10-K
1
FORM 10-K
1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December
31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from
____ to ____
Commission File Numbers 0-20421 and 0-5550
TELE-COMMUNICATIONS, INC.
and
TCI COMMUNICATIONS, INC.
(Exact name of Registrants as specified in their charters)
State of Delaware 84-1260157 and 84-0588868
----------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Nos.)
incorporation or organization)
5619 DTC Parkway
Englewood, Colorado 80111
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(Address of principal executive offices) (Zip Code)
Registrants' telephone number, including area code: (303) 267-5500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class A common stock, par value $1.00 per share
Class B common stock, par value $1.00 per share
Class B 6% Cumulative Redeemable Exchangeable Junior
Preferred Stock, par value $.01 per share
TCI Communications, Inc. meets the conditions set forth in General
Instruction J(1)(a) and (b) of Form 10-K and is therefore filing this form with
the reduced disclosure format.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Tele-Communications, Inc.'s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
-----
Indicate by check mark whether Tele-Communications, Inc. and TCI
Communications, Inc.(1) have filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months and (2) have been subject to such filing requirements for the past 90
days. Yes X No
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The aggregate market value of the voting stock held by nonaffiliates
of Tele-Communications, Inc., computed by reference to the last sales price of
such stock, as of the close of trading on February 10, 1995, was
$13,811,439,150.
The number of shares outstanding of Tele-Communications, Inc.'s common
stock (net of shares held in treasury), as of February 10, 1995, was:
Class A common stock - 571,690,775 shares; and
Class B common stock - 85,114,800 shares.
2
TELE-COMMUNICATIONS, INC.
and
TCI COMMUNICATIONS, INC.
1994 ANNUAL REPORT ON FORM 10-K
Table of Contents
Page
----
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-40
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-40
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . I-55
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . II-1
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . II-2
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . II-3
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . II-25
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . II-25
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . III-1
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . III-4
Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-13
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . III-19
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-1
3
PART I.
Item 1. Business.
(a) General Development of Business
Tele-Communications, Inc. ("TCI" or the "Company"), through its
subsidiaries and affiliates, is principally engaged in the construction,
acquisition, ownership, and operation of cable television systems and the
provision of satellite-delivered video entertainment, information and home
shopping programming services to various video distribution media, principally
cable television systems. The Company also has investments in cable and
telecommunications operations and television programming in certain
international markets as well as investments in companies and joint ventures
involved in developing and providing programming for new television and
telecommunications technologies. The Company is a Delaware corporation and was
incorporated in 1994. TCI Communications, Inc. ("TCIC") and its predecessors
have been engaged in the cable television business since the early 1950's.
As of January 27, 1994, TCI Communications, Inc. (formerly
Tele-Communications, Inc. or "Old TCI") and Liberty Media Corporation
("Liberty") entered into a definitive agreement to combine the two companies
(the "TCI/Liberty Combination"). The transaction was consummated on August 4,
1994 and was structured as a tax free exchange of Class A and Class B shares of
both companies and preferred stock of Liberty for like shares of a newly formed
holding company, Tele-Communications, Inc. (formerly TCI/Liberty Holding
Company). In connection with the TCI/Liberty Combination, Old TCI changed its
name to TCI Communications, Inc. and TCI/Liberty Holding Company changed its
name to Tele-Communications, Inc. Old TCI common shareholders received one
share of TCI for each of their shares. Liberty common shareholders received
0.975 of a share of TCI for each of their shares. Holders of Liberty Class E,
6% Cumulative Redeemable Exchangeable Junior Preferred Stock ("Liberty Class E
Preferred Stock") received shares of TCI Class B 6% Cumulative Redeemable
Exchangeable Junior Preferred Stock, a new preferred stock of TCI having
designations, preferences, rights and qualifications, limitations and
restrictions that are substantially identical to those of the Liberty Class E
Preferred Stock, except that the holders of the new preferred stock are
entitled to one vote per share in any general election of directors of TCI.
The other classes of preferred stock of Liberty held by Old TCI were converted
into shares of TCI Class A Preferred Stock, a new series of preferred stock of
TCI having a substantially equivalent fair market value to that which was given
up.
As of January 26, 1995, TCI, TCIC and TeleCable Corporation
("TeleCable") consummated a transaction, whereby TeleCable was merged into TCIC
(the "TeleCable Merger"). The aggregate $1.6 billion purchase price was
satisfied by TCIC's assumption of approximately $300 million of TeleCable's net
liabilities and the issuance to TeleCable's shareholders of approximately 42
million shares of TCI Class A common stock and 1 million shares of TCI
Convertible Preferred Stock, Series D (the "Series D Preferred Stock") with an
aggregate initial liquidation value of $300 million. The Series D Preferred
stock, which accrues dividends at a rate of 5.5% per annum, is convertible into
10 million shares of TCI Class A common stock. The Series D Preferred Stock is
redeemable for cash at the option of TCI after five years and at the option of
either TCI or the holder after ten years. The amount of net liabilities
assumed by TCIC and the number of shares of TCI Class A common stock issued to
TeleCable's shareholders are subject to post-closing adjustments.
I-1
4
During 1994, subsidiaries of the Company, Comcast Corporation
("Comcast"), Cox Communications, Inc. ("Cox") and Sprint Corporation ("Sprint")
formed a partnership ("WirelessCo") to engage in the business of providing
wireless communications services on a nationwide basis. Through WirelessCo,
the partners have been participating in auctions ("PCS Auctions") of broadband
personal communications services ("PCS") licenses being conducted by the FCC.
In the first round auction, which concluded during the first quarter of 1995,
WirelessCo was the winning bidder for PSC licenses for 29 markets, including
New York, San Francisco-Oakland-San Jose, Detroit, Dallas-Fort Worth,
Boston-Providence, Minneapolis-St. Paul and Miami-Fort Lauderdale. The
aggregate license cost for these licenses is approximately $2.1 billion.
WirelessCo has also invested in American PSC, L.P. ("APC"), which
holds a PCS license granted under the FCC's pioneer preference program for the
Washington-Baltimore market. WirelessCo acquired its 49% limited partnership
interest in APC for $23 million and has agreed to make capital contributions to
APC equal to 49/51 of the cost of APC's PCS license. Additional capital
contributions may be required in the event APC is unable to finance the full
cost of its PCS license. WirelessCo may also be required to finance the
build-out expenditures for APC's PCS system. Cox, which holds a pioneer
preference PCS license for the Los Angeles-San Diego market, and WirelessCo
have also agreed on the general terms and conditions upon which Cox (with a 60%
interest) and WirelessCo (with a 40% interest) would form a partnership to hold
and develop a PCS system using the Los Angeles-San Diego license. APC and the
Cox partnership would affiliate their PCS systems with WirelessCo and be part
of WirelessCo's nationwide integrated network, offering wireless communications
services under the "Sprint" brand. The Company owns a 30% interest in
WirelessCo.
During 1994, subsidiaries of Cox, Sprint and the Company also formed a
separate partnership ("PhillieCo"), in which the Company owns a 35.3% interest.
PhillieCo was the winning bidder in the first round auction for a PCS license
for the Philadelphia market at a license cost of $85 million. To the extent
permitted by law, the PCS system to be constructed by PhillieCo would also be
affiliated with WirelessCo's nationwide network.
WirelessCo may bid in subsequent rounds of the PCS Auctions and may
invest in, affiliate with or acquire licenses from other successful bidders.
The capital that WirelessCo will require to fund the construction of the PCS
systems, in addition to the license costs and investments described above, will
be substantial.
At the end of the first quarter of 1995, subsidiaries of the Company,
Comcast, Cox and Sprint formed two new partnerships, of which the principal
partnership is MajorCo, L.P. ("MajorCo"), to which they contributed their
respective interests in WirelessCo and through which they formed another
partnership, NewTelco, L.P. ("NewTelco") to engage in the business of providing
local wireline communications services to residences and businesses on a
nationwide basis. NewTelco will serve its customers primarily through the
cable television facilities of cable television operators that affiliate with
NewTelco in exchange for agreed-upon compensation. The modification of
existing regulations and laws governing the local telephony market will
be necessary in order for NewTelco to provide its proposed services on a
competitive basis in most states. Subject to agreement upon a schedule for
upgrading its cable television facilities in selected markets and certain other
matters, the Company has agreed to affiliate certain of its cable systems with
NewTelco. The capital required for the upgrade of the Company's cable
facilities for the provision of telephony services is expected to be
substantial.
Subsidiaries of the Company, Cox and Comcast, together with
Continental Cablevision, Inc. ("Continental"), own Teleport Communications
Group, Inc. and TCG Partners (collectively, "TCG"), which is one of the largest
competitive access providers in the United States in terms of route miles. The
Company, Cox and Comcast have entered into an agreement with MajorCo and
NewTelco to contribute their interests in TCG and its affiliated entities to
NewTelco. The Company currently owns an approximate 29.9% interest in TCG.
The closing of this contribution is subject to the satisfaction of certain
conditions, including the receipt of necessary regulatory and other consents
and approvals. In addition, the Company, Comcast and Cox intend to negotiate
with Continental, which owns a 20% interest in TCG, regarding their acquisition
of Continental's TCG interest. If such agreement cannot be reached, they will
need to obtain Continental's consent to certain aspects of their agreement with
Sprint.
Subject to agreement upon an initial business plan, the MajorCo
partners have committed to make cash capital contributions to MajorCo of $4.0
to $4.4 billion in the aggregate over a three- to five-year period, which
amount includes the approximately $500 million already contributed by the
partners to WirelessCo. The partners intend for MajorCo and its subsidiary
partnerships to be the exclusive vehicles through which they engage in the
wireless and wireline telephony service businesses, subject to certain
exceptions.
I-2
5
On January 20, 1995, Tele-Vue Systems, Inc. ("Tele-Vue"), Viacom
International, Inc. ("Viacom"), InterMedia Partners IV, L.P. ("IP-IV") and RCS
Pacific, L.P. ("RCS Pacific") entered into an Asset Purchase Agreement (the
"Tele-Vue Agreement") pursuant to which RCS Pacific agreed to acquire
from Tele-Vue the assets of cable television systems serving approximately 1
million subscribers as of December 31, 1994 for total consideration of
approximately $1,983 million, subject to adjustment in accordance with the
terms of the Tele-Vue Agreement. A subsidiary of TCI has agreed to loan $600
million in cash to IP-IV. IP-IV will, in turn, loan such $600 million to RCS
Pacific. RCS Pacific could use the proceeds of the aforementioned loan as a
portion of the total cash consideration to be paid to Tele-Vue, or at the
option of TCI, to purchase $600 million of TCI Class A common stock. Should
TCI elect to sell such common stock, RCS Pacific has the option to pay the
consideration to Tele-Vue by delivery of RCS Pacific's short-term note of up to
$600 million of the consideration with the balance to be paid in cash. Such
note, if it is delivered, will be secured by RCS Pacific's pledge of shares of
stock of TCI having an aggregate market value equal to the principal amount of,
and accrued interest on, the note delivered to Tele-Vue. The consummation of
the transactions contemplated by the Tele-Vue Agreement is conditioned, among
other things, on receipt of approvals of various franchise and other
governmental authorities and receipt of "minority tax certificates" from
the FCC. Both Houses of Congress have passed legislation to repeal previous
legislation which provided for "minority tax certificates". The bills are
currently in conference. There can be no assurance that the conditions
precedent to closing the asset purchase will be satisfied, or that the parties
will be able to agree on different terms, if necessary.
TCI, through its indirect wholly-owned subsidiary, TCID-IP IV, Inc.
would hold a 25% limited partnership interest in IP-IV, and IP-IV would in turn
hold a 79% limited partnership interest in RCS Pacific.
Pursuant to an Agreement and Plan of Merger dated as of August 4,
1994, as amended (the "QVC Merger Agreement"), QVC Programming Holdings, Inc.
(the "Purchaser"), a corporation which is jointly owned by Comcast and Liberty,
commenced an offer (the "QVC Tender Offer") to purchase all outstanding shares
of common stock and preferred stock of QVC, Inc. ("QVC").
The QVC Tender Offer expired at midnight, New York City time, on
February 9, 1995, at which time the Purchaser accepted for payment all shares
of QVC which had been tendered in the QVC Tender Offer. Following consummation
of the QVC Tender Offer, the Purchaser was merged with and into QVC with QVC
continuing as the surviving corporation. The Company owns an approximate 43%
interest of the post-merger QVC.
During the fourth quarter of 1994, the Company was reorganized based
upon four lines of business: Domestic Cable and Communications; Programming;
International Cable and Programming; and Technology/Venture Capital (the
"Reorganization").
Following is a brief description of the units the Company operates in
addition to its Domestic Cable and Communications services:
Programming
The Company and its affiliates provide satellite-delivered video
entertainment, information and home shopping television services to video
distribution outlets, including cable television systems, broadcast television
stations and the direct-to-home satellite market. The Company has ownership
interests in several domestic programming businesses, including Turner
Broadcasting System, Inc. ("TBS"); Discovery Communications, Inc.; Home
Shopping Network, Inc.; QVC; Encore Media Corporation; BET Holdings, Inc.;
International Family Entertainment; E! Entertainment Television; and two
national and 15 regional sports networks. Recently, the Company launched
STARZ!, a first-run premium programming service. The Company is also the owner
of Netlink USA, one of the larger providers, based on its number of
subscribers, of programming packages to home satellite dish owners. Excluding
the Company's investment in TBS and Netlink USA, substantially all of the
ownership interests included in the Programming unit were acquired in the
TCI/Liberty Combination.
International Cable and Programming
The Company has investments in cable and telecommunications operations
and television programming in international markets. The Company seeks to
invest in markets with favorable regulatory environments and attractive growth
opportunities. Among its overseas investments, the Company has a 38% interest
in TeleWest Communications plc ("TeleWest"). TeleWest provides cable television
and residential and business cable telephony in the United Kingdom. The Company
also has a majority interest in Flextech p.l.c. ("Flextech"), which provides
television programming in the United Kingdom through its interest in Bravo, The
Children's Channel, UK Gold, UK Living and The Family Channel UK. Through
certain other joint ventures, the Company has interests in cable television
systems and television programming in Hungary, Norway, Sweden, Israel, Ireland,
Malta, France, Chile, Puerto Rico, the Dominican Republic, New Zealand,
Australia, Singapore and Japan.
Technology/Venture Capital
The Company is an investor in companies and joint ventures involved in
developing and providing programming for new television and telecommunications
technologies. Current investments and technologies under development include
interactive and set-top box technology, entertainment software and other
services for wireline and wireless switched broadband interactive networks. The
Company has formed a joint venture with Sega of America and Time Warner
Entertainment Company, L.P. to develop and market the first video game channel,
called "The Sega Channel." More recently, the Company has made investments in
TSX Corporation, a producer of communications equipment, and Interactive
Network, Inc., a developer of interactive television programming systems. The
Company also has an investment in Acclaim Entertainment, Inc. ("Acclaim") and
has formed a joint venture with Acclaim to develop, acquire and distribute
games and other interactive entertainment software over various
telecommunications networks. The Company has also created the National Digital
Television Center, a provider of digital compression and authorization services
to program suppliers and to cable television systems and other video
distribution outlets. In addition to its technology investments, the Company
operates Western Tele-Communications, Inc., a wholesale provider of long
distance, voice, data and other telecommunications services.
The Board of Directors of TCI has adopted a proposal which, if
approved by the stockholders, would authorize the Board to issue a new class of
stock ("Liberty Group Common Stock") which corresponds to TCI's Programming
Unit ("Liberty Media Group"). While the Liberty Group Common Stock would
constitute common stock of TCI, it is intended to reflect the separate
performance of such programming services. If shareholder approval is obtained,
TCI intends to distribute to its security holders one hundred percent of the
equity value of TCI attributable to Liberty Media Group.
I-3
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(b) Financial Information about Industry Segments
The Company operates principally in two industry segments subsequent
to the TCI/Liberty Combination: cable and communications services and
programming services. Home shopping is a programming service which includes a
retail function. Relevant information with respect to the Company's
International Cable and Programming Unit and Technology/Venture Capital Unit
are contained in the discussion of the Company's Cable and Communications Unit
due to their immateriality. The Company sold its motion picture theatre
business and certain theatre-related real estate assets in 1992. Amounts
related to the motion picture theatre business and certain theatre-related real
estate assets are discontinued operations and are set forth separately in the
consolidated financial statements and related notes included in Part II of this
Report.
(c) Narrative Description of Business
CABLE AND COMMUNICATIONS SERVICES
General. Cable television systems receive video, audio and data
signals transmitted by nearby television and radio broadcast stations,
terrestrial microwave relay services and communications satellites. Such
signals are then amplified and distributed by coaxial cable and optical fiber
to the premises of customers who pay a fee for the service. In many cases,
cable television systems also originate and distribute local programming.
Service Charges. The Company offers a limited "basic service"
(primarily comprised of local broadcast signals and public, educational and
governmental access channels) and a broader "expanded" tier (primarily
comprised, in addition to the basic service, of specialized programming
services, in such areas as health, family entertainment, religion, news,
weather, public affairs, education, shopping, sports and music). The monthly
fee for "basic service " generally ranges from $8.00 to $10.00, and the monthly
service fee for the "expanded" tier generally ranges from $11.00 to $15.00.
The Company offers "premium services" (referred to in the cable television
industry as "Pay-TV" and "pay-per-view") to its customers. Such services
consist principally of feature films, as well as live and taped sports events,
concerts and other programming. The Company offers Pay-TV services for a
monthly fee generally ranging from $9.00 to $14.00 per service, except for
certain movie or sports services (such as various regional sports networks and
certain pay-TV channels) offered at $1.00 to $5.00 per month and pay-per-view
movies offered separately generally at $3.00 per movie and certain pay-per-view
events offered separately at $10.00 to $40.00 per event. Charges are usually
discounted when multiple Pay-TV services are ordered. The Company does not
generally require basic subscribers to "buy-through" the "expanded" service to
receive a Pay-TV service in its systems.
The Company does not charge for additional outlets in a subscriber's
home. As further enhancements to their cable services, customers may generally
rent converters, with or without a remote control device, for a monthly charge
ranging from $0.50 to $3.00 each, as well as purchase a channel guide for a
monthly charge ranging from $0.85 to $2.00. Also a nonrecurring installation
charge (which is based upon the FCC's rules which regulate hourly service
charges for each individual cable system) of up to $60.00 is usually charged.
Monthly fees for basic and Pay-TV services to commercial customers
vary widely depending on the nature and type of service. Except under the
terms of certain contracts to provide service to commercial accounts, customers
are free to discontinue service at any time without penalty.
