The only vote of stockholders of TCI required under the DGCL and TCI's Restated Certificate of Incorporation and By-laws in order to approve and adopt this Agreement and the terms contemplated hereby is the affirmative vote of the holders of a majority of the aggregate voting power of the issued and outstanding shares of TCI Class A Stock and TCI Class B Stock voting together as a single class. 45 51 ARTICLE VI Representations and Warranties of TCI/Liberty TCI/Liberty hereby represents and warrants to each of TCI and Liberty as follows: 6.1 Organization. Each of TCI/Liberty, TCI Mergerco and Liberty Mergerco is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation. 6.2 Authorization and Validity of Agreement. Each of TCI/Liberty, TCI Mergerco and Liberty Mergerco has all requisite corporate power and authority to enter into this Agreement and perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution, delivery and performance by each of TCI/Liberty, TCI Mergerco and Liberty Mergerco of this Agreement and the consummation by each of TCI/Liberty, TCI Mergerco and Liberty Mergerco of the transactions contemplated hereby have been duly authorized by all necessary corporate action on its part. This Agreement has been duly executed and delivered by each of TCI/Liberty, TCI Mergerco and Liberty Mergerco and is a valid and binding obligation of each of TCI/Liberty, TCI Mergerco and Liberty Mergerco, enforceable in accordance with its terms (except insofar as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally, or by principles governing the availability of equitable remedies). 6.3 Newly Issued Shares. The shares of TCI/Liberty Common Stock and TCI/Liberty Preferred Stock to be issued and delivered by TCI/Liberty pursuant to Section 2.1 will be, when the Mergers have become effective and such shares are issued and delivered as provided in Section 2.1 and as described in the Registration Statement, duly authorized, validly issued, fully paid and nonassessable. 6.4 Interim Operations of TCI/Liberty. Prior to the Effective Time, TCI/Liberty, TCI Mergerco and Liberty Mergerco will engage in no business activities, will have no subsidiaries (other than, in the case of TCI/Liberty, TCI Mergerco and Liberty Mergerco) and will conduct their respective operations only as contemplated hereby. ARTICLE VII Transactions Prior to Closing 7.1 Access to Information Concerning Properties and Records. Upon reasonable notice, each of TCI and Liberty shall (and shall cause each of its Subsidiaries, and use its reasonable efforts to cause its other affiliates, to) afford to the officers, employees, counsel, accountants and other authorized representatives of the other full access during normal business hours to all its properties, personnel, books and records and furnish promptly to such persons 46 52 such information concerning its business, properties, personnel and affairs as such persons shall from time to time reasonably request. 7.2 Confidentiality. Each party shall, and shall use its reasonable efforts to cause its officers, employees and authorized representatives to, (i) hold in confidence all confidential information obtained by it or them from any other party or any of such other party's officers, employees or authorized representatives pursuant to this Agreement (unless such information is or becomes publicly available or readily ascertainable from public or published information or trade sources through no wrongful act of such first party) and (ii) use all such data and information solely for the purpose of consummating the transactions contemplated hereby, except, in either case, as may be otherwise required by law or legal process or as may be necessary or appropriate in connection with the enforcement of, or any litigation concerning, this Agreement. In the event this Agreement is terminated, each party shall promptly return, if so requested by any other party, all nonpublic documents obtained from such other party in connection with the transactions contemplated hereby and any copies thereof which may have been made by such first party and shall use its reasonable efforts to cause its officers, employees and authorized representatives to whom such documents were furnished promptly to return such documents and any copies thereof any of them may have made. The foregoing provisions shall not apply (A) to TCI with respect to any information or reports relating to Liberty which are not obtained by TCI, its officers, employees or authorized representatives through TCI's due diligence investigation conducted by TCI's officers, employees and authorized representatives exclusively in connection with the transactions contemplated hereby or (B) to Liberty with respect to any information or reports relating to TCI which are not obtained by Liberty, its officers, employees or authorized representatives through Liberty's due diligence investigation conducted by Liberty's officers, employees and authorized representatives exclusively in connection with the transactions contemplated hereby. 7.3 Public Announcements. Neither TCI nor Liberty shall, nor shall either TCI or Liberty permit any of its Subsidiaries to (and each such party shall use its reasonable efforts to cause its affiliates, directors, officers, employees, agents and representatives not to), issue any press release, make any public announcement or furnish any written statement to its employees or stockholders generally concerning the transactions contemplated by this Agreement without the consent of the other party (which consent shall not be unreasonably withheld), except to the extent required by applicable law or the applicable requirements of the National Association of Securities Dealers, Inc. with respect to issuers whose securities are quoted on NASDAQ NMS (and in either such case such party shall, to the extent consistent with timely compliance with such requirement, consult with the other party prior to making the required release, announcement or statement). 7.4 Conduct of Business by Liberty and TCI Pending the Effective Time. Each of Liberty and TCI shall, and, with respect to paragraphs (b) through (g) below, shall cause each of its Subsidiaries to, except as permitted, required or specifically contemplated by this Agreement or consented to or approved in writing by the other party (which consent or approval shall not be unreasonably withheld) and except as set forth in Schedule 7.4, during 47 53 the period commencing on the date hereof and ending at the Effective Time: (a) not (i) make any change or amendments in its charter or by-laws; (ii) issue, grant, sell or deliver any shares of its capital stock or other securities, or any securities convertible into, or options, warrants or rights of any kind to subscribe to or acquire, any shares of its capital stock or other securities, other than (x) in the case of Liberty, issuances of Liberty Class A Stock (A) upon exercise of Liberty Stock Options outstanding on the date of and disclosed pursuant to this Agreement in accordance with their existing terms and (B) on conversion of shares of Liberty Class B Stock at the option of the holders thereof in accordance with