As noted below, the Company's service offerings and rates were
affected by rate regulations issued by the FCC in 1993 and 1994. See Federal
Regulation - Cable and Communications Services below.
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7
Subscriber Data. TCI operates its cable television systems either
directly through its regional operating divisions or indirectly through certain
subsidiaries or affiliated companies. Basic and Pay-TV customers served by TCI
and its consolidated subsidiaries are summarized as follows (amounts in
millions):
Basic subscribers at December 31,
-------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Managed through the Company's
regional operating divisions (1)(2) 10.7 9.8 9.4 6.4 5.1
TKR Cable II, Inc. and
TKR Cable III, Inc. (3) 0.3 0.3 0.3 -- --
United Artists
Entertainment Company ("UAE") (4) -- -- -- 2.3 2.2
Other non-managed subsidiaries 0.7 0.6 0.5 0.2 1.2
----- ----- ----- ----- -----
11.7 10.7 10.2 8.9 8.5
===== ===== ===== ===== =====
Pay TV subscribers at December 31,
------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Managed through the Company's
regional operating divisions (1)(2) 11.5 9.5 8.8 6.1 3.3
TKR Cable II, Inc. and
TKR Cable III, Inc. (3) 0.2 0.2 0.3 -- --
UAE (4) -- -- -- 2.2 1.8
Other non-managed subsidiaries 0.7 0.6 0.5 0.1 0.7
----- ----- ----- ----- -----
12.4 10.3 9.6 8.4 5.8
===== ===== ===== ===== =====
(1) In August of 1994, the TCI/Liberty Combination was consummated.
(2) In December of 1992, SCI Holdings, Inc. ("SCI") consummated a
transaction (the "Split-Off") that resulted in the ownership of its
cable television systems being split between its two stockholders,
which stockholders were Comcast and the Company. The Split-Off was
effected by the distribution of approximately 50% of the net assets of
SCI to three holding companies formed by the Company (the "Holding
Companies"). Immediately following the Split-Off, the Company owned a
majority of the common stock of the Holding Companies. As such, the
Company, which previously accounted for its investment in SCI using
the equity method, now consolidates its investment in the Holding
Companies. One of the Holding Companies, TKR Cable I, Inc., is
managed through the Company's regional operating divisions.
(3) Management of the remaining two Holding Companies was assumed by an
affiliated company of TCI in December of 1992.
(4) Management assumed by the Company's regional operating divisions in
January of 1992.
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At December 31, 1994, TCI operated substantially all of its
consolidated cable television systems through five regional operating divisions
-- Central, East, Great Lakes, Southeast and West. Subsequent to December 31,
1994, the Company consolidated the East operating division into its Great Lakes
and Southeast regional operating divisions. The table below sets forth certain
statistical data of TCI's regional operating divisions as of December 31, 1994.
The information for the Great Lakes and Southeast operating divisions includes
data for the East cable television systems that were consolidated with such
operating divisions in 1995.
Homes Basic Basic Pay-TV Pay
Division passed subscribers penetration (1) subscriptions (2) penetration (3)
-------- ------ ----------- --------------- ----------------- ---------------
amounts in millions, except for percentages
Central (4) 4.2 2.2 52% 2.5 114%
Great Lakes (5) 5.9 3.9 66% 3.8 97%
Southeast (6) 3.6 2.1 58% 2.3 110%
West (7) 4.1 2.5 61% 2.9 116%
----- ----- -----
Total 17.8 10.7 60% 11.5 107%
===== ===== =====
(1) Calculated by dividing the number of basic subscribers by the number
of homes passed.
(2) A basic customer may subscribe to one or more Pay-TV services and the
number of Pay-TV subscriptions reflected represents the total number
of such subscriptions to Pay-TV services.
(3) Calculated by dividing the number of Pay-TV subscriptions by the
number of basic subscribers.
(4) Central operating division includes cable television systems located
in Colorado, Kansas, Nebraska, New Mexico, North Dakota, Oklahoma,
South Dakota, Texas and Wyoming.
(5) Great Lakes operating division includes cable television systems
located in Connecticut, Illinois, Indiana, Kentucky, Maine,
Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, New
York, Ohio, Pennsylvania, Rhode Island, Vermont and West Virginia.
(6) Southeast operating division includes cable television systems located
in Alabama, Arkansas, Delaware, District of Columbia, Florida,
Georgia, Iowa, Louisiana, Maryland, Mississippi, Missouri, North
Carolina, Puerto Rico, South Carolina, Tennessee and Virginia.
(7) West operating division includes cable television systems located in
Arizona, California, Idaho, Nevada, Montana, Oregon, Utah and
Washington.
I-6
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TCI, its subsidiaries and affiliates operate cable television systems
throughout the continental United States and Hawaii and, through certain joint
ventures accounted for under the equity method, have cable television systems
and investments in the United Kingdom, other parts of Europe, Asia, Latin
America and certain other foreign countries.
Other Communications Services. The Sega Channel, the Company's joint
venture with Time Warner and Sega of America is the industry's first
interactive game delivery service, providing Sega Genesis video games
on-demand, 24 hours a day. Subscribers can choose from a wide selection of
games, special versions of soon-to-be released titles, gameplay tips, news,
contests and promotions. Consumer testing in 12 markets was successfully
completed during 1994. The Channel began a launch program in key markets in
December 1994.
In February 1995, the Company acquired approximately 10% of the common
stock of Acclaim, a leading publisher of interactive entertainment software. In
addition, TCI and Acclaim are forming a joint venture for the development and
electronic distribution of interactive video game entertainment.
Compressed digital video technology converts as many as ten analog
signals (now used to transmit video and voice) into a digital format and
compresses such signals (which is accomplished primarily by eliminating the
redundancies in television imagery) into the space normally occupied by one
analog signal. The digitally compressed signal will be uplinked to a
satellite, which will send the signal back down to a customer's satellite dish
or to a cable system's headend to be distributed, via optical fiber and coaxial
cable, to the customers home. At the home, a set-top video terminal will
convert the digital signal back into analog channels that can be viewed on a
normal television set. The Company intends to begin offering such technology
to its cable subscribers as the set-top terminals become available for
distribution. The Company has established the National Digital Television
Center in Denver during 1994 to compress, uplink, encrypt and authorize
reception of digital television signals as well as provide digital television
and multimedia production services. Through March 1995, the Center has
established long term contracts to provide services to a dozen content
providers, digitally compressing and distributing more than 100 channels of
programming.
The Company is focusing on the commercialization of broadband Internet
and online services access over cable networks. In March 1995, the Company
released a preliminary specification and requirements for a broadband cable
modem. When commercially available at mass market prices, this device could
enable broadband access from personal computers to the Internet and online
services with significantly enhanced speed and capabilities. In 1994 the
Company invested in a partnership with Microsoft Corporation for development of
The Microsoft Network. The Microsoft Network will offer an improved online
service to compete with existing services.
On February 2, 1994, United Artists European Holdings, Ltd. ("UAEH"),
a wholly-owned subsidiary of the Company, merged all of the issued share
capital and loan stock of each of the following of its wholly-owned
subsidiaries into Flextech (the "Flextech Merger"): Bravo Classic Movies
Limited, United Artists Limited (Children's Channel), United Artists
Investments Limited and United Artists Entertainment Limited (Programming)
(collectively, "The European Programming Assets"). Flextech's shares trade
publicly on the Unlisted Securities Market of the London Stock Exchange. In
the Flextech Merger, UAEH received 52,356,707 ordinary shares of Flextech
stock, representing an approximate 60% interest in Flextech subsequent to the
closing of the Flextech Merger. In connection with the Flextech Merger, the
Company also committed to make certain additional loans to and investments in
Flextech. All but 4.6 million pounds of such committments were fully satisfied
by the Company during 1994.
The Company has entered into long-term agreements with substantially
all of its program suppliers in order to obtain favorable rates for programming
and to protect the Company from unforeseen future increases in the Company's
cost of programming.
Local Franchises. Cable television systems generally are constructed
and operated under the authority of nonexclusive permits or "franchises"
granted by local and/or state governmental authorities. Federal law, including
the Cable Communications Policy Act of 1984 (the "1984 Cable Act") and the
Cable Television Consumer Protection and Competition Act of 1992 (the "1992
Cable Act"), limits the power of the franchising authorities to impose certain
conditions upon cable television operators as a condition of the granting or
renewal of a franchise.
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Franchises contain varying provisions relating to construction and
operation of cable television systems, such as time limitations on commencement
and/or completion of construction; quality of service, including (in certain
circumstances) requirements as to the number of channels and broad categories
of programming offered to subscribers; rate regulation; provision of service to
certain institutions; provision of channels for public access and commercial
leased-use; and maintenance of insurance and/or indemnity bonds. The Company's
franchises also typically provide for periodic payments of fees, generally
ranging from 3% to 5% of revenue, to the governmental authority granting the
franchise. Franchises usually require the consent of the franchising authority
prior to a transfer of the franchise or a transfer or change in ownership or
operating control of the franchisee.
Subject to applicable law, a franchise may be terminated prior to its
expiration date if the cable television operator fails to comply with the
material terms and conditions thereof. Under the 1984 Cable Act, if a
franchise is lawfully terminated, and if the franchising authority acquires
ownership of the cable television system or effects a transfer of ownership to
a third party, such acquisition or transfer must be at an equitable price or,
in the case of a franchise existing on the effective date of the 1984 Cable
Act, at a price determined in accordance with the terms of the franchise, if
any.
In connection with a renewal of a franchise, the franchising authority
may require the cable operator to comply with different and more stringent
conditions than those originally imposed, subject to the provisions of the 1984
Cable Act and other applicable Federal, state and local law. The 1984 Cable
Act, as supplemented by the renewal provisions of the 1992 Cable Act,
establishes an orderly process for franchise renewal which protects cable
operators against unfair denials of renewals when the operator's past
performance and proposal for future performance meet the standards established
by the 1984 Cable Act. The Company believes that its cable television systems
generally have been operated in a manner which satisfies such standards and
allows for the renewal of such franchises; however, there can be no assurance
that the franchises for such systems will be successfully renewed as they
expire.
Most of the Company's present franchises had initial terms of
approximately 10 to 15 years. The duration of the Company's outstanding
franchises presently varies from a period of months to an indefinite period of
time. Approximately 1,400 of the Company's franchises expire within the next
five years. This represents approximately thirty-five percent of the
franchises held by the Company and involves approximately 3.8 million basic
subscribers.
Technological Changes. Cable operators have traditionally used
coaxial cable for transmission of television signals to subscribers. Optical
fiber is a technologically advanced transmission medium capable of carrying
cable television signals via light waves generated by a laser. The Company is
installing optical fiber in its cable systems at a rate such that in two years
TCI anticipates that it will be serving the majority of its customers with
state-of-the-art fiber optic cable systems. The systems, which facilitate
digital transmission of television signals as discussed below, will have
optical fiber to neighborhood nodes with coaxial cable distribution downstream
from that point.
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In 1994 the Company entered into an agreement with Microsoft
Corporation ("Microsoft") to test the full potential of interactive television
using upgraded TCI cable television and networking technologies and Microsoft's
software. Beginning in 1995, a first phase will test the technical design and
operations of a few basic services using Microsoft and TCI employees in
Redmond, Washington. A second phase will use a broader base of TCI customers
in Seattle to test a wide variety of broadband interactive television services
and features.
Competition. Cable television competes for customers in local markets
with other providers of entertainment, news and information. The competitors
in these markets include broadcast television and radio, newspapers, magazines
and other printed material, motion picture theatres, video cassettes and other
sources of information and entertainment including directly competitive cable
television operations. The passage of the 1992 Cable Act was designed to
increase competition in the cable television industry.
There are alternative methods of distributing the same or similar
video programming offered by cable television systems. Further, these
technologies have been encouraged by Congress and the FCC to offer services in
direct competition with existing cable systems. In addition to broadcast
television stations, the Company competes in a variety of areas with other
service providers that offer Pay-TV and other satellite-delivered programming
to subscribers on a direct over-the-air basis. Multi-channel programming
services are distributed by communications satellites directly to home
satellite dishes ("HSDs") serving residences, private businesses and various
non-profit organizations. Cable programmers have developed marketing efforts
directed to HSD owners. The Company estimates that there are currently in
excess of 3.5 million HSDs in the United States, most of which are in the 6 to
10 foot range.
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A more significant competitive impact is expected from medium power
and higher power communications satellites ("DBS") that use higher frequencies
to transmit signals that can be received by dish antennas much smaller in size.
The Company has an interest in an entity, Primestar Partners, that distributes
a multi-channel programming service via a medium power communications satellite
to HSDs of approximately 3 feet in size. Such service currently serves an
estimated 250,000 HSDs in the United States. Two other service providers,
DirecTV, a subsidiary of GM Hughes Electronics, and United States Satellite
Broadcasting, a subsidiary of Hubbard Broadcasting, Inc., began offering
multi-channel programming services to HSDs in 1994 via high power
communications satellites that require a dish antenna of only approximately 18
inches. Additionally, such DBS operators have acquired the right to distribute
all of the significant cable television programming services. The Company's
application for a license to launch and operate a high power direct broadcast
satellite was granted by the FCC in 1992 and the satellite is currently under
construction. Competition from both medium and high power DBS services could
become substantial as developments in technology continue to increase satellite
transmitter power, and decrease the cost and size of equipment needed to
receive these transmissions.
DBS has advantages and disadvantages as an alternative means of
distributing video signals to the home. Among the advantages are that the
capital investment (although initially high) for the satellite and uplinking
segment of a DBS system is fixed and does not increase with the number of
subscribers receiving satellite transmissions; that DBS is not currently
subject to local regulation of service and prices or required to pay franchise
fees; and that the capital costs for the ground segment of a DBS system (the
reception equipment) are directly related to and limited by the number of
service subscribers. DBS's disadvantages presently include limited ability to
tailor the programming package to the interests of different geographic
markets, such as providing local news, other local origination services and
local broadcast stations; signal reception being subject to line of sight
angles; and intermittent interference from atmospheric conditions and
terrestrially generated radio frequency noise. The effect of competition from
these services cannot be predicted. The Company nonetheless assumes that such
competition could be substantial in the near future.
The 1984 Cable Act and FCC rules prohibit telephone companies from
offering video programming directly to subscribers in their telephone service
areas (except in limited circumstances in rural areas). However, a number of
Federal Court decisions have held that the cross-entry prohibition in the 1984
Cable Act is unconstitutional as a violation of the telephone company's First
Amendment right to free expression. In addition, certain proposals are also
pending before the FCC and Congress which would eliminate or relax these
restrictions on telephone companies. As the current cross-entry restrictions
are removed or relaxed, the Company will face increased competition from
telephone companies which, in most cases, have greater financial resources than
the Company. All major telephone companies have announced plans to acquire
cable television systems or provide video services to the home through fiber
optic technology.
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The FCC authorized the provision of so-called "video-dialtone"
services by which independent video programmers may deliver services to the
home over telephone-provided circuits, thereby by-passing the local cable
system or other video provider. Under the FCC decision, such services would
require no local franchise agreement or payment to the city or local
governmental authority. Although telephone companies providing
"video-dialtone" were originally allowed only a limited financial interest in
programming services and their role was limited largely to that of a
traditional "common carrier," the FCC recently has proposed relaxation of these
restrictions and has authorized some telephone companies to offer programming
services directly to subscribers. Telephone companies have filed numerous
applications with the FCC for authorization to construct video-dialtone systems
to provide such services. This alternative means of distributing video
services to the consumer's home represents a direct competitive threat to the
Company.
Another alternative method of distribution is the multi-channel
multi-point distribution systems ("MMDS"), which deliver programming services
over microwave channels received by subscribers with a special antenna. MMDS
systems are less capital intensive, are not required to obtain local franchises
or pay franchise fees, and are subject to fewer regulatory requirements than
cable television systems. Although there are relatively few MMDS systems in
the United States that are currently in operation or under construction,
virtually all markets have been licensed or tentatively licensed. The FCC has
taken a series of actions intended to facilitate the development of wireless
cable systems as alternative means of distributing video programming, including
reallocating the use of certain frequencies to these services and expanding the
permissible use of certain channels reserved for educational purposes. The
FCC's actions enable a single entity to develop an MMDS system with a potential
of up to 35 channels, and thus compete more effectively with cable television.
Developments in compression technology have significantly increased the number
of channels that can be made available from other over-the-air technologies.
Within the cable television industry, cable operators may compete with
other cable operators or others seeking franchises for competing cable
television systems at any time during the terms of existing franchises or upon
expiration of such franchises in expectation that the existing franchise will
not be renewed. The 1992 Cable Act promotes the granting of competitive
franchises. An increasing number of cities are exploring the feasibility of
owning their own cable systems in a manner similar to city-provided utility
services.
The Company also competes with Master Antenna Television ("MATV")
systems and Satellite MATV ("SMATV") systems, which provide multi-channel
program services directly to hotel, motel, apartment, condominium and similar
multi-unit complexes within a cable television system's franchise area,
generally free of any regulation by state and local governmental authorities.
In addition to competition for subscribers, the cable television
industry competes with broadcast television, radio, the print media and other
sources of information and entertainment for advertising revenue. As the cable
television industry has developed additional programming, its advertising
revenue has increased. Cable operators sell advertising spots primarily to
local and regional advertisers.
The Company has no basis upon which to estimate the number of cable
television companies and other entities with which it competes or may
potentially compete. There are a large number of individual and multiple
system cable television operators in the United States but, measured by the
number of basic subscribers, the Company is the largest provider of cable
television services.
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The full extent to which other media or home delivery services will
compete with cable television systems may not be known for some time and there
can be no assurance that existing, proposed or as yet undeveloped technologies
will not become dominant in the future.
Regulation and Legislation. The operation of cable television systems
is extensively regulated through a combination of Federal legislation and FCC
regulations, by some state governments and by most local government franchising
authorities such as municipalities and counties. The regulation of cable
television systems at the federal, state and local levels is subject to the
political process and has been in constant flux over the past decade. This
process continues in the context of legislative proposals for new laws and the
adoption or deletion of administrative regulations and policies. Further
material changes in the law and regulatory requirements must be anticipated and
there can be no assurance that the Company's business will not be adversely
affected by future legislation, new regulation or deregulation.
Federal Regulation. The 1984 Cable Act and the 1992 Cable Act
extensively regulate the cable television industry. Among other things, the
1984 Cable Act (a) requires cable television systems with 36 or more
"activated" channels to reserve a percentage of such channels for commercial
use by unaffiliated third parties; (b) permits franchise authorities to require
the cable operator to provide channel capacity, equipment and facilities for
public, educational and governmental access; (c) limits the amount of fees
required to be paid by the cable operator to franchise authorities to a maximum
of 5% of annual gross revenues; and (d) regulates the revocation and renewal of
franchises as described above.
The 1992 Cable Act greatly expands federal and local regulation of the
cable television industry. Because many of the regulations adopted by the FCC
to implement the 1992 Cable Act are subject to reconsideration and because many
of the 1992 Cable Act provisions are currently subject to litigation, it is
difficult to predict the impact of this legislation upon the Company. However,
the Company believes that the legislation taken as a whole has had and will
continue to have a material adverse impact upon the cable industry in general
and upon the Company's cable operations specifically. Certain of the more
significant areas of regulation imposed by the 1992 Cable Act are discussed
below.
Regulation of Program Licensing. The 1992 Cable Act directed the FCC
to promulgate regulations regarding the sale and acquisition of cable
programming between multichannel video program distributors (including cable
operators) and programming services in which a cable operator has an
attributable interest. The legislation and the implementation regulations
adopted by the FCC preclude most exclusive programming contracts (unless the
FCC first determines the contract serves the public interest) and generally
prohibit a cable operator which has an attributable interest in a programmer
from improperly influencing the terms and conditions of sale to unaffiliated
multichannel video program distributors. Further, the 1992 Cable Act requires
that such cable affiliated programmers make their programming services
available to cable operators and competing video technologies such as MMDS and
DBS services on terms and conditions that do not unfairly discriminate among
such competitors.
Regulation of Carriage of Programming. Under the 1992 Cable Act the
FCC has adopted regulations prohibiting cable operators from requiring a
financial interest in a program service as a condition to carriage of such
service, coercing exclusive rights in a programming service or favoring
affiliated programmers so as to restrain unreasonably the ability of
unaffiliated programmers to compete.
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Regulation of Cable Service Rates. The Company's cable systems are
subject to rate regulation. The 1992 Cable Act required that the FCC establish
standards and procedures governing regulation of rates for basic cable service
and equipment to be implemented by state and local cable franchising
authorities. The 1992 Cable Act also required that the FCC, upon complaint
from a franchising authority or a cable subscriber, review the "reasonableness"
of rates for additional tiers of cable service. On April 1, 1993, the FCC
adopted rate regulations governing virtually all cable systems. Services
offered on an individual services basis, such as pay television and
pay-per-view services are not subject to rate regulation. The FCC subsequently
established September 1, 1993 as the effective date for its rate regulations.
On February 22, 1994, the FCC announced that it had adopted revised benchmark
regulations, which regulations were effective on July 15, 1994. As a result of
such actions, the Company's basic and tier service rates and its equipment and
installation charges are subject to the jurisdiction of local franchising
authorities and the FCC. Under such regulations, existing basic and tier
service rates were evaluated initially against "benchmark" rates established by
the FCC. Equipment and installation charges are regulated based on actual
costs.
On February 22, 1994, the FCC also adopted interim "cost-of-service"
rules which allow cable operators to justify rates in excess of the benchmark
based on higher costs. The FCC stated that under its interim cost-of-service
rules, a cable operator may recover through rates for regulated cable services
its normal operating expenses plus an interim rate of return equal to 11.25
percent on the rate base, as defined, which rate may be subject to change in
the future. However, the FCC has excluded from the rate base acquisition costs
in excess of the book value of tangible assets and of allowable intangible
assets at the time of acquisition, has declined to prescribe depreciation rates
and has suggested that the rules will have limited application. The FCC also
adopted rules governing transactions between cost-of-service regulated cable
operators and their affiliates.
The FCC's rate regulations generally permit most cable operators to
adjust rates to account for inflation and increases in certain external costs,
including increases in programming costs and compulsory copyright fees, to the
extent such increases exceed the rate of inflation. However, a cable operator
may pass through increases in the cost of programming services affiliated with
such cable operator to the extent such costs exceed the rate of inflation only
if the price charged by the programmer to the affiliated cable operator
reflects either prevailing prices offered in the marketplace by the programmer
to unaffiliated third parties or the fair market value of the programming. The
FCC's revised regulations confirm that increases in pole attachment fees will
not be accorded external cost treatment.
The regulations also provide a mechanism for adjusting rates when
regulated tiers are affected by channel additions or deletions. Cable
operators adding or deleting channels on a regulated tier will be required to
adjust the per-channel benchmark for that tier based on the number of channels
offered after the addition or deletion. Additional programming costs resulting
from channel additions will be accorded the same external treatment as other
program costs increases, and cable operators presently are permitted to recover
a mark-up on their programming expenses. The rules provide an alternative
methodology for adding programming services to cable programming service tiers
which includes a flat fee increase per added channel, with an aggregate cap on
such increases plus a license fee reserve on price increases through 1996.
Increases in the license fees for newly added services are included within such
cap. In 1997, an additional flat fee increase will be available and the
license fees for additional channels and for increases in existing channels
will not be subject to the aggregate cap. These regulations for adding
services are scheduled to expire on December 31, 1997.
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The FCC has continued to revise its regulations regarding rate
adjustments when regulated tiers are affected by channel additions or
deletions. Recently the FCC adopted regulations which permit certain
additional channels of programming to be added to regulated tiers.
The FCC recently adopted rules that permit channels of new programming
services to be added to cable systems in a separate new product tier which the
FCC has determined will not be rate regulated at this time.
The Company reduced many of its rates and has limited rate increases
in response to FCC regulations. Such actions have had a material adverse
effect on the operating income of the Company's cable systems. Many of these
rate regulations are subject to change during the course of ongoing proceedings
before the FCC. The rate regulations have also been challenged in court.
Regulation of Customer Service. As required by the 1992 Cable Act,
the FCC has adopted comprehensive regulations establishing minimum standards
for customer service and technical system performance. Franchising authorities
are allowed to enforce stricter customer service requirements than the FCC
standards.
Regulation of Carriage of Broadcast Stations. The 1992 Cable Act
granted broadcasters a choice of "must carry" rights or "retransmission
consent" rights. As of October of 1993, cable operators were required to
secure permission from broadcasters that elected retransmission consent rights
before retransmitting the broadcasters' signals. Established "superstations"
were not granted such rights. Local and distant broadcasters can require cable
operators to make payments as a condition to carriage of such broadcasters'
station on a cable system. The 1992 Cable Act imposed obligations to carry
"local" broadcast stations for such stations which chose a "must carry" right
as distinguished from the "retransmission consent" right described above. The
rules adopted by the FCC provided for mandatory carriage by cable systems after
September 1, 1993, of all local full-power commercial television broadcast
signals, including the signals of stations carrying home-shopping programming
and, depending on a cable system's channel capacity, non-commercial television
broadcast signals, or, at the option of commercial broadcasters after October
6, 1993, the right to deny such carriage unless the broadcaster consents. The
FCC's must carry rules are currently under review in the United States District
Court for the District of Columbia. The Company is currently retransmitting
the signals of broadcasters which elected negotiated "retransmission consent"
rights.
Ownership Regulations. The 1992 Cable Act required the FCC to (1)
promulgate rules and regulations establishing reasonable limits on the number
of cable subscribers which may be served by a single multiple system cable
operator or entities in which it has an attributable interest; (2) prescribe
rules and regulations establishing reasonable limits on the number of channels
on a cable system that will be allowed to carry programming in which the owner
of such cable system has an attributable interest; and (3) consider the
necessity and appropriateness of imposing limitations on the degree to which
multichannel video programming distributors (including cable operators) may
engage in the creation or production of video programming. On September 23,
1993, the FCC adopted regulations establishing a 30 percent limit on the number
of homes passed nationwide that a cable operator may reach through cable
systems in which it holds an attributable interest, (attributable for these
purposes is if its ownership interest therein is 5% or greater or if there are
any common directors) with an increase to 35% if the additional cable systems
are minority controlled. However, the FCC stayed the effectiveness of its
ownership limits pending the appeal of a September 16, 1993 decision by the
United States District Court for the District of Columbia which, among other
things, found unconstitutional the provision of the 1992 Cable Act requiring
the FCC to establish such ownership limits. If the ownership limits are
determined on appeal to be constitutional, they may affect the Company's
ability to acquire interests in additional cable systems.
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On September 23, 1993, the FCC also adopted regulations limiting
carriage by a cable operator of national programming services in which that
operator holds an attributable interest (using the same attribution standards
as were adopted for its limits on the number of homes passed nationwide that a
cable operator may reach through its cable systems) to 40 percent of the first
75 activated channels on each of the cable operator's systems. The rules
provide for the use of two additional channels or a 45 percent limit, whichever
is greater, provided that the additional channels carry minority controlled
programming services. The regulations also grandfather existing carriage
arrangements which exceed the channel limits, but require new channel capacity
to be devoted to unaffiliated programming services until the system achieves
compliance with the regulations. Channels beyond the first 75 activated
channels are not subject to such limitations, and the rules do not apply to
local or regional programming services. These rules may limit carriage of the
Company's programming services on certain systems of cable operators affiliated
with the Company.
In the same rulemaking, the FCC concluded that additional restrictions
on the ability of multichannel distributors to engage in the creation or
production of video programming presently are unwarranted.
Under the 1992 Cable Act and the FCC's regulations, cable operators
may not hold a license for a MMDS system within the same geographic area in
which it provides cable service. Additionally, cable operators are prohibited,
subject to certain exceptions, from selling a cable system within 3 years of
acquisition or construction of such cable system.
The 1992 Cable Act contains numerous other provisions which together
with the 1984 Cable Act creates a comprehensive regulatory framework.
Violation by a cable operator of the statutory provisions or the rules and
regulations of the FCC can subject the operator to substantial monetary
penalties and other significant sanctions such as suspension of licenses and
authorizations, issuance of cease and desist orders, and imposition of
penalties that could be of severe consequence to the conduct of a cable
operator's business.
Many of the specific obligations imposed on the operation of cable
television systems under these laws and regulations are complex, burdensome and
increase the Company's costs of doing business. Numerous petitions have been
filed with the FCC seeking reconsideration of various aspects of the
regulations implementing the 1992 Cable Act. Petitions for judicial review of
regulations adopted by the FCC, as well as other court challenges to the 1992
Cable Act and the FCC's regulation, also remain pending. The Company is
uncertain how the courts and/or the FCC will ultimately rule or whether such
rulings will materially change any existing rules or statutory requirements.
Further, virtually all are subject to revision at the discretion of the
appropriate governmental authority.
In the normal course of business, the Company obtains licenses
from the FCC for two-way communications stations, and in certain cases
microwave relay stations and other facilities. Based upon its experience and
knowledge with the renewal process, the Company has no reason to believe that
such licenses will not be renewed as they expire.
Pursuant to lease agreements with local public utilities, the cable
facilities in the Company's cable television systems are generally attached to
utility poles or are in underground ducts controlled by the utility owners.
The rates and conditions imposed on the Company for such attachments or
occupation of utility space are generally subject to regulation by the FCC or,
in some instances, by state agencies, and are subject to change.
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Proposed Changes in Regulation. The regulation of cable television
systems at the federal, state and local levels is subject to the political
process and has been in constant flux over the past decade. This process
continues in the context of legislative proposals for new laws and the adoption
or deletion of administrative regulations and policies. Further material
changes in the law and regulatory requirements must be anticipated and there
can be no assurance that the Company's business will not adversely be affected
by future legislation, new regulation or deregulation. There are proposals
before the Congress and the FCC which, if adopted, would provide further
encouragement for local telephone companies to enter the business of cable
television and to directly compete with existing cable systems. In addition, a
number of recent court decisions have held that FCC cross- ownership
regulations restricting telephone company entry into cable television are
unconstitutional.
Copyright Regulations. The Copyright Revision Act of 1976 (the
"Copyright Act") provides cable television operators with a compulsory license
for retransmission of broadcast television programming without having to
negotiate with the stations or individual copyright owners for retransmission
consent for the programming. The availability of the compulsory license is
conditioned upon the cable operators' compliance with applicable FCC
regulations, certain reporting requirements and payment of appropriate license
fees, including interest charges for late payments, pursuant to the schedule of
fees established by the Copyright Act and regulations promulgated thereunder.
The Copyright Act also empowers the Copyright Office to periodically review and
adjust copyright royalty rates based on inflation and/or petitions for
adjustments due to modifications of FCC rules. The FCC has recommended to
Congress the abolition of the compulsory license for cable television carriage
of broadcast signals, a proposal that has received substantial support from
members of Congress. Any material change in the existing statutory copyright
scheme could significantly increase the costs of programming and be adverse to
the business interests of the Company.
State and Local Regulation. Cable television systems are generally
licensed or "franchised" by local municipal or county governments and, in some
cases, by centralized state authorities with such franchises being given for
fixed periods of time subject to extension or renewal largely at the discretion
of the issuing authority. The specific terms and conditions of such franchises
vary significantly depending on the locality, population, competitive services,
and a host of other factors. While this variance takes place even among
systems of essentially the same size in the same state, franchises generally
are comprehensive in nature and impose requirements on the cable operator
relating to all aspects of cable service including franchise fees, technical
requirements, channel capacity, subscriber rates, consumer and service
standards, "access" channel and studio facilities, insurance and penalty
provisions and the like. Local franchise authorities generally control the
sale or transfer of cable systems to third parties and such authority often
affords local governmental officials the power to affect the disposition of the
cable property as well as to obtain other concessions from the operator. The
franchising process, like the federal regulatory climate, is highly politicized
and no assurances can be given that the Company's franchises will be extended
or renewed or that other problems will not be engendered at the local level.
There appears to be a growing trend for local authorities to impose more
stringent requirements on cable operators often increasing the costs of doing
business. The 1984 Cable Act grants certain protective procedures in
connection with renewal of cable franchises, which procedures were further
clarified by the renewal provisions of the 1992 Cable Act.
PROGRAMMING SERVICES
The Company is an investor in and manager of entities engaged in the
production, acquisition and distribution through all available forms of media,
including cable television systems, broadcast television stations, HSDs, DBS,
on-line and interactive services, home video and traditional retail outlets, of
globally branded entertainment, educational and informational programming and
software, including multimedia products, both analog and digitally delivered.
The various entertainment, education and information programming and
programming-related businesses in which the Company has interests fall into two
categories: sports programming services; and general entertainment and
information services. The Company is also engaged in electronic retailing,
direct marketing, advertising sales, infomercials and transaction processing.
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The following table sets forth the Company's programming interests
which are held directly and indirectly through partnerships, joint ventures,
common stock investments and instruments convertible into common stock.
Ownership percentages in the table are approximate, calculated as of March 1,
1995 and, where applicable, assume conversion to common stock by all holders of
convertible securities. In some cases, the Company's interest may be subject
to buy/sell procedures or repurchase rights.
SPORTS PROGRAMMING SERVICES
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PROGRAMMING SUBSIDIARY/AFFILIATE SUBSCRIBERS OWNERSHIP
SERVICES AT INTEREST
12/31/94
------------------------------------------------------------------------------------------------------------------------------------
amounts in thousands, except percentages
NATIONAL SPORTS
NETWORKS
America One Liberty Sports, Inc. 14,941 (1) 100.0%
Prime Network Prime SportsChannel 45,947 34.0%(2)(3)
NewSport Networks Associates 5,363
Prime Sports Radio Liberty Sports, Inc. N/A 100.0%
Prime Sports Showcase Liberty Sports, Inc. 1,800 100.0%
Liberty Satellite Sports(4) Affiliated Regional 1,401 68.0%(2)(3)
Communications, Ltd.
("ARC")
REGIONAL SPORTS
NETWORKS
Home Team Sports Home Team Sports Limited 2,810 20.5%(2)
Partnership
Prime Sports- Liberty Sports, Inc. 535 100.0%
Intermountain West
Prime Sports-KBL Liberty Sports, Inc. 1,623 100.0%
Prime Sports-Southwest ARC 4,138 68.0%(2)
Prime Sports-Midwest ARC 300 68.0%(2)
Prime Sports-Rocky Liberty Sports, Inc. 1,525 78.5%(2)
Mountain
Prime Sports-Northwest LMC Northwest Cable Sports, 2,188 60.0%(3)
Inc.
Prime Sports-West Liberty Sports, Inc. 4,170 100.0%
La Cadena Deportiva Liberty Sports Inc. 900 100.0%
Prime Sports-Upper Upper Midwest Cable Partners 429 38.6%(2)(3)
Midwest
SportsChannel Chicago SportsChannel Chicago 2,330 50.0%(3)
Associates
SportsChannel Pacific SportsChannel Pacific 3,242 50.0%(3)
Associates
SportsChannel SportsChannel Prism 2,355 23.0%(2)(3)
Philadelphia/PRISM Associates
SportSouth Network SportSouth Network, L.P. 4,270 44.0%(3)
Sunshine Network Sunshine Network JV 3,380 38.0%(2)(3)
INTERNATIONAL SPORTS
PROGRAMMING
Premier Sports Network LMC International, Inc. 2 50.0%
Prime International ARC 138 68.0%
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GENERAL ENTERTAINMENT AND INFORMATION SERVICES
-------------------------------------------------------------------------------------------------------------
PROGRAMMING SUBSIDIARY/AFFILIATE SUBSCRIBERS OWNERSHIP
SERVICES at INTEREST
12/31/94
-------------------------------------------------------------------------------------------------------------
amounts in thousands, except percentages
MOVIE SERVICES
Encore Encore Media Corporation 5,405 90%
Love Stories Encore Media Corporation 304 90%
Westerns Encore Media Corporation 304 90%
Mystery Encore Media Corporation 304 90%
Action Encore Media Corporation 185 90%
True Stories and Encore Media Corporation 180 90%
Drama
WAM! America's Youth Encore Media Corporation 185 90%
Network
STARZ! QE+Ltd. 1,348 90%
Request TV Reiss Media Enterprises, Inc. 23,853 (5) 40%(3)
Viewer's Choice PPVN Holding Company 26,386 (5) 10%
EDUCATION/INFORMATION
Court TV Courtroom Television Network 15,550 33%(3)
The Discovery Channel Discovery Communications, Inc. 61,500 49%
The Learning Channel Discovery Communications, Inc. 31,500 49%
Discovery Asia Discovery Communications, Inc. 462 49%
Discovery Europe Discovery Communications, Inc. 9,100 49%
TLC Europe Discovery Communications, Inc. (6) 49%
Discovery Latin Discovery Communications, Inc. 2,900 49%
America
What on Earth Ingenius 20 (5) 50%
X*Change Ingenius 26,500 (5) 50%
MacNeil/Lehrer Productions N/A 66%
GENERAL ENTERTAINMENT
Americana Television N/A 66%(3)
Productions LLC
BET Cable Network BET Holdings, Inc. 40,282 18%
BET Action BET Holdings, Inc. 6,571 18%
Pay-Per-View
The Box Video Jukebox Network, Inc. 21,548 (US) 5.5%
650 (UK)
Digital Music Express International Cablecasting 32,281 (5) 8.6%(3)
("DMX") Technologies, Inc.