the existing terms of Liberty's Restated Certificate of Incorporation and (y) in the case of TCI, issuances of TCI Class A Stock (A) upon exercise of TCI Stock Options outstanding on the date of and disclosed pursuant to this Agreement in accordance with their existing terms and (B) on conversion of shares of TCI Class B Stock and TCI Preferred Stock at the option of the holders thereof in accordance with the existing terms of TCI's Restated Certificate of Incorporation; (iii) split, combine or reclassify the outstanding shares of its capital stock or issue any capital stock or other securities in exchange for any such shares; (iv) redeem, purchase, or otherwise acquire, directly or indirectly, (x) in the case of Liberty, any shares of capital stock or any other securities of Liberty, other than as required by existing agreements with minority investors in any of Liberty's Subsidiaries and (y) in the case of TCI, any shares of capital stock or any other securities of TCI, other than as required by existing agreements with minority investors in any of TCI's Subsidiaries; (v) amend or modify any outstanding options, warrants or rights to acquire, or securities convertible into, shares of its capital stock or other securities, amend or modify any outstanding stock appreciation rights or restricted stock awards or grant, adopt or authorize any stock or equity appreciation rights, restricted stock or equity, stock or equity purchase, stock or equity bonus or similar plan, arrangement or agreement; (vi) make any other changes in its capital structure; (vii) declare, set aside, pay or make any dividend or other distribution or payment (whether in cash, property or securities) with respect to its capital stock or other securities, except for (x) in the case of Liberty, regular annual dividends on the Liberty Class E Preferred (which may be paid in cash or, at the option of Liberty, shares of Liberty Class A Stock) as provided by the existing terms of such Liberty Class E Preferred and (y) in the case of TCI, regular quarterly cash dividends on the TCI Preferred Stock as provided by the existing terms of the TCI Preferred Stock; (viii) sell or pledge any stock, equity or partnership interest owned by it, except for dispositions permitted by this Section 7.4; or (ix) enter into or assume any contract, agreement, obligation, commitment or arrangement with respect to any of the foregoing; (b) not (i) establish, amend or modify any employee benefit plan of any kind referred to in Section 4.12(a) or 5.12(a), as the case may be, except in the ordinary course of business consistent with past practice or to the extent required by any applicable law or the existing terms of such employee benefit plan or the provisions of this Agreement; (ii) other than as contemplated or otherwise permitted by this Agreement and other than in connection with normal cash management practices conducted in the ordinary and usual course of their business and consistent with past practice, make any advance or loan to or engage in any transaction with any director, officer, partner or affiliate not required by the terms of an 48 54 existing Contract; or (iii) enter into or assume any contract, agreement, obligation, commitment or arrangement with respect to any of the foregoing; (c) not acquire or agree to acquire by merging or consolidating with, or by purchasing a substantial equity interest in or a substantial portion of the assets of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof, except for (i) in the case of TCI and its Subsidiaries, any single acquisition or related series of acquisitions in which the aggregate purchase price is less than $500,000,000, and (ii) in the case of Liberty and its Subsidiaries, any single acquisition or related series of acquisitions in which the aggregate purchase price is less than $250,000,000; (d) not sell, lease or encumber or otherwise dispose of, or agree to sell, lease, encumber or otherwise dispose of, any of its assets, except for (i) in the case of TCI and its Subsidiaries, any single disposition or related series of dispositions in which the aggregate fair market value of the assets disposed of does not exceed $500,000,000, and (ii) in the case of Liberty and its Subsidiaries, any single disposition or related series of dispositions in which the aggregate fair market value of the assets disposed of does not exceed $250,000,000; (e) not incur (which shall not be deemed to include entering into credit agreements, lines of credit or similar arrangements until borrowings are made under such arrangements) any indebtedness for borrowed money or guarantee any such indebtedness or issue or sell any debt securities or warrants or rights to acquire any debt securities or guarantee any debt securities of others other than (i) in the ordinary course of business consistent with past practice and (ii) as may be necessary in connection with acquisitions permitted by this Section 7.4; provided, however, that the foregoing shall not prohibit (x) any renewal, extension, amendment or refinancing of existing indebtedness (provided there is no increase in the interest rate or the principal amount of such indebtedness) and (y) the incurrence of any new indebtedness, or the amendment or refinancing of any existing indebtedness (whether or not permitted by the preceding clause (x)), if such indebtedness would be prepayable in full at the Effective Time without material restrictions (other than customary prepayment penalties and premiums that, in the case of any refinancing, are no greater that those contained in the indebtedness being refinanced)); (f) conduct its business only in, and not take any action except in, the ordinary and usual course of its business and consistent with past practices, and use reasonable efforts, in the ordinary and usual course of business and consistent with past practices, to preserve intact its business organization, to preserve its Licenses in full force and effect, to keep available the services of its present officers and key employees, and to preserve the good will of those having business relationships with it; provided, however, that the provisions of this subsection (f) shall not prohibit any action permitted to be taken pursuant to any other subsection of this Section 7.4, and shall not prohibit any Subsidiary of TCI or Liberty from taking any of the actions set forth in Section 7.4(a); and 49 55 (g) not take any action that would or is reasonably likely to result in any of the conditions set forth in Article VIII not being met as of the Closing Date. 7.5 No Solicitation. Subject to the fiduciary duties of its directors under applicable law, each of Liberty and TCI will not, directly or indirectly, through any officer, director, employee, agent or representative or otherwise (i) solicit or initiate the submission of proposals or offers from any other person or entity relating to any Takeover Proposal (as defined below); (ii) cooperate with, or furnish or cause to be furnished any non-public information concerning its business, properties or assets or the business, properties or assets of any of its Subsidiaries to, any other person or entity