E! Entertainment E! Entertainment Television, Inc. 26,792 10%(3)
The Family Channel International Family 58,800 18.5%(7)(8)
Entertainment, Inc.
Cable Health Club International Family 1,002 18.5%
Entertainment, Inc.
International Channel International Cable Channels 5,839 45%(3)
Partnership Ltd.
CNN Turner Broadcasting System, Inc. 62,800 23%(9)
Cartoon Network Turner Broadcasting System, Inc. 12,100 23%(9)
Headline News Turner Broadcasting System, Inc. 54,200 23%(9)
TNT Turner Broadcasting System, Inc. 60,800 23%(9)
Turner Classic Movies Turner Broadcasting System, Inc. 3,200 23%(9)
WTBS Turner Broadcasting System, Inc. 62,100 23%(9)
tv! Network TV Network Corporation 6,900 100%
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ELECTRONIC RETAILING SERVICES
------------------------------------------------------------------------------------------------------------------------------------
PROGRAMMING SUBSIDIARY/AFFILIATE SUBSCRIBERS OWNERSHIP
SERVICES at INTEREST
12/31/94
------------------------------------------------------------------------------------------------------------------------------------
amounts in thousands, except percentages
Home Shopping Club Home Shopping Network 62,000 (10) 41.5%(11)
(HSN 1, HSN 2, HSN
Spree)
QVC Network QVC, Inc. 50,000 42.6%
Q2 QVC, Inc. 11,568 42.6%
------------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS
------------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION SUBSIDIARY/AFFILIATE SUBSCRIBERS OWNERSHIP
at INTEREST
12/31/94
------------------------------------------------------------------------------------------------------------------------------------
amounts in thousands, except percentages
Distribution of TBS Southern Satellite Systems, Inc. 58,522 100%
SuperStation
signal (in the US)
Distribution of TBS Royal Communications, Inc. 916 100%
SuperStation
signal (in Canada)
Distribution of Netlink USA 380 100%
programming to Netlink International 20 100%
HSD market
UHF/LPTV broadcast Silver King Communications, Inc. 28,000 (1) 23%(12)
TV stations
Hardware/software Asian Television and N/A 44%
sales and Communications LLC
consulting
(1) Number of television households in broadcast areas.
(2) Includes indirect interest attributed through ARC's ownership. Gives
effect to a currently exercisable option by Group W Services, Inc.,
which, if exercised, would reduce the Company's ownership interest in
ARC from 76.66% to 68%. Group W has given notice of its intent to
exercise such option, with a closing anticipated in 1995.
(3) The interests of the Company in these entities are presently or will
become subject to buy-sell arrangements under which one owner may
initiate the arrangement by giving notice setting forth value for the
entity and other owners then elect either to buy the interest of the
initiating owner or to sell their interests to the initiating owner.
In the case of agreements with multiple parties, a party electing
to purchase the initiating party's interest must also purchase the
interest of any other party that has elected to sell.
(4) Distributor of Sports Programming to HSD and DBS markets.
(5) Number of subscribers to whom service is available.
(6) Included with Discovery Europe.
(7) Assumes conversion of preferrred stock, $22 million face amount,
convertible at $6.67 per share.
I-19
22
(8) Assumes conversion of notes, $23 million face amount, convertible at
$11.11 per share.
(9) Assumes the conversion of preferred stock into 6 shares of Class B
common stock for each share of preferred stock.
(10) Includes broadcast households and cable subscribers.
(11) The Company has 80% voting power.
(12) Assumes exercise of an option to purchase 2,000,000 shares of Class B
common stock at $1.50 per share. See description of Silver King
Communi-cations, Inc. in Other Assets below.
Sports Programming Services
National Sports Programming Services. The Company has varying
interests in several national sports services. Such national sports services
can be used as "backdrop" services, stand-alone services or both. The term
backdrop service is used to distinguish between original programming produced
by a regional sports network and ancillary programming purchased by the
regional sports network from others to supplement its programming service.
Liberty Sports, Inc. ("Liberty Sports") also acts on occasion as a
syndicator of sports events programming to the broadcast television market.
In September of 1994, Liberty Sports launched Prime Sports Radio
("PSR"), a 24-hour per day all sports radio programming service. PSR ended
1994 with affiliate distribution in 22 United States markets. The largest
affiliated markets are Boston, Houston and Pittsburgh. The programming service
is offered to radio stations on an inventory split basis and delivered via
satellite. There are 11,500 radio stations in the United States and each of
the 261 rated markets has several stations which would meet Liberty Sports'
affiliate criteria. The format is designed to provide the affiliates with
sports information at a national level with the flexibility to customize for
local interest. PSR will cross-promote the Company's regional sports networks
with radio in their respective markets.
Regional Sports Programming Services. The Company also has varying
interests in several regional sports networks (the "Liberty Sports Networks"),
which have been formed for the purpose of acquiring, developing, producing,
syndicating and distributing sports programming of primarily local and regional
interest by satellite to cable television operators and other multi-channel
video programming distributors, and to HSD owners in specified geographic
areas.
Effective January 1, 1995, Liberty Sports changed the names of its
owned and operated regional sports networks to "Prime Sports". Programming
will be restructured to create uniformity throughout the networks without
losing the regional or "home town team" aspect of individual networks. Liberty
Sports believes the name changes and consistent programming and on-air look
will improve national recognition of the networks for both viewers and the
advertising community.
The Liberty Sports Networks derive revenue from two principal sources:
(1) fees paid by cable operators pursuant to affiliation agreements entered
into with the regional sports networks and (2) the sale of advertising time to
local, regional and national advertisers. Each cable operator or other
distributor is typically charged a monthly fee per subscriber in its systems
receiving the programming service, which fees vary depending on the level of
service at which the distributor offers the network to its subscribers and the
proximity of the cable system to the venue of the major sporting events
distributed by the network. The affiliation agreements generally provide for
limited increases during their term in the fees charged by the networks.
I-20
23
In addition to owning interests in and operating regional sports
networks, Liberty Sports also provides various services to affiliated and
non-affiliated networks. Liberty Sports, through Liberty Satellite Sports,
acts as a marketing agent to HSD owners and distributors to HSD owners for
certain of the regional sports networks with which it is affiliated. In
addition, Liberty Sports provides support services, such as master control and
satellite uplinking services, and certain program scheduling, post-production
and editing services, to certain of its affiliated networks.
Each of the Liberty Sports Networks sells advertising time to local,
regional and national advertisers. Approximately 25% of the consolidated
revenue derived from the Company's sports programming businesses for the year
ended December 31, 1994, was derived from advertising sales (including barter
transactions). Advertising revenue as a percentage of each network's total
revenue varies from network to network, with the more established networks
generally deriving a greater percentage of their revenue from advertising sales
than the newer networks with fewer subscribers. To date, the networks have
concentrated their efforts on increasing the numbers of subscribers to which
their programming service is made available and improving the quantity and
quality of the programming offered. If the networks are successful in this
regard, the Company believes that advertising sales could become a more
significant source of revenue for its sports networks in the future.
The cost of acquiring sports programming rights is the principal
expense of the sports networks. The Liberty Sports Networks typically enter
into rights contracts with one or more professional sports teams in their
regions and acquire rights to collegiate sporting events through arrangements
with regional conferences, individual schools and programming syndicators. The
duration of the rights agreements with the professional teams range from one to
ten years, with most of the existing agreements having remaining terms from two
to four years. The rights contracts for collegiate sporting events typically
range from two to three years. Pursuant to the professional sports rights
agreements, the networks usually acquire the exclusive right to distribute via
cable and other forms of pay television, in their respective regions, a
specified number of games that are not subject to national cable or broadcast
contracts. The arrangements with respect to collegiate sports are more varied,
but usually also provide exclusive regional distribution rights (other than via
over-the-air broadcast television) as to a specified number of events. The
grant of both professional and collegiate rights under such agreements are
generally subordinate to rights granted under league or conference national
broadcast and national cable contracts. In most cases, contracts provide for a
charge per game or event, subject to limited increases over the term of the
contract, with either a minimum annual exhibition requirement or a minimum
payment requirement or both. In certain recent cases a regional network has
also acquired broadcast or radio rights to professional team or collegiate
events and has sub-licensed such rights to broadcast or radio distributors.
Certain factors such as player strikes, or bankruptcy of leagues or individual
teams may have an adverse effect on the revenue of the Liberty Sports Networks.
The value of the exhibition rights granted under sports rights
contracts, and in some cases the financial commitments incurred thereunder, are
subject to certain contingencies that are not within the control of the
networks, such as the relationship of a professional team to a different
region, changes in the schools participating in a particular collegiate
conference, the terms of applicable national broadcast or cable contracts, and
the rules and regulations of the applicable professional collegiate league,
conference or association.
I-21
24
International Sports Programming Services. Liberty Sports also sells
and delivers certain programming internationally to satellite and cable
programming distributors in Asia, Europe, Latin America and South America.
Such programming consists primarily of United States domestic sports
programming to which Liberty Sports has acquired international distribution
rights and of programming acquired outside the United States.
In January 1995, Liberty Sports launched "Premier Sports Network," a
sports programming service for distribution in Australia and New Zealand, in
partnership with Australia Sports Pty, Ltd. ("Australis"). Liberty Sports
produces and manages the service. Premier Sports Network is currently
delivered as part of a multi-channel pay television package distributed by
Australis to approximately 2,000 subscribers.
General Entertainment and Information Services
Movie Services. "Encore," which is produced and distributed by Encore
Media Corporation ("EMC"), was launched in mid-1991 and primarily airs movies
from the 1960's, 1970's and 1980's. As of December 31, 1994, the service was
being offered by cable operators and other distribution technologies to
approximately 20.4 million households, of which approximately 5.4 million
subscribed to Encore. The service is generally offered as a single premium
service or in conjunction with other programming services. In either case, the
subscription price paid by the subscriber for Encore is generally lower than
the prices charged for other premium movie services. During 1994, Encore
launched six new thematic multiplex services. Three of these pay services
(Love Stories, Westerns and Mystery) launched in July 1994 and the remaining
three (Action, True Stories and Drama and WAM!, America's Youth Network)
launched in September 1994. Cable operators pay EMC a per subscriber fee for
the services. The Company's cable and communications services have entered
into an affiliation agreement with EMC and currently accounts for approximately
72% of its total subscribers. EMC obtains rights to air movies by entering
into film licensing agreements with the holders of distribution rights. EMC has
entered into agreements extending through 2005 with various distributors to
exhibit certain films. EMC has entered into various other agreements where
license fees are contingent on future production, sales and certain other
criteria.
STARZ! is a first-run premium movie programming service which is
managed by EMC. As of December 31, 1994, STARZ! was offered by the Company to
its cable systems, of which approximately 1.4 million elected to receive
STARZ!.
The Company also has interests in Request TV and Viewer's Choice which
provide pay-per-view movies and pay-per-view events to cable operators. Both
Request TV and Viewer's Choice act as intermediaries between movie studios,
event promoters and cable operators providing scheduling for movies to be sold
on a pay-per-view basis, satellite distribution of such movies, marketing and
promotion, and, in some instances, billing and collection services. For
providing these services, they are paid a negotiated percentage of pay-per view
revenue generated by their respective affiliated cable operators.
I-22
25
Education/Information Services. The principal businesses of Discovery
Communications, Inc. ("Discovery") are the advertiser-supported basic cable
networks "The Discovery Channel", and "The Learning Channel". The Discovery
Channel provides nature, science and technology, history, exploration and
adventure programming and is distributed to customers in virtually all cable
homes. The Learning Channel broadcasts a variety of educational and
non-fiction programming to customers constituting approximately 47% of all
cable television customers in the United States. The Learning Channel has
distribution to more than 31.5 million homes as of December 1994. In addition,
through internally generated funding, significant investments are being made by
Discovery in building a documentary programming library. Discovery is
expanding the Discovery brand name by establishing channels based in Europe,
Latin America and Asia, a substantial portion of the programming of which is
drawn from Discovery's own documentary programming library. In November 1994,
Discovery announced its intent to launch four new networks: "Animal Planet", a
nature network; "Quark!", a science and technology network; "Time Traveler", a
history network; and "Living", a home repair network.
In January 1995, the Company acquired a 66-2/3% general partnership
interest in MacNeil/Lehrer Productions ("MLP"). MLP is the primary producer of
the "MacNeil/Lehrer News Hour" on PBS and a producer of other high-quality
documentary and public affairs programming. The Company is attempting to
increase the level of production at MLP by finding new markets for MLP
documentary and public affairs programming. These markets may include cable,
as well as broadcast networks, on line services and CD-ROM applications.
Ingenius is a general partnership between the Company and Reuters New
Media, Inc. Ingenius operates "X*Change", an information service which is
delivered via cable to personal computers. X*Change consists of news, weather,
sports and limited stock quotes, and is offered to subscribers as part of their
cable service. X*Change is currently available to approximately 30 million
households.
Ingenius has also developed "What On Earth", a daily multimedia
learning resource delivered via cable to personal computers using X*Change.
What on Earth delivers six news stories each day, including international news
articles, world sports, and significant cultural events and features. The news
stories comprise text, video, audio pronunciation of key words, glossary,
activities associated with each news story and lesson plans for teachers. What
on Earth was launched on February 10, 1995 and is currently available to
approximately 20,000 educators who already receive X*Change.
"Court TV" provides live and/or tape delayed coverage and analysis of
selected criminal and civil legal proceedings. The Court TV service was
received by approximately 15.5 million subscribers at December 31, 1994.
General Entertainment. Turner Broadcasting System, Inc. ("TBS") is a
diversified information and entertainment company, which produces, finances and
distributes entertainment and news programming worldwide, and has operations in
motion pictures, animation and television production, video television
syndication, licensing and merchandising and publishing. Through its
subsidiaries, TBS owns and operates four domestic entertainment networks, (TBS
SuperStation, Turner Network Television, the Cartoon Network and Turner Classic
Movies); three international entertainment networks (TBS Latin America, Cartoon
Network Latin America, and TNT & Cartoon Network Europe); three news networks
(Cable News Network, Headline News and Cable News Network International); a
motion picture and television production company (Castle Rock Entertainment);
and an independent producer and distributor of motion pictures (New Line Cinema
Corporation). TBS also has ownership interests in two professional sports
teams (the Atlanta Braves and the Atlanta Hawks) and a regional sports network
(SportSouth Network, in which the Company also has an interest).
I-23
26
International Family Entertainment, Inc.'s ("IFE") principal business
is "The Family Channel," an advertiser-supported basic cable network carried by
cable television systems reaching 95% of all United States cable television
households. Its programming consists of a variety of comedies, adventures,
children's shows, westerns and inspirational and other programs. As of
December 31, 1994, The Family Channel was being provided to approximately 58.8
million subscribers.
"BET Cable Network" is a cable television network whose programming
targets interests and concerns of black Americans. The network's productions,
most of which are live, include hosted music video programs and variety shows.
Acquired programs include situation comedies, soap operas, movies, gospel music
programs and sports and entertainment specials. As of December 31, 1994, BET
Cable Network was being provided to approximately 40 million subscribers.
"E! Entertainment Television" ("E!") is a 24-hour network featuring
programming about celebrities and entertainment. The network's programming mix
includes entertainment news reports, original programs and exclusive live
coverage of major awards shows and celebrity events. E! was distributed to
more than 26 million subscribers as of the end of December 1994.
International Cablecasting Technologies, Inc. ("ICT") is primarily
engaged in programming, distributing and marketing a premium digital music
service, Digital Music Express ("DMX"), which provides 24-hour per day,
commercial-free, CD quality music programming.
"International Channel" is a basic cable service providing
multi-lingual programming. As of December 31, 1994, International Channel was
being carried by 167 cable systems, which account for a total of 5.8 million
subscribers.
"tv! Network", a new 24-hour basic cable service, features
programming from new and existing cable networks which are not widely
distributed. tv! Network also previews premium and pay-per-view services and
showcases the latest developments in programming, new technology and emerging
interactive services. As of December 31, 1994, Network had approximately 7
million subscribers.
"The Box" is a viewer interactive music video service produced by
Video Jukebox Network, Inc. ("VJN") and offered through cable television
systems and low-power television stations that are located within the 900 or
976 telephone service range. Viewers may select the music videos they desire
to watch by calling a designated 900 or 976 telephone number, in which case
they pay a fee to VJN for their selections, or they may passively view the
music videos selected by others, in which case there is no additional charge
for the service.
Americana Television Productions ("ATP") is a new production company
formed in February 1995 to produce and distribute television shows for the
cable, satellite and broadcast markets, as well as home video and audio
product. ATP's video library includes nearly 600 hours of original programming
highlighting traditional music, people and crafts which are uniquely American.
I-24
27
Competition. The business of distributing programming for cable
television is highly competitive. The number of channels available to the
average subscriber of a domestic cable television system is 60 or less. The
various entertainment and information programming companies described above in
which the Company has interests (the "Programming Companies") directly compete
with other programming services for distribution and, when distribution is
obtained, the programming offered by the Programming Companies competes, in
varying degrees, for viewers and advertisers with other cable programming
services and off-air broadcast television, radio, print media, motion picture
theaters, video cassettes and other sources of information and entertainment.
Important competitive factors are the prices charged for programming, the
quantity, quality and variety of the programming offered and effectiveness of
marketing efforts. With the advent of new compression technologies,
competition for channel capacity may substantially decrease, although
additional competitors may have the opportunity to enter the marketplace. No
predictions can be made with respect to the viability of these technologies or
the extent to which they will ultimately impact the availability of channel
capacity.
In addition to competition for cable distributors, viewers and
advertisers, the Programming Companies also compete, to varying degrees, for
programming. With respect to the acquisition of sports programming rights, the
Programming Companies compete for national rights principally with the national
broadcast television networks, a number of national cable services that
specialize in or carry sports programming, and television "superstations",
which distribute sports and other programming to cable television systems by
satellite, and with independent syndicators that acquire and resell such rights
nationally, regionally and locally. They also compete for local and regional
rights with those competitors, with local broadcast television stations and
with other local and regional sports networks. The owners of distribution
outlets such as cable television systems may also contract directly with the
sports teams in their service areas for the right to distribute a number of
such teams' games on their systems. Recently, at least one sports league has
entered into an agreement with a national DBS distribution outlet for the
distribution of selected league games. With respect to the acquisition of
non-sports programming (such as syndicated programs and movies) which is not
produced by or specifically for the Programming Companies, competitors include
the national broadcast television networks, local broadcast television
stations, suppliers of premium services and pay-per-view programs and other
cable program suppliers.
As set forth in the discussion of Federal Regulation-Programming
Companies below, the FCC's "financial interest and syndication" rules limit the
ability of the three major broadcast networks to distribute network programs
through syndication to broadcast stations and to acquire certain financial
interests or domestic syndication rights in first-run non-network programs.
However, these rules are scheduled to expire in November 1995. Elimination of
these restrictions could permit a myriad of broadcast station/network
production/exhibition arrangements, further increasing competition to the
Programming Companies in the acquisition and sale of programming.
In a series of decisions, federal courts have invalidated the statute
prohibiting telephone companies from providing video programming and other
information directly to subscribers in their telephone service areas. Although
these decisions remain subject to review, telephone companies have begun to
invest in and/or form entities for the production and/or acquisition of
programming. Such entities will provide further competition to the Programming
Companies in the creation, acquisition and/or sale of programming. Certain
proposals also are pending before the FCC and Congress which would eliminate or
relax the statutory restrictions on telephone companies.
I-25
28
Satellite Transponder Agreements. The Company's entertainment and
information programming services subsidiaries and 50% owned affiliates
described above lease satellite transponders as follows: 6 full time leases
and one shared lease on a "protected" or "transponder protected" basis, and 15
full time "unprotected" leases for an aggregate of 21 transponders on 10
domestic and 2 international communications satellites. Domestic
communications satellite transponders may be leased full or part time on a
"protected", "transponder protected" or "unprotected" basis. When the carrier
provides services to a customer on a "protected" basis, replacement
transponders are reserved on board the satellite for use in the event the
"protected" transponder fails. Should there be no reserve transponders
available, the "protected" customer will displace an "unprotected" transponder
customer on the same satellite. In certain cases, the carrier also maintains a
protection satellite and should a satellite fail completely, all lessors'
"protected" transponders would be moved to the protection satellite. The
customer who leases an "unprotected" transponder has no reserve transponders
available, and may have its service interrupted for an indefinite period when
its transponder is required to restore a "protected" service.
Although the Company believes it has taken reasonable steps to ensure
its continued satellite transmission capability, there can be no assurance that
termination or interruption of satellite transmissions will not occur. Such a
termination or interruption of service by one or more of these satellites could
have a material adverse effect on the results of operations and financial
condition of the programming group.
The availability of replacement satellites and transponder time beyond
current leases is dependent on a number of factors over which the Company has
no control, including competition among prospective users for available
transponders and the availability of satellite launching facilities for
replacement satellites. Many of the commercial satellites now in orbit will
have to be replaced in the next few years. The federal government has placed
restrictions on the launching of commercial satellites by means of the space
shuttle, causing manufacturers of commercial satellites to rely on alternative
delivery systems to place these satellites in orbit. Additional commercial
launching facilities are being developed currently, but there can be no
assurance that the launch systems currently in place, or to be developed, will
be able to replace the domestic communications satellites as their useful lives
end.
Several of the Company's transponder leases provide the right to use
the transponders to provide compressed digital video services. Use of
compressed digital video service may result in greater transponder capacity.
Federal Regulation - Programming Companies. The FCC regulates the
providers of satellite communications services and facilities for the
transmission of programming services, the cable television systems that carry
such services and to some extent the programming services themselves. The 1984
Cable Act and the 1992 Cable Act extensively regulate the cable television
industry.
The 1984 Cable Act, among other things, requires cable television
systems with 36 or more "activated" channels to reserve a percentage of such
channels for commercial use by unaffiliated third parties and permits franchise
authorities to require the cable operator to provide channel capacity,
equipment and facilities for public, educational and governmental access.
I-26
29
The 1992 Cable Act has expanded greatly the scope of federal and local
regulation. Because a number of the regulations adopted by the FCC to
implement the 1992 Cable Act remain subject to reconsideration and because many
of the 1992 Cable Act provisions are currently subject to litigation, it is
difficult to predict the impact of this legislation upon the Company. However,
the Company believes that the legislation taken as a whole and as presently
implemented has had and will continue to have a material adverse impact upon
the Company's programming operations. Certain of the more significant areas of
regulation imposed by the 1992 Cable Act upon the Company's programming
operations are discussed below.
Regulation of Program Licensing. The 1992 Cable Act directed the FCC
to promulgate regulations regarding the sale and acquisition of cable
programming between multichannel video program distributors (including cable
operators) and programming services in which a cable operator has an
attributable interest. The legislation and the implementing regulations
adopted by the FCC preclude virtually all exclusive programming contracts with
cable operators (unless the FCC first determines the contract serves the public
interest) and generally prohibit a cable operator which has an attributable
interest in a programmer from improperly influencing the terms and conditions
of sale to unaffiliated multichannel video distributors. Further, the 1992
Cable Act requires that such affiliated programmers make their programming
services available to cable operators and competing video technologies such as
MMDS and DBS services on terms and conditions that do not unfairly discriminate
among such technologies.
Regulation of Carriage of Programming. Under the 1992 Cable Act, the
FCC has adopted regulations prohibiting cable operators from requiring a
financial interest in a program service as a condition to carriage of such
service, coercing exclusive rights in a programming service or favoring
affiliated programmers so as to restrain unreasonably the ability of
unaffiliated programmers to compete.
Regulation of Cable Service Rates. As set forth in the above
discussion of regulation affecting the Company's cable and communications
services, under the 1992 Cable Act, cable systems are subject to extensive rate
regulation. The FCC has established standards and procedures governing
regulation of rates for basic cable service and equipment to be implemented by
state and local cable franchising authorities and for the FCC's review of the
"reasonableness" of rates for additional tiers of cable service upon complaint
from a franchising authority or a cable subscriber.
The aggregate cap and flat fee mark-up elements of these regulations
may adversely affect higher-cost programming services, including the regional
sports networks in which the Company has an ownership interest, while expanding
the carriage of programming services with lower license fees, including
programming services in which the Company has an ownership interest.
The complexity of and numerous revisions to the FCC's rate regulations
have impaired the willingness and ability of cable operators to add programming
services and to invest in additional cable plant to expand channel capacity.
Consequently, the cumulative impact of the FCC's rate regulation is likely to
continue to have an adverse impact on the Company's programming interests.
I-27
30
Regulation of Carriage of Broadcast Stations. The 1992 Cable Act
granted broadcasters a choice of "must carry" rights or "retransmission
consent" rights. Such statutorily mandated expansion of carriage of broadcast
stations coupled with the requirements of the 1984 Cable Act noted above could
adversely affect some or substantially all of the programming services in which
the Company holds an interest by decreasing the carriage of such services in
cable systems with limited channel capacity.
Ownership Regulations. In addition to the rules and regulations
establishing reasonable limits on the number of cable subscribers which may be
served by a cable operator or entities in which it has an attributable interest
as previously described, the 1992 Cable Act required the FCC to prescribe rules
and regulations establishing reasonable limits on the number of channels on a
cable system that will be allowed to carry programming in which the owner of
such cable system has an attributable interest and to consider the necessity
and appropriateness of imposing limitations on the degree to which multichannel
video programming distributors (including cable operators) may engage in the
creation or production of video programming.
The FCC also adopted regulations in 1993 limiting carriage by a cable
operator of national programming services in which the operator holds an
attributable interest. These rules, which currently are subject to pending
petitions for reconsideration before the FCC, may limit carriage of the
Company's programming services on certain systems of cable operators affiliated
with the Company.
In the same rulemaking, the FCC concluded that additional restrictions
on the ability of multichannel distributors to engage in the creation or
production of video programming presently are unwarranted.
Numerous petitions have been filed with the FCC seeking
reconsideration of various aspects of the regulations implementing the 1992
Cable Act. Petitions for judicial review of regulations adopted by the FCC, as
well as other court challenges to the 1992 Cable Act and the FCC's regulations,
also remain pending. The Company is uncertain how the courts and/or FCC
ultimately will rule or whether such rulings will materially change any
existing rules or statutory requirements. Further, virtually all are subject
to revision at the discretion of the appropriate governmental authority.
Proposed Changes in Regulation. The regulation of cable television
systems at the federal, state and local levels is subject to the political
process and has been in constant flux over the past decade. This process
continues in the context of legislative proposals for new laws and the adoption
or deletion of administrative regulations and policies. Further material
changes in the law and regulatory requirements must be anticipated and there
can be no assurance that the Company's programming business will not be
affected adversely by future legislation, new regulation or deregulation.
I-28
31
Satellites and Uplink. In general, authorization from the FCC must be
obtained for the construction and operation of a communications satellite. The
FCC authorizes utilization of satellite orbital slots assigned to the United
States by the World Administrative Radio Conference. Such slots are finite in
number, thus limiting the number of carriers that can provide satellite
transponders and the number of transponders available for transmission of
programming services. At present, however, there are numerous competing
satellite service providers that make transponders available for video services
to the cable industry. Certain satellites are more valuable than others to
cable television programmers based on whether a particular satellite is used by
other programmers of popular cable services. Under current policy, the Galaxy
V, Spacenet 2, SatCom C-1 and SatCom C-3 service providers are not subject to
the market exit provisions of Section 214 of the Communications Act of 1934, as
amended (the "Communications Act") and may therefore cease providing
communications services to customers on short notice, provided that such action
is just, reasonable and non-discriminatory, and subject to any additional
rights or remedies to which the customer and the carrier may have agreed. The
Company has no reason to believe that such service providers have any intention
to cease providing transmission services via their respective satellite
systems. See Transmission of SuperStation WTBS below and Satellite Transponder
Arrangements above. The other Programming Companies in which the Company has
interests have separate arrangements with satellite service providers for
transmission of their services.
Financial Interest and Syndication. The FCC's "financial interest and
syndication" rules limit the ability of the three major broadcast networks to
distribute network programs through syndication to broadcast stations. The
major broadcast networks have not been restricted from distributing network
programs to cable or satellite programmers, such as the Programming Companies.
However, under the original rules, network programming has been available to
non-network broadcast television stations only through syndicators in which the
three major networks have no financial interest. At the same time, networks
have been prohibited from purchasing syndication rights or obtaining financial
interests in programs obtained from outside (non-network) producers. In
response to the decision of the United States Court of Appeals for the Seventh
Circuit in Schurz Communications, Inc. v. FCC, the FCC released modified
financial interest and syndication rules in 1993. Although the FCC relaxed the
financial interest and syndication rules in many respects, under the modified
rules the three major networks are prohibited from: (a) actively syndicating
any prime-time entertainment or first-run non-network programming to television
stations in the United States; (b) acquiring financial interests or domestic
syndication rights in any first-run non-network program or series distributed
in the United States unless that program or series was produced solely
"in-house" by the network; and (c) warehousing programming by withholding it
from the syndication market beyond certain defined periods. However, the rules
are scheduled to expire in November 1995.
Elimination or further modification of these restrictions could permit
a myriad of broadcast station/network production/exhibition arrangements that
now only cable operators and the major broadcast networks (to the extent of
distributing to cable and satellite programmers) are permitted to undertake,
further increasing competition to the Programming Companies in the acquisition
and sale of programming. The grant of expanded syndication powers to the three
major networks could lessen the attractiveness and/or availability of the major
networks' programming to cable system operators and programmers because they
would have to compete directly for such programming with broadcast stations and
could be less likely to secure cable/broadcast network exclusive distribution
and other arrangements.
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Copyright licensing procedures have not yet been negotiated for the
public performance of non-dramatic musical works used in connection with
various programming services provided by the Programming Companies. The
American Society of Composers, Authors and Publishers ("ASCAP") and Broadcast
Music, Inc. ("BMI"), organizations which license the public performance of
musical compositions of their members or affiliated composers, authors and
publishers, respectively, had claimed that cable programmers and cable system
operators each must have a separate license to lawfully exhibit programs and
advertisements containing musical compositions. Such split licensing has been
held unlawful under the ASCAP and BMI Consent Decrees, respectively, by the
United States Court of Appeals for the Second Circuit in the Turner case in
1992 and by United States District Court for Washington, D.C. in the NCTA case
in 1991. BMI has indicated that it does not consider itself bound by this
decision in the NCTA case.
Electronic Retailing Services
The Company currently provides electronic retailing services through a
subsidiary, Home Shopping Network, Inc. ("HSN") and through an equity
affiliate, QVC.
HSN
As of March 1, 1995, the Company owned 41.5% of the common stock of
HSN, which represents 80.4% voting control (as a result of multiple voting
rights associated with HSN Class B common stock held by the Company). The
primary business and principal source of revenue of HSN is electronic retail
sales of merchandise by Home Shopping Club, Inc. ("HSC"), a wholly owned
subsidiary of HSN. HSC sells a variety of consumer goods and services by means
of HSC's live, customer-interactive retail sales programs which are transmitted
twenty-four hours a day, seven days a week, via satellite to cable television
systems, affiliated broadcast television stations and HSD's. As of December
31, 1994, HSC programming could be received by approximately 62 million homes,
including broadcast television households and cable television subscribers.
HSC's product offerings include: jewelry, hardgoods (such as consumer
electronics, housewares and toys), softgoods (primarily clothing), cosmetics;
and other product categories which include collectibles and consumables. For
calendar 1994, jewelry, hardgoods, softgoods, cosmetics and other categories
accounted for approximately 41%, 34%, 14%, 10% and 1% respectively, of HSC's
sales. HSC principally purchases merchandise made to its specifications and
also purchases inventories from retailers. The mix of products and source of
such merchandise depends upon a variety of factors including price and
availability. HSC has no long- term commitments with any of its vendors, and,
historically, there have been various sources of supply available for each
category of merchandise sold by HSC.
As part of HSC's customer service policy, HSC maintains a return
policy under which a customer may, generally within thirty days, return for any
reason any item purchased from HSC, except certain special sales items, for a
full refund of the purchase price, including the original shipping and handling
charges.
Transmission and Programming. HSC produces retail sales programs in
its studios located in St. Petersburg, Florida. These programs are distributed
to cable television systems, broadcast television stations and HSD's by means
of HSN's satellite uplink facilities to satellite transponders leased by HSN
which retransmit the signals received from HSN. Any cable television system,
broadcast television station or HSD owner in the United States and the
Caribbean Islands equipped with standard satellite receiving facilities is
capable of receiving HSC programming.
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HSN has lease agreements securing full time use of three transponders
on three domestic communications satellites. Although HSN believes it is
taking every reasonable measure to ensure its continued satellite transmission
capability, there can be no assurance that termination or interruption of
satellite transmission will not occur. Such a termination or interruption of
service by one or more of these satellites could have a material adverse effect
on the operation and financial condition of HSN. See Federal Government
Regulation of Satellite Transmissions below. The availability of replacement
satellites and transponder time beyond current leases is dependent on a number
of factors over which HSN has no control, including competition among
prospective users of available transponders and the availability of satellite
launching facilities for replacement satellites.
Federal Government Regulation of Satellite Transmission. The FCC
grants licenses to construct and operate satellite uplink facilities which
transmit signals to satellites. These licenses are generally issued without a
hearing if suitable frequencies are available. HSN has been granted two
licenses for operation of C-Band satellite transmission facilities and two
licenses for operation of Ku-Band satellite transmission facilities on a
permanent basis in Clearwater and St. Petersburg, Florida.
Affiliation with Cable Systems. HSC enters into affiliation
agreements with cable system operators to carry HSC. HSC's standard
affiliation agreement provides that the cable operator generally will receive a
commission of 5% of the net sales of merchandise sold to customers located
within the cable operator's franchise area (from both cable and non-cable
households). In addition, HSC also purchases advertising time from affiliated
operators and in certain markets, pays additional commissions for sales above a
specified minimum amount. Although there is some variation among affiliation
agreements with cable operators, the current standard affiliation agreement
provides for an initial term of five years which is automatically renewable for
subsequent one year terms. During the past year, due to the possibility of
"must carry" being found unconstitutional, HSN embarked on an aggressive
campaign to bring the "must carry" households under contract by volunteering to
pay commissions to certain cable operators. See Effect on HSN of the 1992
Cable Act, below. As an additional contract incentive, HSN offered to make
payments of cable distribution fees, primarily consisting of up-front payments,
based on the number of subscribers committed to the contract by the cable
operator. In exchange for these payments, HSN required significant long term
commitments of up to fifteen years, with an average term of ten years, for the
current programming carriage and additional carriage of HSC's programming. Due
to HSN's success in obtaining long term carriage commitments, in the event
"must carry" is ruled unconstitutional, HSN does not believe the ruling will
have a material adverse effect on HSN or result in a significant loss in
carriage. Affiliation agreements were entered into during the year with the
Company's cable and communications services.
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Affiliation Agreements with Broadcast Television Stations. In July
1986, HSN initiated a program to broaden the viewership of HSC's programming
services by acquiring broadcast television stations in principal television
markets through Silver King Communications, Inc. ("SKC"). On December 28,
1992, HSN distributed the capital stock of SKC to HSN shareholders, in the form
of a pro rata stock dividend. Each SKC station has an affiliation agreement
with HSC to carry HSC's programming through December 28, 1997 that is
automatically renewable at SKC's option for a five-year term, unless written
notice is given at least 18 months prior to the expiration date. HSC pays an
affiliation fee to SKC based on hourly rates and, upon reaching certain sales
levels, commissions on net sales. Certain of the SKC stations have realized
additional compensation during the year, and those stations, and possibly
others, are expected to continue to receive additional compensation during
subsequent years of their affiliation agreements if "must carry" survives legal
challenge. See Effect on HSN of the 1992 Cable Act below. SKC owns 12 full
power UHF television stations (the "Stations") which serve 8 of the 12 largest
metropolitan television markets in the United States. SKC also owns 21 low
power television ("LPTV") stations that broadcast HSC's programming services.
LPTV stations have lower power transmitters than conventional television
stations, and therefore, the broadcast signal of an LPTV station does not cover
as broad a geographical area as conventional broadcast stations.
In addition to affiliation agreements with the SKC broadcast
television and LPTV stations, HSC has entered into affiliation agreements with
other broadcast television stations and LPTV stations. The broadcast station
affiliation agreements may generally be terminated upon proper notice and
specify the payment of fixed fees for the carriage of HSC programming.