in connection with any Takeover Proposal; (iii) negotiate with any other person or entity with respect to any Takeover Proposal; or (iv) enter into any agreement or understanding with any other person or entity with the intent to effect any Takeover Proposal. Each of Liberty and TCI will immediately give written notice to the other of the details of any Takeover Proposal of which it is currently or becomes aware. Notwithstanding the foregoing, nothing contained in this Section 7.5 shall prohibit Liberty or TCI or their respective Boards of Directors, to the extent required by their fiduciary duties under applicable law, from (i) providing information to, or participating in discussions or negotiations with, any person or entity that makes an unsolicited inquiry with respect to such party if the Board of Directors of such party reasonably believes such person or entity may propose a Takeover Proposal on terms that are superior, from a financial point of view, to the terms of the Mergers for the stockholders of such party (a "Superior Takeover Proposal") or (ii) entering into an agreement with respect to a Superior Takeover Proposal after receipt by the other party of written notice of (A) the material terms of such Superior Takeover Proposal and (B) the identity of the person making such proposal. As used in this Section, "Takeover Proposal" means, with respect to Liberty or TCI, any proposal, other than as contemplated by this Agreement, for a merger, consolidation, reorganization, other business combination or recapitalization involving such party, for the acquisition of a 25% or greater interest in the equity or in any class or series of capital stock of such party, for the acquisition of the right to cast 25% or more of the votes on any matter with respect to such party or for the acquisition of assets of such party or its Subsidiaries (or both) constituting 40% or more of the consolidated assets of such party or which generate 40% or more of the consolidated revenues of such party or the effect of which may be to prohibit, restrict or delay the consummation of the transactions contemplated by this Agreement. Nothing contained herein shall be construed to prohibit either Liberty or TCI or the Liberty Board or the TCI Board, respectively, from making any disclosure to its stockholders which, in the judgment of such board as advised by its counsel, may be required by applicable law in connection with any such proposal or offer. This Section 7.5 shall not apply to the Takeover Proposal of Bell Atlantic Corporation ("Bell Atlantic") set forth in that certain letter of intent dated October 12, 1993, as the same may be modified or amended with the consent of Liberty and TCI (such consent to be deemed granted if (x) Liberty and TCI execute an amendment to such letter of intent, (y) Liberty and TCI execute a definitive merger agreement with Bell Atlantic with respect to a Takeover Proposal or (z) neither Liberty nor TCI has issued a press release to the effect that negotiations with Bell Atlantic concerning its Takeover Proposal have been terminated). 50 56 7.6 Expenses. Whether or not the Mergers are consummated, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such cost or expense, except that the costs and expenses incurred in connection with mailing and/or printing of the Joint Proxy Statement, the Joint Proxy Statement/Prospectus and the Registration Statement (and any amendment of or supplement thereto) shall be borne 80% by TCI and 20% by Liberty. Notwithstanding the foregoing, but subject to Sections 10.12 and 10.13, if this Agreement is terminated by TCI or Liberty (the "non-breaching party") as a result of a material willful breach by the other party (the "breaching party") of its covenants or agreements contained herein or the representations and warranties made by it herein, the breaching party shall reimburse the non-breaching party for all out-of-pocket costs and expenses incurred in connection with the transactions contemplated by this Agreement. Such payment shall be made against receipt of documentation in reasonable detail supporting the amount of such costs and expenses. Any payment required to be made by the breaching party hereunder shall be made within five business days of the termination of this Agreement by delivery to the non-breaching party of a certified or bank cashier's check payable in next-day funds. 7.7 Notification of Certain Matters. Between the date hereof and the Effective Time, each party will give prompt notice in writing to the other parties of: (i) any information that indicates that any of its representations or warranties contained herein was not true and correct as of the date hereof or will not be true and correct at and as of the Effective Time with the same force and effect as if made at and as of the Effective Time (except for changes permitted or contemplated by this Agreement), (ii) the occurrence of any event which will result, or has a reasonable prospect of resulting, in the failure of any condition specified in Article VIII hereof to be satisfied, (iii) any notice or other communication from any third party alleging that the consent of such third party is or may be required in connection with the transactions contemplated by this Agreement or that such transactions otherwise may violate the rights of or confer remedies upon such third party and (iv) any notice of, or other communication relating to, any litigation referred to in Section 7.8 or any order or judgment entered or rendered therein. 7.8 Defense of Litigation. Each of TCI and Liberty agrees to vigorously defend against all actions, suits or proceedings in which such party is named as a defendant which seek to enjoin, restrain or prohibit the transactions contemplated hereby or seek damages with respect to such transactions. Neither TCI nor Liberty shall settle any such action, suit or proceeding or fail to perfect on a timely basis any right to appeal any judgment rendered or order entered against such party therein without the consent of the other party (which consent shall not be withheld unreasonably). Each of TCI and Liberty further agrees to use its reasonable efforts to cause each of its affiliates, directors and officers to vigorously defend any action, suit or proceeding in which such affiliate, director or officer is named as a defendant and which seeks any such relief to comply with this Section to the same extent as if such person were a party hereto. 