Distribution, Data Processing and Telecommunications. HSN's
fulfillment subsidiaries ship merchandise purchased by customers from
warehouses located in St. Petersburg, Florida; Salem Virginia; Waterloo, Iowa;
and Reno, Nevada. Substantially all inventory resides at HSN's four
fulfillment centers prior to being offered for sale. Merchandise typically is
delivered to customers within 7 to 10 days of placing an order with HSC. HSN
currently operates several Unisys main frame computers and has extensive
proprietary data processing and order processing systems which facilitate the
timely delivery of merchandise to customers. HSN's computerized systems track
purchase orders, inventory, customer orders, shipping records, and customer
payments.
To facilitate merchandise orders by its customers, HSC installed a
state-of-the-art fiber optic telephone system and switching complex which was
developed for HSN. HSC also utilizes a computerized voice response phone
answering system (the "VRU System") capable of handling incoming sales calls.
The VRU System provides callers with the option to place their order by means
of touch tone input or to be transferred, in the case of new members or if the
customer requires personal service, to an operator.
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Competition-HSN. HSN operates in a highly competitive environment.
It is in direct competition with businesses which are engaged in retail
merchandising and competes most intensely with other electronic retailers,
direct marketing retailers such as mail order companies, companies that sell
from catalogs, and other discount volume retail outlets and companies that
market through computer technology. HSN also competes for access to its
customers with broadcasters and alternative forms of entertainment and
information, such as programming for network and independent broadcast
television stations, basic and pay cable television services, satellite master
antenna systems, HSD's and home entertainment centers. In particular, the
price and availability of programming for cable television systems affects the
availability of these channels for HSN's programs and the compensation which
must be paid to the cable operators for carriage of HSC programming. In
addition, HSN believes that due to a number of factors, including the
development by cable operators of alternative sources of cable operator owned
programming, the competition for channel capacity has substantially increased.
With the advent of new compression technologies on the horizon, this
competition for channel capacity may substantially decrease, although
additional competitors may have the opportunity to enter the marketplace. No
predictions can be made with respect to the viability of these technologies or
the extent to which they will ultimately impact the availability of channel
capacity.
HSN was the first specialty retailer to market merchandise by means of
live, nationally televised sales programs. There are other companies, some
having an affiliation or common ownership with cable operators, that now market
merchandise by means of live television. A number of other entities are
engaged in direct retail sales businesses which utilize television in some form
and which target the same markets in which HSN operates. Some of HSN's
competitors are larger and more diversified than HSN, or are affiliated with
cable operators which have a substantial number of subscribers. HSN cannot
predict the degree of success with which it will meet competition in the
future.
In addition to the above factors, HSN's affiliation with broadcast
television stations creates another set of competitive conditions. These
stations compete for television viewers primarily within the local markets.
HSN's affiliated broadcast television stations are located in highly
competitive markets and compete against both VHF and UHF stations. Due to
technical factors, a UHF television generally requires greater power and a
higher antenna to secure substantially the same geographical coverage as a VHF
television station. Under present FCC regulations, additional UHF commercial
television broadcasting stations may be operated in all such markets, with the
possible exception of New York City. HSN cannot quantify the competitive
effect of the foregoing or any other sources of video programming on any of
HSN's affiliated television stations, nor can it predict whether such
competition will have a material adverse effect on its operations.
In summary, HSN operates in a highly competitive environment in which,
among other things, technological change, changes in distribution patterns,
media innovations, data processing improvements and new entrants make the
competitive position of both HSN and its competitors extremely difficult to
predict.
Effect on HSN of the 1992 Cable Act. Among the many provisions of the
1992 Cable Act is one that mandates that cable systems carry the signals of
local commercial television stations ("must carry") or, at the station's
option, that cable systems and television stations negotiate a fee to be paid
by cable systems for the retransmission by such cable systems of the local
television stations broadcast signal. See Federal Regulation-Programming
Companies above. HSC's full-time broadcast affiliates have all requested "must
carry" status in lieu of a retransmission fee.
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In July 1993, the FCC ruled that stations predominantly used for the
transmission of sales presentations or program-length commercials operate in
the public interest and are entitled to "must carry" status. A petition for
reconsideration of the FCC's ruling currently is pending before the FCC. HSN
has filed in opposition to that petition. In addition, the limitation on
carriage of affiliated programming entities, discussed in Federal
Regulation-Programming Companies above, may limit carriage of HSN's programming
services on certain systems of cable operations affiliated with the Company.
In April 1993, a decision by the United States District Court for the
District of Columbia upheld the constitutional validity of the mandatory signal
carriage requirements of the 1992 Cable Act. On appeal, in a multi-opinion
decision released on June 27, 1994, the Supreme Court vacated the District
Court decision and remanded the case to the District Court to permit the
development of a full factual record concerning the need for "must carry".
Pending judicial resolution, the "must carry" rules remain in effect.
Therefore, HSN 2 programming carried by HSC's broadcast affiliates generally is
being transmitted by cable operators located within the broadcast markets. As
a result of "must carry", HSC has experienced increased cable distribution of
its programming due to an increase in the number of cable systems that carry
HSC programming.
In November 1994 the FCC issued, pursuant to the 1992 Cable Act,
"going forward" rules regarding the fees cable operators can impose upon
subscribers for new programming. The going forward rules provide that cable
operators can increase the charges to subscribers due to increases in external
programming costs. The cable operator must offset these increases by revenues
it receives from all sources other than advertising. As a revenue provider to
the cable operator, this ruling may have an adverse effect on HSN's ability to
seek and maintain new cable carriage. HSN has filed a Petition for
Reconsideration asking that shop-at-home programming revenues be excluded from
the cable operator's external cost adjustment.
In September 1993, the FCC adopted a Notice of Inquiry initiating a
proceeding to evaluate the commercial programming practices of broadcast
television stations (including stations with shop at home formats) and seeking
comment on whether the public interest would be served by establishing limits
on the amount of commercial matter broadcast by television stations. The FCC
has received comments and reply comments. Although the FCC is only seeking
comments at this time and has not made any proposals to limit the amount of
commercialization on television stations, there can be no assurance whether or
when such proposals will be forthcoming, what the nature of such proposals
might be, whether they will be implemented, and thus what impact, if
implemented, they would have on HSN.
QVC
The Company owns a 42.6% interest in QVC. The remaining 57.4% of QVC
is owned by Comcast, which manages the day-to-day operations of QVC.
QVC markets and sells a wide variety of consumer products and services
primarily by means of its televised shopping programs, known as "QVC" and "Q2".
As of December 31, 1994, QVC's programs were being transmitted by cable
television systems on a full-time basis to approximately 47 million subscribers
and on a part-time basis to approximately 3.1 million subscribers. Cable
television system operators that have entered into affiliation agreements with
QVC carry its programming as part of their basic service and pursuant to such
agreements receive from QVC 5% of net sales of merchandise sold to customers
located in the cable operator's service area. QVC is also a joint venturer in
the operation of Mexican and British televised shopping programs. QVC faces
most of the same competitive factors that HSN does, described above under
Competition-HSN.
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Other Assets
Silver King Communications, Inc. The Stations serve eight of the 12
largest metropolitan television markets in the United States. As of December
31, 1994, the Stations reached approximately 28 million households, which is one
of the largest audience reaches of any owned and operated independent
television broadcast group in the United States. In addition to the HSC
programming, the Stations broadcast advertising inserts, issue-responsive
programming, children's programming, ethnic, information and/or religious
programming and public service announcements. At December 31, 1994, SKC held
options to purchase 5 additional LPTV stations and held construction permits
for 2 additional LPTV stations.
On February 11, 1993, the Company entered into an Option Agreement
with RMS Limited Partnership ("RMS") pursuant to which the Company had the
right to purchase 2,000,000 shares of the Class B Common Stock of SKC at $1.00
per share. On September 23, 1994, the Company and RMS entered into an
Amendment to the Option Agreement which, among other things, extended the
exercise period of the option to February 11, 1999, and increases the exercise
price by $0.25 each year with the final exercise price from February 12, 1998
to February 11, 1999 being $2.25. The current option exercise price is $1.50.
Upon exercise of the option, the Company would control SKC by virtue of the
voting power of the SKC Class B Stock.
It is a condition to the exercise of the option that the Company or
its assignee receive all necessary FCC and other approvals prior to the
exercise. As of the date hereof, the Company has not filed any application for
the consent of the FCC to any such transfer. Under present FCC rules it is
unlikely that the Company will be able to obtain the consent of the FCC with
respect to the exercise of its options because of the Company's ownership of
certain cable television assets. However, FCC rules and regulations do permit
certain types of noncontrolling direct and indirect interests in SKC to be held
by the Company. If the Company is unable to obtain consent to exercise the
option, the Company may assign the option to a third party.
Transmission of TBS SuperStation ("WTBS"). Through its wholly owned
subsidiary Southern Satellite Systems, Inc. ("Southern") and Southern's wholly
owned subsidiary, Royal Communications, Inc. ("Royal"), the Company transmits
the signal of WTBS, a 24-hour independent UHF television station originated by
TBS to cable television system operators and operators of other non-broadcast
distribution media who receive the signal on their earth stations and offer the
service to their subscribers. Southern also makes the WTBS signal available to
HSD owners through program packagers. A substantial portion of Southern's
consolidated revenue for calendar year 1994 was derived from the HSD market.
No payment to TBS is required for the transmission by Southern of the WTBS
signal. See Federal Regulation-Southern below. At December 31, 1994, Southern
(and Royal) transmitted WTBS for reception by an estimated 59.4 million homes
throughout the United States, Puerto Rico, the United States Virgin Islands,
and Canada. Cable and other operators pay Southern a per-subscriber fee for
this service, generally pursuant to written affiliation agreements, the
expiration dates of which range from 1995 to 2004.
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Competition-Southern. Although Southern is currently the sole
satellite carrier of WTBS, other independent television stations are
transmitted by other carriers. Southern does not have an agreement with TBS
with respect to the retransmission of the WTBS signal and there are no specific
statutory or regulatory restrictions that would prevent any satellite carrier
from transmitting the WTBS signal so long as the carrier meets the passive
carrier requirements of the Copyright Act, as amended and any applicable
requirements of the Communications Act of 1934, as amended, or, if the carrier
serves HSD owners, so long as the carrier meets the requirements of the
Satellite Home Viewer Act of 1988 (the "SHV Act"). Further, Southern has no
control over the programming on such station. TBS produces and distributes
other cable programming services, including "TNT", a basic cable entertainment
service, and TBS has and may be expected to continue to give priority to the
programming needs of such services in allocating programming owned by it or to
which it has national distribution rights. Southern's business could be
adversely affected by any change in the type, mix or quality of the programming
on WTBS that results in the service being less desirable to cable operators and
their subscribers. TBS derives significant revenue from the sale of
advertising time on WTBS, however, and the Company therefore believes that TBS
has an economic incentive to maintain the audience appeal of WTBS's
programming.
Federal Regulation-Southern. Southern markets the WTBS signal through
program packagers to HSD owners. Pursuant to the SHV Act, Congress granted a
compulsory copyright license to satellite carriers retransmitting the broadcast
signals of "superstations", such as WTBS, and network stations to the public
for private home viewing. In 1994, Congress extended this license until
December 31, 1999. Pursuant to the provisions of the SHV Act, on May 1, 1992
the Copyright Royalty Tribunal ("CRT") adopted an increase in the compulsory
license fees for the HSD market effective January 1, 1993, which Congress has
extended through July 1, 1997, thus increasing Southern's copyright payment by
17%. New fees after July 1, 1997, will be determined either through
negotiations with the copyright owners of the signals being carried or, if no
agreement can be reached, by an arbitration panel conducted under the auspices
of the Copyright Office.
Copyright Regulations. The Copyright Act provides cable television
operators with a compulsory copyright license for retransmission of broadcast
television programming without having to negotiate program rights with the
stations or individual copyright owners. However, see Regulation of Carriage
of Broadcast Stations above, regarding the imposition of retransmission consent
for broadcast stations. Therefore, cable systems that carry distant broadcast
signals, such as WTBS, must pay royalty fees to the Register of Copyrights, the
amount of which is based upon a formula utilizing the amount of the system's
semi-annual gross receipts and the number and type of distant signals carried
by the system. Any increases in the required fees could adversely affect the
competitive position of WTBS and therefore, Southern. The Copyright Act
empowers the Copyright Office to review periodically and adjust copyright
royalty rates based on inflation and/or petitions for adjustments due to
modifications of FCC rules. Further, the FCC has recommended to Congress the
abolition of the compulsory license for cable television carriage of broadcast
signals, a proposal that has received substantial support from members of
Congress. If the compulsory license is abolished, Southern would not be
permitted to distribute WTBS to cable operators unless the cable operator and
the copyright owners or licensees of the programming contained on the WTBS
signal being retransmitted reach an agreement for the licensing of such
programming.
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Southern is not permitted to provide the WTBS signal to HSD owners
under the separate compulsory license extended to cable systems. Under
regulations adopted by the Copyright Office, satellite carriers such as
Southern are not "cable systems" within the meaning of the Copyright Act. In
1994, the United States Court of Appeals for the Eleventh Circuit upheld such
regulations in an action challenging their validity brought by Southern and
other satellite carriers, and the Supreme Court declined to review that
decision. Thus, if the license granted under the SHV Act is not further
extended, satellite carriers will be required to negotiate private licenses for
the retransmission of copyrighted material to HSD owners after 1999.
Syndicated Exclusivity. The FCC's syndicated exclusivity rules, which
became effective January 1, 1990, require cable systems with more than 1,000
subscribers to delete programming from distant broadcast signals if exclusive
local broadcast rights to such programming have been purchased by a television
station which broadcasts in the locale of the cable system and such station
requests the cable system to "black out" such programming. These rules could
lead to cable operators dropping distant broadcast signals from their systems
because of the administrative difficulty of providing for the blackout and
because the service may be less attractive to subscribers if a material portion
of its programming were blacked out. Although such rules could therefore
result in additional channels becoming available for certain of the Programming
Companies' services, they could have an adverse effect on Southern's business
if WTBS were to carry a material amount of programming subject to deletion.
TBS has stated that it is programming WTBS to avoid blackouts and that, because
it has a reasonable basis for believing that deletions of its programming will
not be required, it is offering, as permitted by the FCC, to indemnify cable
operators that carry WTBS in order to ensure that its programming is not
blacked out. Southern cannot control TBS's programming decisions with respect
to WTBS, nor can it predict what the long-term response of the cable television
industry will be to the syndicated exclusivity rules.
An FCC license is also required to construct and operate the uplinking
equipment which transmits program signals to satellites. The FCC has granted a
license to Southern for its uplink of the WTBS signal and licenses for a
terrestrial path which carries the signal from the TBS facilities to the uplink
facilities, which licenses Southern has assigned to LMC SatCom, Inc.
Satellite carriers, including carriers like Southern that lease
transponders from others rather than owning a satellite, may provide their
services as a private carrier and/or as a common carrier. Common carriers are
required, pursuant to the Communications Act, to provide services on terms and
conditions that are just, reasonable and non-discriminatory. The FCC does not
set the rates charged by non-dominant common carriers. However, the United
States Court of Appeals for the District of Columbia Circuit in AT&T Co. v. FCC
has invalidated the FCC's permissive de-tariffing rules for non-dominant
carriers and its streamlined tariff filing rules for such carriers.
Consequently, even non-dominant carriers are required to file tariffs pursuant
to the FCC's rules. Private carriers are subject to a lesser degree of
regulation by the FCC. The Copyright Act exempts any carrier from liability
for copyright infringement in delivering television broadcast signals to cable
television systems if it meets the passive carrier requirements of the
Copyright Act.
Netlink USA ("Netlink"). Netlink markets and distributes programming
to the United States HSD subscriber market. As of December 31, 1994,
approximately 380,000 HSD owners, or 18% of the estimated authorized HSD
subscriber market subscribed to programming through Netlink. Netlink acquires
rights from programmers to market various satellite-transmitted programming,
including services such as ESPN, CNN, HBO, WTBS (which it purchases from
Southern) and the Discovery Channel, to HSD owners. Netlink offers HSD owners
various packages of programming for monthly, quarterly or annual subscription
periods.
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In addition, Netlink uplinks and sells the signals of nine broadcast
television stations to other HSD packagers and marketers in the United States
and, through Netlink International, in Canada. As of December 31, 1994,
approximately 500,000 HSD households subscribed to one or more of such stations
through HSD packages offered by Netlink and other HSD packaging and marketing
companies. The other HSD packaging and marketing companies pay Netlink a fee
for the right to distribute these services to their customers.
Competition - Netlink. Netlink competes with several large HSD
program packagers, some of which are affiliated with well-known, large
programmers and cable television system operators. Because a significant
portion of Netlink's sales are generated through HSD dealers, Netlink also
competes for dealer relationships on the basis of commission rates and quality
of service offered to the dealer and its customers. In addition, the HSD
market faces competition from cable television as well as emerging technologies
such as DBS services, which were launched in 1994. DBS uses higher power
Ku-Band frequencies that can be received by significantly smaller, and possibly
less expensive, hardware than HSDs that receive C-Band frequencies. Because of
the smaller dish size, DBS may be more widely accepted than HSD systems in
urban markets. Although the Company is unable to predict the effects of DBS
competition, the Company believes that for the foreseeable future more
programming will be available for the HSD market than DBS because programming
for cable television systems is transmitted on C-Band frequencies. While HSD
C-Band dishes can be equipped to receive Ku-Band frequencies, small DBS dishes
cannot reliably receive C-Band frequencies. Given the initial investment costs
of an HSD system, the Company believes that a significant portion of current
HSD owners will continue to use HSD services rather than invest in a DBS
system.
Netlink leases nine satellite transponders on an "unprotected" or
"transponder unprotected" basis on two separate communications satellites.
Netlink has "seniority status" on such satellite transponders which results in
Netlink having favorable ranking should transponders be required to restore a
"protected" service.
GENERAL
Legislative, administrative and/or judicial action may change all or
portions of the foregoing statements relating to competition and regulation.
The Company has not expended material amounts during the last three
fiscal years on research and development activities.
There is no one customer or affiliated group of customers to whom
sales are made in an amount which exceeds 10% of the Company's consolidated
revenue.
Compliance with Federal, state and local provisions which have been
enacted or adopted regulating the discharge of material into the environment or
otherwise relating to the protection of the environment has had no material
effect upon the capital expenditures, results of operations or competitive
position of the Company.
At December 31, 1994, the Company had approximately 32,000 employees,
the majority of which are employees of TCI Communications, Inc. Of these
employees, approximately 666 were located in its corporate headquarters
and most of the balance were located at the Company's various facilities
in the communities in which the Company owns and/or operates cable
television systems or programming services.
(d) Financial Information about Foreign & Domestic Operations and Export
Sales
The Company has neither material foreign operations nor export sales.