51 57 ARTICLE VIII Conditions Precedent 8.1 Conditions Precedent to the Obligations of TCI and Liberty. The respective obligations of TCI and Liberty to consummate the transactions contemplated by this Agreement are subject to the satisfaction at or prior to the Closing Date of each of the following conditions: (a) Approval of Stockholders. The Merger Proposal shall have been approved and adopted by the requisite vote (i) of the stockholders of TCI under the DGCL and TCI's Restated Certificate of Incorporation and By-laws and (ii) of the stockholders of Liberty under the DGCL and Liberty's Restated Certificate of Incorporation and By-laws. (b) HSR Act. All applicable waiting periods under the HSR Act shall have expired or been terminated without receipt of any objections or commencement of litigation or threat thereof by the appropriate governmental enforcement agency to restrain the transactions contemplated hereby. (c) Registration. The Registration Statement (as amended or supplemented) shall have become effective under the Securities Act and shall not be subject to any stop order, and no action, suit, proceeding or investigation seeking a stop order or to suspend the effectiveness of the Registration Statement shall have been initiated and be continuing or shall have been threatened and be unresolved. TCI/Liberty shall have received all state securities law or blue sky permits and authorizations necessary to carry out the transactions contemplated hereby, such permits and authorizations shall be in full force and effect and no action, suit, proceeding or investigation seeking to revoke or suspend the effectiveness of any such permit or authorization shall have been initiated and be continuing or shall have been threatened and be unresolved. (d) Absence of Injunctions. No permanent or preliminary Injunction or restraining order or other order by any court or other Governmental Entity of competent jurisdiction or other legal restraint or prohibition preventing consummation of the transactions contemplated hereby as provided herein shall be in effect. (e) No Adverse Enactments. There shall not have been any action taken, or any statute, rule, regulation, order, judgment or decree enacted, promulgated, entered, issued or enforced by any foreign or United States federal, state or local Governmental Entity, and there shall be no action, suit or proceeding pending which (i) makes the transactions contemplated by this Agreement illegal or imposes or may impose material damages or penalties in connection therewith, (ii) requires divestiture of a material portion of the business of TCI and its Subsidiaries, taken as a whole, or Liberty and its Subsidiaries, taken as a whole, (iii) would, as of or after the Effective Time and assuming consummation of the Mergers, impose material limitations on the ability of TCI/Liberty effectively to exercise full rights of 52 58 ownership of shares of capital stock of either Surviving Corporation (including the right to vote such shares on all matters properly presented to the stockholders of such Surviving Corporation) or (iv) would so materially adversely impact the economic or business benefits of the consummation of either or both Mergers as to render such consummation inadvisable. (f) Receipt of Licenses, Permits and Consents. Other than the filing of the TCI Certificate of Merger and the Liberty Certificate of Merger with the Delaware Secretary of State and filings due after the Effective Time, all Local Approvals, all FCC Approvals and all other Government Consents as are required in connection with the consummation of the transactions contemplated hereby shall have been obtained and shall be in full force and effect, all Governmental Filings as are required in connection with the consummation of such transactions shall have been made, and all waiting periods, if any, applicable to the consummation of such transactions imposed by any Governmental Entity shall have expired, other than those which, if not obtained, in force or effect, made or expired (as the case may be) would not, either individually or in the aggregate, have a material adverse effect on (i) the transactions contemplated hereby or (ii) the business, assets, results of operations, financial condition or prospects of TCI and its Subsidiaries, taken as a whole, Liberty and its Subsidiaries, taken as a whole, or, as of or after the Effective Time and assuming consummation of the Mergers, TCI/Liberty and its Subsidiaries, taken as a whole. For purposes hereof, the failure to obtain Local Approvals relating to Franchises for the operation of CATV Systems serving, in the aggregate, (x) in the case of Liberty, 150,000 or fewer of the subscribers to the basic cable television services offered by Liberty or its Subsidiaries, or (y), in the case of TCI, 400,000 or fewer of the subscribers to the basic cable television services offered by TCI or its Subsidiaries shall be deemed not to have any such material adverse effect. (g) Tax Opinion. Each of TCI and Liberty shall have received, prior to the effective date of the Registration Statement, the opinion of Baker & Botts, L.L.P., in form and substance reasonably satisfactory to each of TCI and Liberty, to the effect that the Mergers will be completely tax free for Federal income tax purposes to each party to this Agreement and to the respective stockholders of TCI and Liberty (other than in respect of any cash paid in lieu of fractional shares or for Dissenting Shares), which opinion shall not have been withdrawn prior to the Effective Time. (h) NMS Listing. The shares of TCI/Liberty Common Stock issuable to stockholders of TCI and Liberty in accordance with Article II shall have been authorized for listing on the Nasdaq NMS upon official notice of issuance. 8.2 Conditions Precedent to the Obligations of TCI. The obligation of TCI to consummate the transactions contemplated by this Agreement is also subject to the satisfaction at or prior to the Closing Date of each of the following conditions, unless waived by TCI: (a) Accuracy of Representations and Warranties. All representations and warranties of Liberty contained in this Agreement shall, if specifically qualified by materiality, be true and correct and, if not so qualified, be true and correct in all material respects in each 53 59 case as of the date of this Agreement and (except to the extent such representations and warranties speak as of a specified earlier date) on and as of the Closing Date, with the same force and effect as though made on and as of the Closing Date, except for changes permitted or contemplated by this Agreement. (b) Performance of Agreements. Liberty shall have performed in all material respects all obligations and agreements, and complied in all material respects with all covenants and conditions, contained in this Agreement to be performed or complied with by it prior to or on the Closing Date. (c) Officer's Certificates. TCI shall have received such certificates of Liberty, dated the Closing Date, signed by executive officers of Liberty to evidence satisfaction of the conditions set forth in Sections 8.1(a), 8.1(d), 8.1(e), 8.1(f) and 8.2(g) (insofar as each relates to Liberty) and in Sections 8.2(a) and 8.2(b) as may be reasonably requested by TCI. (d) Opinion of Counsel. TCI shall have received a favorable opinion from Liberty's General Counsel, John M. Draper, Esq., dated the Closing Date, substantially to the effect set forth in Annex 1. In rendering such opinion, such counsel may rely as to factual matters upon certificates or other documents furnished by officers of Liberty and by government officials, and upon such other documents and data as such counsel deems appropriate as a basis for the opinion. Such counsel may specify the jurisdiction or jurisdictions in which he is admitted to practice, that he is not admitted to practice in any other