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Item 2. Properties.
The Company owns its executive offices in a suburb of Denver,
Colorado. It leases most of its regional and local operating offices. The
Company owns many of its head-end and antenna sites. Its physical cable
television properties, which are located throughout the United States, consist
of system components, motor vehicles, miscellaneous hardware, spare parts and
other components. The Company's programming subsidiaries generally own their
production and transmitting equipment and facilities.
The Company's cable television facilities are, in the opinion of
management, suitable and adequate by industry standards. Physical properties
of the Company are not held subject to any major encumbrance.
Item 3. Legal Proceedings.
There are no material pending legal proceedings to which the Company
is a party or to which any of its property is subject, except as follows:
On September 30, 1994, an action captioned The Carter Revocable Trust
by H. Allen Carter and Sharlynn Carter as Trustee v. Tele-Communications,
Inc.; IR-Daniels Partners III; Daniels Ventures, Inc.; Cablevision Equities IV;
Daniels & Associates, Inc.; and John V. Saeman, 94-N-2253, was filed in the
United States District Court for the District of Colorado. The suit alleges
that all the defendants violated disclosure requirements under the Securities
Exchange Act of 1934, and that defendants IR-Daniels Partners III (now known as
IR-TCI Partners III"), Daniels Ventures, Inc. (now known as TCI Ventures, Inc.)
and Daniels & Associates, Inc. (now known as TCI Cablevision Associates, Inc.
or "D&A") breached a fiduciary duty to plaintiff and other limited partners of
American Cable TV Investors 3 (the "ACT 3 Partnership"), in connection with (i)
the sale to TCI Communications, Inc. of ACT 3 Partnership's ownership interest
in the Redlands System and (ii) the sale to affiliates of TCIC of ACT 3
Partnership's ownership interests in other cable television systems (the "ACT 3
Transactions").
Plaintiff brings this action on behalf of himself and purports to
bring it as a class action on behalf of all persons who were limited partners
(the "ACT 3 Limited Partners") of the Partnership as of the close of business
on October 1, 1993 and who had their proxies solicited by the defendants in
connection with the ACT 3 Transactions that allegedly "resulted in the
dissolution of the ACT 3 Partnership and the loss of their limited partnership
interests."
Plaintiff seeks unspecified damages that allegedly include, but are
not limited to (i) the difference between the value of ACT 3 Partnership's
interest in the Redlands System (as a percentage of the appraised value of that
system as determined by a 1992 appraisal) and the amount paid by TCIC for the
ACT 3 Partnership's interest in the Redlands System, plus the amount of a fee
paid to D&A, and (ii) the difference between the fair market value of the
limited partnership interests owned by members of a putative class and value
received by members of the putative class pursuant to the ACT 3 Transactions.
Plaintiff also seeks interest and consequential damages.
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The defendants have moved to dismiss various claims asserted in the
complaint and plaintiff has opposed such motions. Discovery on the issue of
class certification is underway and merits discovery is scheduled to commence
on or after April 11, 1995. The defendants believe that the claims asserted
are without merit and intend to vigorously defend this action. Management of
the Company believes that, although no assurance can be given as to the outcome
of this action, the ultimate disposition should not have a material adverse
effect upon the financial condition of the Company.
On September 30, 1994, an action captioned WEBBCO v.
Tele-Communications, Inc.; IR-Daniels Partners II; Daniels Ventures, Inc.;
Cablevision Equities III; Daniels & Associates, Inc.; and John V. Saeman,
94-N-2254, was filed in the United States District Court for the District of
Colorado. The suit alleges that all the defendants violated disclosure
requirements under the Securities Exchange Act of 1934, and that defendants
IR-Daniels Partners II (now known as IR-TCI Partners II"), Daniels Ventures,
Inc. (now known as TCI Ventures, Inc.) and D&A breached a fiduciary duty to
plaintiff and other limited partners of American Cable TV Investors 2 (the "ACT
2 Partnership"), in connection with the sale to TCIC of ACT 2 Partnership's
ownership interest in the Redlands System (the "ACT 2 Transaction").
Plaintiff brings this action on behalf of himself and purports to
bring it as a class action on behalf of all persons who were limited partners
(the "ACT 2 Limited Partners") of the ACT 2 Partnership as of the close of
business on October 1, 1993 and who had their proxies solicited by the
defendants in connection with the ACT 2 Transaction that allegedly "resulted in
the dissolution of the ACT 2 Partnership and the loss of their limited
partnership interests."
Plaintiff seeks unspecified damages that allegedly include, but are
not limited to (i) the difference between the value of ACT 2 Partnership's
interest in the Redlands System (as a percentage of the appraised value of that
system as determined by a 1992 appraisal) and the amount paid by TCIC for ACT 2
Partnership's interest in the Redlands System, plus the amount of a fee paid to
D&A, and (ii) the difference between the fair market value of the limited
partnership interests owned by members of a putative class and value received
by members of the putative class pursuant to the ACT 2 Transaction. Plaintiff
also seeks interest and consequential damages.
The defendants have moved to dismiss various claims asserted in the
complaint and plaintiff has opposed such motions. Discovery on the issue of
class certification is underway and merits discovery is scheduled to commence
on or after April 11, 1995. The defendants believe that the claims asserted
are without merit and intend to vigorously defend this action. Management of
the Company believes that, although no assurance can be given as to the outcome
of this action, the ultimate disposition should not have a material adverse
effect upon the financial condition of the Company.
Intellectual Property Development Corporation v. UA-Columbia
Cablevision of Westchester, Inc. and Tele-Communications, Inc. On September 1,
1994, plaintiff filed suit in federal court in New York for the alleged
infringement of a patent for an invention used in broadcasting systems with
fiber optic transmission lines. Plaintiff seeks injunctive relief and
unspecified treble damages. Based upon the facts available, management
believes that, although no assurance can be given as to the outcome of this
action, the ultimate disposition of this action should not have a material
adverse effect upon the financial condition of the Company.
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QVC Shareholders Litigation. In July 1994, eight putative class
action lawsuits were filed by certain shareholders of the company in the
Delaware Court of Chancery on behalf of unspecified classes of holders of QVC
common stock. On August 3, 1994, these actions were consolidated under the
caption In re QVC Shareholders Litigation, Consolidated Civil Action No. 13590
(Court of Chancery, New Castle County, State of Delaware) (the "Consolidated
Action"). The defendants named in the designated complaint in the Consolidated
Action included QVC and its then directors (Barry Diller, Bruce R. Ramer, Linda
J. Wachner, William F. Costello, J. Bruce Llewellyn, Brian L. Roberts, Ralph J.
Roberts and Joseph M. Segal). In their designated complaint in the
Consolidated Action, plaintiffs alleged, among other things, that the QVC
directors breached their fiduciary duties by failing to take all possible steps
to seek out and encourage the best offer for QVC following the announcement by
Comcast of a merger proposal to acquire QVC. Plaintiffs sought, among other
things, an injunction ordering the defendants to auction QVC and an award of
unspecified damages to the members of the plaintiff class. On July 22, 1994,
Comcast and Liberty made a merger proposal to QVC in order to acquire the
remaining shares of QVC common stock that Comcast and Liberty collectively did
not already own.
During early August 1994, counsel for the plaintiffs in the
Consolidated Action advised counsel for Liberty that they were preparing to
amend the designated complaint to name Comcast and Liberty as defendants. On
August 3-4, 1994, plaintiffs' counsel negotiated with counsel for Liberty with
respect to a proposed increase in the consideration to be paid to QVC's public
shareholders as well as the accelerated payment of such consideration, as bases
for the possible settlement of the Consolidated Action. On August 5,
plaintiffs, defendants, Comcast and Liberty executed a memorandum of
understanding which contemplates the settlement and dismissal with prejudice of
the Consolidated Action. On August 4, 1994, Comcast, Liberty, QVC Programming
Holdings, Inc. and the company executed a merger agreement which, among other
things, reflected the parties' agreement to the terms and transactions
contemplated by the memorandum of understanding. On August 19, 1994, as
contemplated by the memorandum of understanding, plaintiffs filed a
consolidated amended class action complaint with the Delaware Court of Chancery
against QVC, the company's directors, Comcast and Liberty.
The proposed settlement of the Consolidated Action is subject to
numerous conditions set forth in the memorandum of understanding and, if
approved by the Delaware Court of Chancery, would result in a dismissal with
prejudice of the Consolidated Action, and a complete release of all claims,
known or unknown, arising out of or related to the acts, transactions or
occurrences that are alleged in the Consolidated Action. Defendants in the
Consolidated Action have entered into the memorandum of understanding and are
proposing to enter into the stipulation of settlement for the Consolidated
Action solely because the proposed settlement would eliminate the distraction,
burden and expense of the litigation. Based upon the facts available,
management believes that, although no assurance can be given as to the outcome
of this action, the ultimate disposition should not have a material adverse
effect upon the financial condition of the Company.
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In re Liberty Media Corporation Shareholders Litigation, Cons. C.A.
No. 13168 (Del. Ch.): In October 1993, after the announcement that Liberty
would recombine with TCI through the mergers of TCIC and Liberty with
subsidiaries of a newly formed holding company, seven putative class action
lawsuits were filed by Liberty stockholders in the Court of Chancery of the
State of Delaware (the "Delaware Chancery Court") on behalf of unspecified
classes of the holders of Liberty common stock (other than defendants). The
original defendants included certain directors of Liberty (Bob Magness, John C.
Malone, Peter R. Barton, H.F. Lenfest, Robert L. Johnson and Paul A. Gould),
Liberty and TCI. These actions were consolidated by the Delaware Chancery
Court on October 27, 1993 under the caption In re Liberty Media Corporation
Shareholder Litigation, Cons. C.A. No. 13168 (the "Liberty Stockholder
Action"). On December 21, 1994, plaintiffs were permitted by the Delaware
Chancery Court to file a second consolidated amended complaint against the
defendants named in the pending complaint and Liberty directors David Wargo and
David Rapley. The pending complaint is on behalf of a putative class
consisting of all holders of Liberty common stock (except the defendants and
their affiliates) from and after October 7, 1993 through the date of the
TCI/Liberty Combination. Plaintiffs allege that the Liberty stockholders
received inadequate consideration in the TCI/Liberty Combination, that the
defendants impeded the ability of third parties to seek to acquire Liberty, and
that the defendants failed to conduct an auction or market check following the
announcement of the proposed TCI/Liberty Combination. Plaintiffs seek to
rescind the TCI/Liberty Combination, to require defendants to take all
appropriate steps to enhance Liberty's value as an acquisition candidate, to
account to the plaintiff class for all profits obtained by defendants, and to
require defendants to pay unspecified damages to the plaintiff class. The case
remains pending before the Delaware Chancery Court. Discovery has commenced in
the action. Management of the Company believes that plaintiffs' complaint is
without merit, and intends to contest vigorously the plaintiffs' allegations.
Based upon the facts available, management believes that, although no assurance
can be given as to the outcome of this action, the ultimate disposition should
not have a material adverse effect upon the financial condition of the Company.
In re Home Shopping Network, Inc. Shareholders Litigation, Cons. C.A.
No. 12868 (Del. Ch.): Following the announcement in February 1993 by Liberty
of a merger proposal to acquire Home Shopping Network, Inc. ("HSN"), eight
complaints were filed with the Delaware Chancery Court on behalf of unspecified
classes of HSN stockholders (other than defendants). Pursuant to orders
approved by the Delaware Chancery Court on February 19, 1993 and March 15,
1993, the eight actions were consolidated for all purposes under the caption In
re Home Shopping Network, Inc. Shareholders Litigation, Cons. C.A. No. 12868
(the "HSN Stockholder Action"). The defendants in the action have included
Liberty, Liberty Program Investments, Inc. ("LPI"), John C. Malone, Peter R.
Barton, Robert R. Bennett and John M. Draper (collectively the "Liberty
Defendants"), Roy M. Speer, RMS Limited Partnership ("RMS"), Gerald F. Hogan,
Les R. Wandler, J. Anthony Forstmann, John J. McNamara, QVC, Inc. ("QVC") and
HSN. Plaintiffs originally alleged that the February 1993 merger proposal by
Liberty to acquire HSN was fundamentally unfair to the public stockholders of
HSN, that the consideration in the Liberty merger proposal did not represent
the fair value of HSN stock, and that the HSN directors breached their
fiduciary duties in responding to the Liberty merger proposal. In addition,
plaintiffs alleged that Roy M. Speer and RMS breached their fiduciary duties to
the HSN stockholders in approving and consummating the sale to Liberty in
February 1993 of a majority of the HSN voting stock, and that Liberty aided and
abetted their supposed breach of fiduciary duty. Plaintiffs sought an
injunction against the consummation of the Liberty merger proposal, unspecified
money damages, and to rescind the sale of HSN stock by RMS to Liberty.
Following Liberty's withdrawal on April 9, 1993 of its merger proposal to HSN
and Liberty's announcement on April 23, 1993 of a partial tender offer to
purchase additional shares of HSN stock (the "Liberty Tender Offer"), the
complaint in the HSN Stockholder Action was amended on April 26, 1993. The
amended and supplemental complaint included the additional allegations that,
among other things, the Liberty Tender Offer was coercive and contained an
unfair price, that
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the HSN directors breached their fiduciary duties in responding to the Liberty
Tender Offer, and that Liberty's disclosures in its tender offer circular were
false and misleading. Plaintiffs sought, among other relief, an injunction
preventing consummation of the Liberty Tender Offer, an order enjoining the
defendants from taking any action to eliminate the supposedly separate class
voting rights of the holders of HSN common stock on any business combination
involving the company, and unspecified money damages.
Following expedited discovery and a hearing, the Delaware Chancery
Court issued an opinion on May 19, 1993 denying plaintiffs' motion to enjoin
the Liberty Tender Offer. The Liberty Tender Offer closed on May 20, 1993. On
June 6, 1993, plaintiffs in the HSN Stockholder Action filed a second amended
and supplemental complaint, which among other things set forth additional
allegations against Liberty regarding its supposed failure to disclose material
information in connection with the Liberty Tender Offer. Plaintiffs further
alleged that HSN issued a misleading Schedule 14D-9 in response to the Liberty
Tender Offer. On July 12, 1993, after QVC made a merger proposal to HSN,
plaintiffs in the HSN Stockholder Action filed a third consolidated amended and
supplemental class action complaint which added QVC as an additional defendant
and which contained additional allegations that the financial terms of the
proposed merger between HSN and QVC were unfair to the HSN stockholders. QVC
withdrew its merger proposal to HSN on November 5, 1993. On November 16, 1994,
plaintiffs and all defendants entered into a stipulation in connection with a
contemplated settlement of the HSN Stockholder Action, as well as the Section
203 Action and the Delaware Federal Action (as defined below) which is
described more fully below. In accordance with the parties settlement
stipulation, the Delaware Chancery Court dismissed the HSN Stockholders Action
on January 24, 1995. This represents the final resolution of this matter, and,
accordingly, this case will not be reported in future filings. See "Settlement
Of Delaware Actions."
7547 Corp. v. Liberty Media Corporation: Following Liberty's
announcement of a partial tender offer to purchase additional shares of HSN
stock, on April 26, 1993, four HSN stockholders commenced an action in the
Delaware Chancery Court on behalf of an unspecified class of HSN stockholders
(other than defendants) (the "Section 203 Action"). The defendants included
Liberty, LPI, HSN, Roy M. Speer, Les R. Wandler, Franklin J. Chu, J. Anthony
Forstmann, Thomas A. James, John J. McNamara, William J. Ramsey and Michael V.
Roberts. Plaintiffs alleged that, upon the agreement in principle in December
1992 by Liberty to purchase from an affiliate of Roy M. Speer a majority of the
HSN voting stock (the "Agreement in Principle"), Liberty became a non-exempt
"interested stockholder" of HSN within the meaning of Section 203 of the
Delaware General Corporation Law ("Section 203"). Plaintiffs contended that,
as a supposedly non-exempt "interested stockholder" of HSN, Liberty engaged in
a prohibited "business combination" within the meaning of Section 203 by
purchasing additional shares of HSN stock through the Liberty Tender Offer.
Plaintiffs also asserted that Liberty's offer to purchase in the Liberty Tender
Offer contained certain misrepresentations and omissions. Plaintiffs sought
declaratory and injunctive relief, unspecified money damages and an injunction
prohibiting Liberty from engaging in any "business combination" as defined in
Section 203 until December 1995. Following expedited discovery and a hearing,
the Delaware Chancery Court issued an opinion on May 19, 1993 denying
plaintiffs' motion to enjoin the closing of the Liberty Tender Offer. The
Liberty Tender Offer closed on May 20, 1993. On May 11, 1994, the Liberty
defendants in the Section 203 Action filed their answer to plaintiffs'
complaint which denied plaintiffs' allegations of wrongdoing and raised certain
affirmative defenses.
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On June 24, 1994 plaintiffs in the Section 203 Action filed an amended
complaint which, in addition to the person and entities named as defendants in
the original complaint, named Barton, Bennett, Draper, Hogan, Malone, Leo J.
Hindery and George C. McNamee as defendants. The persons named as additional
defendants in the amended complaint are past or present directors of HSN who,
in addition to certain of the original defendants, allegedly committed or aided
and abetted the alleged wrongdoing.
The gravamen of the amended complaint in the Section 203 Action was
that, prior to the time when Liberty reached an understanding with RMS on
December 4, 1992, to allow Liberty to purchase a controlling equity interest in
HSN, the HSN Board and the HSN Executive Committee allegedly failed to approve
the proposed transaction and, thereby, failed under Section 203(a)(1) to exempt
Liberty from the restrictions under Section 203 on any "business combination"
with HSN. Plaintiffs asserted that upon realizing that the HSN Board failed on
December 4, 1992, to exempt Liberty from the restrictions of Section 203, HSN
created a record of (i) a supposed meeting of the HSN Executive Committee on
December 4, 1992, which never occurred; and (ii) purported action by the HSN
Executive Committee at the allegedly fictional meeting on December 4, 1992, to
exempt Liberty from the restrictions of Section 203. The amended complaint in
the Section 203 Action also alleged that, by asserting that Liberty was exempt
from Section 203, Liberty and the other defendants allegedly misrepresented a
material fact to all sellers of HSN shares after the public announcement of the
Agreement in Principle on December 7, 1992 (including the members of the Tender
Subclass), as well as to the present holders of HSN shares. Plaintiffs also
alleged that the Liberty Tender Offer constituted a prohibited "business
combination" under Section 203.