jurisdiction or expert in the law of any other jurisdiction and that, to the extent the foregoing opinion concerns the laws of any other jurisdiction or pertains to matters beyond the scope of such counsel's expertise, such counsel may rely upon the opinion of counsel admitted to practice in such other jurisdiction. Any opinion relied upon by such counsel shall be delivered together with the opinion of such counsel, which shall state that such counsel believes that reliance thereon is justified. (e) Fairness Opinion. TCI shall have received a written opinion of CS First Boston, dated within five days of the date of the Joint Proxy Statement/Prospectus, to the effect that, as of the date of such opinion, the consideration to be received by the holders of TCI Common Stock (other than Liberty and its affiliates) in the TCI Merger is fair to such stockholders, from a financial point of view. Such opinion shall have been included in the Joint Proxy Statement/Prospectus mailed to TCI stockholders in connection with the TCI Stockholders Meeting, and shall not have been withdrawn prior to the Effective Time. (f) Proceedings Satisfactory. All actions, proceedings, instruments and documents required to carry out the transactions contemplated hereby or incidental hereto and all other related legal matters shall have been reasonably satisfactory to and approved by counsel for TCI, and such counsel shall have been furnished with such certified copies of such corporate actions and proceedings and such other instruments and documents as such counsel shall have reasonably requested. 54 60 (g) Contract Consents and Notices. All Contract Consents and Contract Notices which are referred to in Section 4.5 or 5.5 or otherwise required in connection with the consummation of the transactions contemplated hereby and which, if not obtained or given, would have, individually or in the aggregate, in the reasonable judgment of TCI, a material adverse effect on (i) the transactions contemplated hereby or (ii) the business, assets, results of operations, financial condition or prospects of TCI and its Subsidiaries, taken as a whole, Liberty and its Subsidiaries, taken as a whole, or, as of or after the Effective Time and assuming consummation of the Mergers, TCI/Liberty and its Subsidiaries, taken as a whole, shall have been obtained and given. (h) No Material Adverse Change. Since the date hereof nothing shall have occurred, which, individually or in the aggregate, has had or, in the reasonable judgment of TCI, is reasonably likely to have, a material adverse effect on the business, assets, results of operations, financial condition or prospects of Liberty and its Subsidiaries, taken as a whole or, as of or after the Effective Time and assuming consummation of the Mergers, TCI/Liberty and its Subsidiaries, taken as a whole (including any potential change or event disclosed on any Schedule which, subsequent to the date hereof, actually occurs), excluding, in all cases, events or conditions generally affecting the cable television or cable programming industry or affecting general business or economic conditions. 8.3 Conditions Precedent to the Obligations of Liberty. The obligation of Liberty to consummate the transactions contemplated by this Agreement is also subject to the satisfaction at or prior to the Closing Date of each of the following conditions, unless waived by Liberty: (a) Accuracy of Representations and Warranties. All representations and warranties of TCI contained herein shall, if specifically qualified by materiality, be true and correct and, if not so qualified, be true and correct in all material respects in each case as of the date of this Agreement and (except to the extent such representations and warranties speak as of a specified earlier date) on and as of the Closing Date, with the same force and effect as though made on and as of the Closing Date, except for changes permitted or contemplated by this Agreement. (b) Performance of Agreements. TCI shall have performed in all material respects all obligations and agreements, and complied in all material respects with all covenants and conditions, contained in this Agreement to be performed or complied with by it prior to or on the Closing Date. (c) Officer's Certificates. Liberty shall have received such certificates of TCI, dated the Closing Date, signed by executive officers of TCI to evidence satisfaction of the conditions set forth in Sections 8.1(a), 8.1(d), 8.1(e), 8.1(f) and 8.3(g) (insofar as each relates to TCI) and in Sections 8.3(a) and 8.3(b) as may be reasonably requested by Liberty. (d) Opinion of Counsel. Liberty shall have received a favorable opinion from 55 61 Sherman & Howard L.L.C, dated the Closing Date, substantially to the effect set forth in Annex 2. In rendering such opinion, such counsel may rely as to factual matters upon certificates or other documents furnished by officers of TCI and by government officials, and upon such other documents and data as such counsel deems appropriate as a basis for the opinion. Such counsel may specify the jurisdiction or jurisdictions in which the members thereof are admitted to practice, that they are not admitted to practice in any other jurisdiction or experts in the law of any other jurisdiction and that, to the extent the foregoing opinion concerns the laws of any other jurisdiction or pertains to matters beyond the scope of such counsel's engagement, such counsel may rely upon the opinion of counsel admitted to practice in such other jurisdiction. Any opinion relied upon by such counsel shall be delivered together with the opinion of such counsel, which shall state that such counsel believes that reliance thereon is justified. (e) Fairness Opinion. Liberty shall have received a written opinion of Merrill Lynch, dated within five days of the date of the Joint Proxy Statement/Prospectus, to the effect that, as of the date of such opinion, the exchange ratios in the Liberty Merger and the TCI Merger, taken together, are fair to the holders of shares of Liberty Common Stock (other than TCI and its affiliates) from a financial point of view. Such opinion shall have been included in the Joint Proxy Statement/Prospectus mailed to Liberty stockholders in connection with the Liberty Stockholders Meeting, and shall not have been withdrawn prior to the Effective Time. (f) Proceedings Satisfactory. All actions, proceedings, instruments and documents required to carry out the transactions contemplated hereby or incidental hereto and all other related legal matters shall have been reasonably satisfactory to and approved by counsel for Liberty, and such counsel shall have been furnished with such certified copies of such corporate actions and proceedings and such other instruments and documents as it shall have reasonably requested. (g) Contract Consents and Notices. All Contract Consents and Contract Notices which are referred to in Section 4.5 or 5.5 or otherwise required in connection with the consummation of the transactions contemplated hereby and which, if not obtained or given, would have, individually or in the aggregate, in the reasonable judgment of Liberty, a material adverse effect on (i) the transactions contemplated hereby or (ii) the business, assets, results of operations, financial condition or prospects of TCI and its Subsidiaries, taken as a whole, Liberty and its Subsidiaries, taken as a whole, or, as of or after the Effective Time and assuming consummation of the Mergers, TCI/Liberty and its Subsidiaries, taken as a whole, shall have been obtained and given. (h) No Material Adverse Change. Since the date hereof nothing shall have occurred which, individually or in the aggregate, has had or, in the reasonable judgment of Liberty, is reasonably likely to have, a material adverse effect on the business, assets, results of operations, financial condition or prospects of TCI and its Subsidiaries, taken as a whole, or as of or after the Effective Time and assuming consummation of the Mergers, TCI/Liberty 56 62 and its Subsidiaries, taken as a whole (including any potential change or event disclosed on any Schedule which, subsequent to the date hereof, actually occurs), excluding, in all cases, events or conditions generally affecting the cable television or cable programming industry or affecting general business or economic conditions. ARTICLE IX Termination 9.1 Termination and Abandonment. This Agreement may be terminated and the transactions contemplated hereby may be abandoned at any time prior to the Effective Time, whether before or after approval of the matters presented in connection with the Mergers by the stockholders of TCI or Liberty: (i) by mutual consent of TCI and Liberty; or (ii) by either TCI or Liberty: (A) if the Mergers shall not have been consummated before September 30, 1994, provided that the right to terminate this Agreement pursuant to this clause (ii)(A) shall not be available to any party whose failure to perform any of its obligations under this Agreement required to be performed by it at or prior to the Effective Time has resulted in the failure of the Mergers to be consummated before such date, (B) if there has been a material breach by the other party of any of its representations, warranties, covenants or agreements contained in this Agreement and such breach shall not have been cured within five business days after written notice thereof shall have been received by the party alleged to be in breach, (C) if any court of competent jurisdiction or other competent governmental authority shall have issued an order, decree or ruling or taken any other action permanently restraining, enjoining or otherwise prohibiting either Merger and such order, decree, ruling or other action shall have become final and nonappealable or (D) if the approval of the Merger Proposal by the stockholders of TCI or Liberty shall not have been obtained by reason of the failure to obtain the required vote upon a vote taken at a duly held meeting of stockholders or at any adjournment thereof and if the terminating party has complied with its obligations under Section 3.1 or 3.2 (as the case may be); (iii) by TCI: (A) if the Liberty Board shall have withdrawn or modified in any manner adverse to TCI its recommendation to the Liberty stockholders referred to in Section 4.14 or (B) if the TCI Board (x) withdraws or modifies in a manner adverse to Liberty its recommendation referred to in Section 5.14 if at such time there exists a Superior Takeover Proposal with respect to TCI or (y) recommends to TCI's stockholders approval or acceptance of such Superior Takeover Proposal, in each case only if the TCI Board, after consultation and based upon the advice of outside counsel (who may be such party's regularly engaged outside counsel) determines in good faith that such action is necessary for the TCI Board to comply with its fiduciary duties to TCI stockholders under applicable law; or (iv) by Liberty: (A) if the TCI Board shall have withdrawn or modified in any manner adverse to Liberty its recommendation to the TCI Stockholders referred to in Section 5.14 or (B) if the Liberty Board (x) withdraws or modifies in a manner adverse to TCI its recommendation referred to in Section 4.14 if at such time there exists a Superior Takeover Proposal with respect to Liberty or (y) recommends to Liberty's stockholders approval or acceptance of such Superior Takeover Proposal, in each case only if the Liberty Board, after 57 63 consultation and based upon the advice of outside counsel (who may be such party's regularly engaged outside counsel) determines in good faith that such action is necessary for the Liberty Board to comply with its fiduciary duties to Liberty stockholders under applicable law. 9.2 Effect of Termination. In the event of any termination of this Agreement by TCI or Liberty pursuant to Section 9.1, this Agreement forthwith shall become void, and there shall be no liability or obligation on the part of any party hereto except (i) as provided in Sections 4.10, 5.10, 7.2 and 7.6, which shall survive such termination and (ii) subject to Sections 10.12 and 10.13, to the extent such termination results from the willful breach by TCI or Liberty of any of its representations, warranties, covenants or agreements contained in this Agreement. ARTICLE X Miscellaneous 10.1 Nonsurvival of Representations, Warranties and Agreements. The respective representations and warranties of the parties contained herein or in any certificate or other instrument delivered prior to or at the Closing shall not be deemed waived or otherwise affected by any investigation made by any party hereto. None of the representations, warranties, covenants or agreements contained in this Agreement or in any certificate or other instrument delivered pursuant to this Agreement shall survive the Effective Time, except for (i) the agreements contained in Article II, Sections 4.10, 5.10 and 7.6 and in this Article X, and (ii) the agreements of the "affiliates" of TCI and Liberty delivered pursuant to Section 3.6. 10.2 Indemnification. (a) Post-Merger Indemnification of TCI and Liberty Directors and Officers. After the Effective Time, TCI/Liberty shall indemnify and hold harmless each person who was, at any time prior to the Effective Time, a director, officer, employee or agent of TCI or Liberty (individually an "Indemnified Party" and, collectively, the "Indemnified Parties") against (i) all losses, claims, damages, costs, expenses (including fees and expenses of counsel properly retained by an Indemnified Party under this Section 10.2) (promptly as statements therefor are received), liabilities or judgments or amounts that are paid in settlement with the approval of TCI/Liberty (which approval shall not be unreasonably withheld) of or in connection with any claim, action, suit, proceeding or investigation based in whole or in part on or arising in whole or in part out of the fact that such person was at any time prior to the Effective Time a director, officer, employee or agent of TCI or Liberty, whether pertaining to any matter existing or occurring at or prior to the Effective Time and whether asserted or claimed prior to, at or after the Effective Time ("Indemnified Liabilities") and (ii) all Indemnified Liabilities based in whole or in part on, or arising in whole or in part out of, or pertaining to this Agreement or the transactions contemplated hereby (and TCI/Liberty shall pay expenses in advance of the final disposition of any such action, suit, proceeding or investigation to each 58 64 Indemnified Party (including fees and expenses of counsel properly retained by an Indemnified Party under this Section 10.2), promptly as statements therefor are received, to the full extent permitted by law upon receipt of the undertaking contemplated by Section 145(e) of the DGCL), in each case to the full extent that (x) a corporation is permitted under Delaware law to indemnify or advance expenses to its own directors, officers, employees or agents, as the case may be, (y) such Indemnified Party would have been entitled to be indemnified (A) by TCI, if such Indemnified Party was a director, officer, employee or agent of TCI, with respect to the Indemnified Liabilities in question under TCI's Restated Certificate of Incorporation and By-Laws as in effect on January 1, 1994 and under any indemnification agreement with TCI in a form disclosed to TCI/Liberty prior to the date hereof and (B) by Liberty, if such Indemnified Party was a director, officer, employee or agent of Liberty, with respect to the Indemnified Liabilities in question under Liberty's Restated Certificate of Incorporation and By-laws as in effect on January 1, 1994 and under any indemnification agreement with Liberty in a form disclosed to TCI/Liberty prior to the date hereof and (z) such indemnification otherwise is permitted by applicable law. In the event any such claim, action, suit, proceeding or investigation is asserted or commenced against any Indemnified Party (whether before or after the Effective Time), TCI/Liberty will be entitled to participate and, to the extent that it may wish, to assume the defense thereof, except that if TCI/Liberty also is a subject of such claim, action, suit, proceeding or investigation and there is, under applicable standards of professional conduct, a conflict on any significant issue between the position of TCI/Liberty and the position of such Indemnified Party, or if TCI/Liberty shall fail to assume responsibility for such defense, such Indemnified Party may, subject to Section 10.2(b), retain counsel who will represent such Indemnified Party, and TCI/Liberty shall pay all reasonable fees and expenses of such counsel promptly as statements therefor are received; provided that such Indemnified Party shall vigorously defend (or, if the defense is assumed by TCI/Liberty, use his best efforts to assist in the vigorous defense of) any such matter; provided, further, that TCI/Liberty shall not be liable for any settlement effected without its written consent, which consent, however, shall not be unreasonably withheld; and provided, further, that TCI/Liberty shall not have any obligation hereunder to any Indemnified Party when and if a court of competent jurisdiction shall ultimately determine, after exhaustion of all avenues of appeal, that such Indemnified Party is not entitled to indemnification hereunder. (b) Procedures. Any Indemnified Party wishing to claim indemnification or advancement of expenses under Section 10.2(a), upon learning of any such claim, action, suit, proceeding or investigation, shall promptly notify TCI/Liberty (provided that the failure so to notify TCI/Liberty shall not relieve TCI/Liberty from any liability which it may have under this Section 10.2, except to the extent such failure materially prejudices TCI/Liberty) and shall deliver to TCI/Liberty an undertaking to repay any amounts advanced pursuant thereto when and if a court of competent jurisdiction shall ultimately determine, after exhaustion of all avenues of appeal, that such Indemnified Party is not entitled to indemnification hereunder. In no event may the Indemnified Parties retain more than one lead law firm and one local counsel to represent them with respect to any such matter unless there is, under applicable standards of professional conduct, a conflict on any significant issue between the position of any two or more Indemnified Parties in which case the Indemnified Parties may (unless the 59 65 defense of such matter has been assumed by TCI/Liberty as provided herein) retain, at the expense of TCI/Liberty, such number of additional counsel as are necessary to eliminate all conflicts of the type referred to above. (c) Survival. This Section 10.2 shall survive the consummation of the Mergers. The provisions of this Section are intended to be for the benefit of and shall be enforceable by each of the Indemnified Parties and his heirs and legal representatives. 10.3 Notices. All notices, requests, demands, waivers and other communications required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given if delivered personally or mailed, certified or registered mail with postage prepaid, or sent by telegram or confirmed telex or telecopier, as follows: (a) if to TCI or TCI/Liberty, to: Tele-Communications, Inc. 5619 DTC Parkway Englewood, Colorado 80111 Attn: General Counsel (b) if to Liberty, to: Liberty Media Corporation 8101 East Prentice Avenue, Suite 500 Englewood, Colorado 80111 Attn: General Counsel or to such other person or address as any party shall specify by notice in writing to the other party. All such notices, requests, demands, waivers and communications shall be deemed to have been received on the date of delivery or on the third business day after the mailing thereof, except that any notice of a change of address shall be effective only upon actual receipt thereof. 10.4 Entire Agreement. This Agreement (including the Exhibits, Annexes, Schedules and other documents referred to herein) constitutes the entire agreement between the parties and supersedes all prior agreements and understandings, oral and written, between the parties with respect to the subject matter hereof. 10.5 Assignment; Binding Effect; Benefit. Neither this Agreement nor any of the rights, benefits or obligations hereunder may be assigned by any party (whether by operation of law (other than pursuant to the Mergers) or otherwise) without the prior written consent of the other parties. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns. Nothing in this Agreement, expressed or implied, is intended to confer on any person 60 66 other than the parties or their respective successors and assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement, other than rights conferred upon Indemnified Parties under Section 10.2 and upon stockholders, directors, officers, affiliates, agents and representatives of the parties under Section 10.13. 10.6 Amendment. This Agreement may be amended by the parties, by action taken or authorized by their respective Boards of Directors, at any time before or after approval of any matters presented in connection with the Mergers by the stockholders of TCI or Liberty, but, after any such approval by the stockholders of TCI and Liberty, no amendment shall be made which by law requires further approval by such stockholders without such further approval. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties. 10.7 Extension; Waiver. At any time prior to the Effective Time, TCI or Liberty, by action taken or authorized by such party's Board of Directors, may, to the extent legally allowed, (i) extend the time specified herein for the performance of any of the obligations of the other party, (ii) waive any inaccuracies in the representations and warranties of the other party contained herein or in any document delivered pursuant hereto, (iii) waive compliance by the other party with any of the agreements or covenants of such other party contained herein or (iv) waive any condition to such waiving party's obligation to consummate the transactions contemplated hereby or to any of such waiving party's other obligations hereunder. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such party. Any such extension or waiver by any party shall be binding on such party but not on the other party entitled to the benefits of the provision of this Agreement affected unless such other party also has agreed to such extension or waiver. No such waiver shall constitute a waiver of, or estoppel with respect to, any subsequent or other breach or failure to strictly comply with the provisions of this Agreement. The failure of any party to insist on strict compliance with this Agreement or to assert any of its rights or remedies hereunder or with respect hereto shall not constitute a waiver of such rights or remedies. Whenever this Agreement requires or permits consent or approval by any party, such consent or approval shall be effective if given in writing in a manner consistent with the requirements for a waiver of compliance as set forth in this Section 10.7. 10.8 Interpretation. When a reference is made in this Agreement to Sections, Articles, Exhibits, Annexes or Schedules, such reference shall be to a Section, Article, Exhibit, Annex or Schedule (as the case may be) of this Agreement unless otherwise indicated. When a reference is made in this Agreement to a "party" or "parties", such reference shall be to a party or parties to this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation". The phrase "made available" in this Agreement shall mean that the information referred to has been made available if requested by the party to whom such 61 67 information is to be made available. The use of any gender herein shall be deemed to be or include the other genders and the use of the singular herein shall be deemed to be or include the plural (and vice versa), wherever appropriate. The use of the words "hereof", "herein", "hereunder" and words of similar import shall refer to this entire Agreement, and not to any particular article, section, subsection, clause, paragraph or other subdivision of this Agreement, unless the context clearly indicates otherwise. 10.9 Knowledge as to Equity Affiliates. Whenever any representation and warranty is made herein (i) "to the knowledge of Liberty," or words of similar intent or effect, with respect to any Liberty Equity Affiliates, such representation and warranty shall be deemed to be made to the knowledge of the senior management (vice presidents and higher officers) of Liberty, without investigation and (ii) "to the knowledge of TCI," or words of similar intent or effect, with respect to any TCI Equity Affiliates, such representation and warranty shall be deemed to be made to the knowledge of the senior management (senior vice presidents and higher officers) of TCI, without investigation. 10.10 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, and all of which together shall be deemed to be one and the same instrument. 10.11 Applicable Law. This Agreement and the legal relations between the parties shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to the conflict of laws rules thereof. 10.12 No Remedy in Certain Circumstances. Each party agrees that, should any court or other competent governmental authority hold any provision of this Agreement or part hereof to be null, void or unenforceable, or order any party to take any action inconsistent herewith or not to take any action required herein, the other parties shall not be entitled to specific performance of such provision or part hereof or to any other remedy, including but not limited to money damages, for breach thereof or of any other provision of this Agreement or part hereof as a result of such holding or order. 10.13 Limited Liability. Notwithstanding any other provision of this Agreement, no stockholder, director, officer, affiliate, agent or representative of any party (other than TCI and Liberty as stockholders of TCI/Liberty and TCI/Liberty as the sole stockholder of each of TCI Mergerco and Liberty Mergerco) shall have any liability in respect of or relating to the covenants, obligations, representations or warranties of such party hereunder or in respect of any certificate delivered with respect thereto and, to the fullest extent legally permissible, each party, for itself and its stockholders, directors, officers and affiliates, waives and agrees not to seek to assert or enforce any such liability which any such person otherwise might have pursuant to applicable law. IN WITNESS WHEREOF, the parties hereto have executed this Agreement and Plan of Merger as of the date first above written. 62 68 TELE-COMMUNICATIONS, INC. Attest: By: /s/ Stephen M. Brett ______________________________ /s/ Mary S. Willis Its: Senior Vice President _______________________________ Mary S. Willis LIBERTY MEDIA CORPORATION Attest: By: /s/ Peter R. Barton ______________________________ /s/ Robert R. Bennett Its: President _______________________________ Robert R. Bennett TCI/LIBERTY HOLDING COMPANY Attest: By: /s/ Stephen M. Brett ______________________________ /s/ Mary S. Willis Its: Vice President _______________________________ Mary S. Willis TCI MERGERCO, INC. Attest: By: /s/ Stephen M. Brett ______________________________ /s/ Mary S. Willis Its: Vice President _______________________________ Mary S. Willis LIBERTY MERGERCO, INC. Attest: By: /s/ Peter R. Barton ______________________________ /s/ Robert R. Bennett Its: President _______________________________ Robert R. Bennett 63 69 DISCLOSURE SCHEDULE TO AGREEMENT AND PLAN OF MERGER BY AND AMONG TELE-COMMUNICATIONS, INC., LIBERTY MEDIA CORPORATION TCI/LIBERTY HOLDING COMPANY, INC., TCI MERGERCO, INC. AND LIBERTY MERGERCO, INC. INDEX ----- Section 5.3 Capitalization of TCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 5.4 TCI Reports and Financial Statements . . . . . . . . . . . . . . . . . . . . . 48 Section 5.5 No Approvals or Notices Required; No Conflict with Instruments . . . . . . . . 49 Section 5.6 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . 51 Section 5.8 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Section 5.11 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Section 5.12 Employee Benefit Plans; ERISA . . . . . . . . . . . . . . . . . . . . . . . . 58 Section 7.4 Conduct of Business by Liberty and TCI Pending the Effective Time . . . . . . 72
70 The Exhibits and Schedules to this agreement have been excluded as they contain information that is not necessary in order to understand the terms of the agreement. -----END PRIVACY-ENHANCED MESSAGE-----