Plaintiffs in the Section 203 Action further asserted that the members
of the HSN Executive Committee (Speer, Wandler and Ramsey) had disabling
conflicts of interest which prevented the HSN Executive Committee from taking
effective action to exempt Liberty from the restrictions of Section 203. HSN
and the individual defendants allegedly aided and abetted Liberty in its
asserted scheme to misrepresent its status under Section 203. The individual
defendants also allegedly breached their fiduciary duties by failing to correct
Liberty's asserted misrepresentation of its exemption from Section 203.
Plaintiffs in the Section 203 Action sought a declaratory judgment that Liberty
is subject to Section 203, an award of damages to the plaintiff class members
who sold their HSN shares, and unspecified rescissionary and injunctive relief.
On November 16, 1994, plaintiffs and all defendants entered into a stipulation
in connection with a contemplated settlement of the Section 203 Action, as well
as the HSN Stockholder Actions and the Delaware Federal Action (as defined
below), which is described more fully below. In accordance with the parties'
settlement stipulation, the Delaware Chancery Court dismissed the Section 203
Action on January 27, 1995. This represents the final resolution of this
matter, and, accordingly, this case will not be reported in future filings.
See "Settlement Of Delaware Actions."
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Gerda Bartnik, et al. v. Home Shopping Network, Inc. et al., C.A. Nos.
93-336\347\406\480 (D. Del.) (the "Delaware Federal Action"): Following the
announcement on July 12, 1993 of a proposed merger between QVC and HSN, three
complaints were filed in the United States District Court for the District of
Delaware (the "Delaware Federal Court"). The three complaints were
consolidated by order of the Delaware Federal Court on September 14, 1993. On
December 16, 1993, three actions that had been filed in, consolidated by and
transferred from the United States District Court for the District of Colorado
were consolidated with the Delaware Federal Action. On February 15, 1994,
plaintiffs filed a consolidated and amended complaint. The action sought
unspecified damages on behalf of a putative class consisting of all purchasers
of HSN common stock prior to March 30, 1993 who thereafter sold such shares on
public exchanges prior to July 12, 1993 or in the Liberty Tender Offer. The
defendants included Liberty, LPI, John C. Malone, Peter R. Barton and Robert R.
Bennett, QVC, HSN, Gerald F. Hogan, J. Anthony Forstmann, John N. McNamara, Roy
M. Speer and Les R. Wandler. Plaintiffs alleged that, between March 30, 1993
and July 12, 1993, the Liberty Defendants failed to disclose their supposed
"plans and expectations" for a merger of HSN and QVC. Plaintiffs also alleged
that (i) defendants supposedly made misleading and overly negative disclosures
between April-July 1993 regarding the business activities and prospects of HSN
which had the effect of artificially depressing the price of HSN shares; (ii)
defendants allegedly misled sellers of HSN shares by failing to disclose
defendants' expectations regarding a July 1993 ruling by the Federal
Communications Commission which improved the business prospects of HSN; and
(iii) Liberty and HSN supposedly misled the HSN stockholders by making
incorrect disclosures (particularly in connection with the Liberty Tender
Offer) regarding Liberty's ability to control the HSN stockholder vote on
certain fundamental corporate transactions. Plaintiffs asserted that the
foregoing alleged acts and omissions violated the federal securities laws and
state law. On November 16, 1994, plaintiffs and all defendants entered into a
stipulation in connection with a contemplated settlement of the Delaware
Federal Action, as well as the HSN Stockholder Action and the Section 203
Action, which is described more fully below. In accordance with the parties'
settlement stipulation, the Delaware Federal Court dismissed the Delaware
Federal Action on January 24, 1995. This represents the final resolution of
this matter, and, accordingly, this case will not be reported in future
filings. See "Settlement Of Delaware Actions."
Consolidated Home Shopping Network, Inc. Shareholders Derivative
Action: In December 1992, two stockholder derivative actions were filed on
behalf of HSN in the United States District Court for the Middle District of
Florida, Tampa Division (the "Florida Federal Court"). The original defendants
included Roy M. Speer, Les R. Wandler, Franklin J. Chu, J. Anthony Forstmann,
Thomas A. James, John J. McNamara, Michael J. Ramsey, Michael V. Roberts and
HSN. On February 23, 1993, the Florida Federal Court granted a motion to
consolidate these lawsuits into a single action styled as 7457 Corp. v. Speer,
No. 92-1966-Civ-T-15A and No. 92- 2045-Civ-T-99C (the "Florida Derivative
Action"). On April 16, 1993, plaintiffs in the Florida Derivative Action filed
a consolidated amended complaint which added RMS, Richard Speer and Western
Hemisphere Sales, Inc. ("Western") as defendants. HSN is named as a nominal
defendant with respect to the two derivative claims in the amended complaint.
Plaintiffs also assert a claim that the individual defendants (other than Roy
M. Speer) are liable to an unspecified class of HSN stockholders because HSN's
proxy materials during 1991-1993 supposedly were false and misleading. The
derivative claims in the suit allege that the HSN director defendants breached
their duties to HSN and its stockholders by failing to exercise due care and
diligence in the management of HSN. Western and Richard Speer are alleged to
have aided and abetted such breaches. Plaintiffs also assert that Roy M. Speer
violated various legal duties by causing HSN to enter into certain commercially
unreasonable licensing, liquidations and other arrangements with Western
(collectively, the "R. Speer/Western Arrangements"), by paying a former HSN
executive unwarranted fees in exchange for the former executive's silence
concerning derivative allegations involving HSN and
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then shifting such fee obligations to HSN, and by causing HSN to purchase a
business of Western at a commercially unreasonable price. On May 24, 1993,
plaintiffs in the Florida Derivative Action filed a second amended consolidated
complaint naming Liberty and LPI as additional defendants. As to Liberty and
LPI, the second amended complaint seeks unspecified damages on behalf of an
unspecified class of HSN stockholders based on allegations that, among other
things, Liberty's offer to purchase HSN common stock in May 1993 failed to
disclose material information and otherwise violated the "going private" rules
under the federal securities laws (the "Liberty Class Claims"). The Florida
Derivative Action remains pending before the Florida Federal Court. On
February 8, 1994, the parties to the Florida Derivative Action (other than
Liberty and LPI) signed a memorandum of understanding (the "Florida Derivative
MOU") in connection with a contemplated settlement of the derivative claims and
class claims against HSN (the "Florida Derivative Settlement"). In the Florida
Derivative MOU, the parties agreed, in principle and subject to the approval of
the Florida Derivative Settlement by the Florida Federal Court as follows: (i)
Roy M. Speer will pay $2 million to HSN, as well as pay an additional $1
million to HSN in order to partially fund the proposed settlement of the
Florida Federal Actions (see "Florida Federal Securities Actions Against HSN");
and (ii) HSN will pay $4.5 million to Western in exchange for releases from the
R. Speer/Western Arrangements; (iii) the parties agreed to certain limitations
on the rights of Roy M. Speer to seek indemnification for the advancement of
expenses from HSN; (iv) HSN agreed to release any claim against Roy M. Speer,
RMS, Richard Speer and Western arising out of any action by any federal or
state taxing authority relating to the treatment of payments to Western
pursuant to the R. Speer/ Western Arrangements; (v) the parties agreed to
additional releases of potential claims against each other; and (vi) the
parties agreed to several supplemental agreements. In conjunction with the
Florida Derivative Settlement, HSN also has agreed to pay such attorneys' fees
as may be awarded by the Florida Federal Court to plaintiffs' counsel. The
Florida Derivative Settlement, as contemplated by the Florida Derivative MOU
and, if approved by the Florida Federal Court, would result in the dismissal
with prejudice of all claims in the Florida Derivative Action (other than the
Liberty Class Claims), and a complete release of all claims that have been or
could have been or in the future might be asserted by HSN against any of the
defendants based on the allegations, transactions, matters or occurrences,
representations or omissions set forth, referred or related in any way to the
complaints in the Florida Derivative Action. The contemplated settlement is
conditioned upon, among other things, the approval of the Florida Federal Court
following notice of the Florida Derivative Settlement to the stockholders of
HSN and a hearing before the Florida Federal Court on the fairness of the
Florida Derivative Settlement. On April 22, 1994, the Florida Federal Court
entered an order dismissing without prejudice the Liberty Class Claims.
Liberty believes that the Liberty Class Claims are barred as to the
contemplated plaintiff class in the Florida Derivative Action, under principles
of collateral estoppel and release because the Delaware Federal Court and the
Delaware Chancery Court approved the settlement and dismissal of the HSN
Stockholder Action and the Delaware Federal Action. This represents the final
resolution of this matter, and accordingly, this case will not be reported in
future filings. See "Settlement Of Delaware Actions."
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Settlement Of Delaware Actions. On November 16, 1994, plaintiffs and
all defendants in the HSN Stockholder Action, the Section 203 Action and the
Delaware Federal Action entered into a stipulation in connection with a
contemplated settlement of such actions (the "Delaware Settlement"). The
settlement of the HSN Stockholder Action and the Delaware Federal Action
(collectively, the "HSN/Federal Actions") was approved by the Delaware Chancery
Court and the Delaware Federal Court on January 24, 1995. In accordance with
the final orders approving the settlement of the HSN/Federal Actions, Liberty
created a $13.7 million settlement fund in full settlement of any and all
claims whatsoever which have been or could have been made in the HSN/Federal
Actions by any members of a plaintiff class (other than defendants) consisting
of (i) all record and beneficial owners of HSN common stock (the "HSN Shares")
from December 4, 1992 through and including November 5, 1993, (ii) all sellers
of HSN Shares in the Liberty Tender Offer; and (iii) all sellers of HSN Shares
from March 30, 1993 through and including July 12, 1993 (collectively, the
"Holder/Seller Class"). The Delaware Settlement provides that the net proceeds
of the settlement fund will be distributed to the members of the subsclasses in
subsections (ii) and (iii) of the preceding sentence (the "Seller Class
Members") in accordance with a method of loss calculation and a plan of
allocation and distribution which has been approved by the Delaware Courts.
The Delaware Settlement resulted in the dismissal with prejudice of the HSN
Stockholder Action and the Delaware Federal Action, and (subject to certain
exceptions) a complete release of all claims that have been, or could have
been, or in the future might be asserted by any member of the Holder/Seller
Class against any of the Settling Delaware Defendants in such actions based on
the allegations, transactions, matters or occurrences, representations or
omissions set forth, referred or related in any way to the complaints in the
HSN Stockholder Action and the Delaware Federal Action. The Liberty Defendants
have denied, and continue to deny, that they have committed or have threatened
to commit any violations of law or breaches of duty to the plaintiffs or any
member of the Holder/Seller Class. The Liberty Defendants agreed to settle the
HSN/Federal Actions solely because the settlement eliminated the distraction,
burden and expense of further litigation.
In approving the settlement and dismissal of the Section 203 Action on
January 27, 1995, the Delaware Court of Chancery certified a plaintiff class
consisting of all record or beneficial holders, purchasers or sellers of HSN
common stock from December 4, 1992 through December 4, 1995. In accordance
with the parties' settlement stipulation, the Delaware Court of Chancery
entered a final order dismissing with prejudice all claims which were, could
have been or in the future might be asserted by any member of the plaintiff
class relating in any manner to Liberty's purchase of HSN stock in exchange
for, among other things, the agreement by Liberty and HSN that, as defined in
Delaware antitakeover statute, the consummation of any "business combination"
prior to December 4, 1995 between HSN and Liberty or any of its "affiliates" or
"associates" shall be subject to the prior approval of the HSN board of
directors and the authorization at an annual or special meeting of the HSN
stockholders, and not by written consent, by the affirmative vote of the
holders of at least a majority of the outstanding HSN voting stock which is not
"owned" by Liberty. Although HSN and Liberty denied the allegations of the
complaint in the Section 203 Action and raised affirmative defenses, both
companies and certain additional defendants agreed to the settlement in order
to halt the substantial expense, inconvenience and distraction of the
litigation.
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50
In conjunction with the settlement of the Delaware Federal Action, the
HSN Stockholder Action, the Florida Derivative Action and the Florida Federal
Actions, certain defendants in those lawsuits agreed through their attorneys on
February 8, 1994 that, upon the final consummation of the proposed settlements
in all such actions, all such parties released each other as to any claims for
contribution relating to the claims actually asserted in those proceedings (the
"Release Agreement"). The parties to the Release Agreement are HSN, Roy M.
Speer, Les R. Wandler, Franklin J. Chu, J. Anthony Forstmann, Gerald F. Hogan,
Thomas A. James, John J. McNamara, William J. Ramsey, Michael V. Roberts, RMS,
Liberty, LPI, John C. Malone, Peter R. Barton, Robert R. Bennett, and John M.
Draper.
Florida Federal Securities Actions Against HSN: During April 1993,
nine purported class action lawsuits (collectively, the "Florida Federal
Actions") were filed against HSN, Roy M. Speer and, in certain cases, RMS and
several former officers and/or directors of HSN, including Les R. Wandler,
Fernando DiFilippo, Jr., Lowell R. Paxson, Franklin J. Chu, John J. McNamara,
Michael V. Roberts and Edward Vaughn. The complaints alleged, in general,
that certain public filings, announcements and statements by Roy M. Speer and
HSN between November 1992 and April 1993 omitted to disclose material facts
relating to HSN's business practices, including (among other things) that HSN
employees allegedly accepted improper compensation from vendors, that HSN
and/or Roy M. Speer and Lowell Paxson allegedly paid the company's former
general counsel (Fernando DiFilippo, Jr.) to prevent the disclosure of such
vendor bribes, that HSN allegedly engaged in undisclosed related party
transactions, that unspecified vendors made improper payments to HSN employees
(including Roy M. Speer and Lowell Paxson), that HSN assets and funds allegedly
were transferred improperly to Western, that HSN's inventory practices were
deceptive and that HSN allegedly made an improper loan to one of the company's
financial advisors. The suits alleged that the defendants' actions or
omissions violated the federal securities laws and state law. The actions
sought to recover damages, punitive damages, interest, costs and fees on behalf
of various putative classes of purchasers of HSN common stock. The Florida
Federal Actions were assigned the following civil action numbers by the Florida
Federal Court: 93-602-CIV-T-23B, 93-608-CIV-T-15C, 93-610-CIV-T-21B,
93-613-CIV-T-17B, 93-621-CIV-T-15A, 93-623-CIV-T-23A, 93-624- CIV-T-17B,
93-681-CIV-T-17A and 93-679-CIV-T-21C. Plaintiff in C.A. No. 93-621-CIV-T-15A
voluntarily dismissed his claims without prejudice on April 22, 1993. The
Florida Federal Actions (other than C.A. No. 93-679-CIV-T-21C) were
consolidated on June 6, 1994 by the Florida Federal Court and the parties were
directed to file their papers in the action styled as Goldstein v. Speer, No.
93- 602-CIV-T-23B.
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51
On October 10, 1994, the parties to the Florida Federal Actions
entered into a stipulation in connection with a contemplated settlement of such
actions (the "Florida Federal Settlement"). The settlement of the Florida
Federal Actions was approved by the Florida Federal Court on January 9, 1995.
In accordance with the final order approving the settlement of the Florida
Federal Actions, HSN paid $9.6 million to create a fund in full settlement of
any and all claims whatsoever which have been or could have been made in the
Florida Federal Actions by any members of a plaintiff class consisting of all
purchasers of HSN common stock (other than defendants and other related
parties) from June 1, 1992 through and including April 12, 1993 (collectively,
the "Purchaser Class"). The Florida Federal Settlement provides that the net
proceeds of the settlement fund will be distributed to the members of the
Purchaser Class in accordance with a plan of distribution approved by the
Florida Federal Court. The Florida Federal Settlement resulted in the
dismissal with prejudice of the Florida Federal Actions, and a complete release
of all claims, known or unknown, arising out of or related to the acts,
transactions, or occurrences that are alleged in the Florida Federal Actions or
which relate to the purchase of HSN common stock from June 1, 1992 through and
including April 12, 1993. HSN has denied, and continues to deny, that it has
committed or has threatened to commit any violations of laws or breaches of
duty to the plaintiffs or any member of the Purchaser Class. HSN agreed to
settle the Florida Federal Actions solely because the settlement eliminates the
distraction, burden and expense of further litigation. This represents the
final resolution of this matter, and, accordingly, this case will not be
reported in future filings.
Cooper, et al. v. UCTC of Baltimore, Inc., et al. On October 24,
1994, plaintiffs, three current employees of United Cable Television of
Baltimore Limited Partnership and two spouses of such current employees, filed
suit in the Circuit Court for Baltimore City against UCTC of Baltimore, Inc.,
United Cable Television of Baltimore Limited Partnership, TCI East, Inc. and
Tele- Communications, Inc. The suit alleges, inter alia, eight various tort
claims, including assault, false imprisonment, intentional infliction of
emotional distress, invasion of privacy by intrusion, invasion of privacy by
false light, defamation by slander, defamation by libel and loss of consortium
in connection with an incident that occurred October 26, 1993, at the Baltimore
system. Each plaintiff seeks $1,000,000 compensatory damages and $5,000,000
punitive damages per count. The loss of consortium claim is limited to four of
the five plaintiffs. The Company intends to contest the state court case. On
November 1, 1994, plaintiffs also filed an action in United States District
Court for the District of Maryland alleging discrimination on the basis of race
in violation of 42 U.S.C. Section 1981 and loss of consortium. Both counts
sought $1,000,000 in compensatory damages and $5,000,000 in punitive damages
for each plaintiff (the loss of consortium claim is limited to four of the five
plaintiffs). On January 6, 1995, the parties stipulated to the dismissal of
the case without prejudice, which dismissal the Court approved on January 9,
1995. The Company intends to contest the state court case. Based upon the
facts available, management believes that, although no assurance can be given,
as to the outcome of this action, the ultimate disposition should not have a
material adverse effect upon the financial condition of the Company.
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52
Miles Whittenburg, Jr., et al., v. Tele-Communications, Inc., et al.
On April 9, 1994, plaintiffs, six current employees of United Cable Television
of Baltimore Limited Partnership and four spouses, filed suit in the Circuit
Court for Baltimore City against Tele-Communications, Inc., TCI East, Inc.,
UCTC of Baltimore, Inc., and United Cable Television of Baltimore Limited
Partnership. The suit alleges, inter alia, nine various tort claims, including
but not limited to, false imprisonment, assault, battery, intentional
infliction of emotional distress, invasion of privacy by intrusion, invasion of
privacy by false light, defamation by slander, defamation by libel, and loss of
consortium in connection with an incident that occurred October 26, 1993, at
the Baltimore system. Each of the nine counts in the complaint seek
compensatory damages of $1,000,000 per plaintiff, and punitive damages of
$5,000,000 per plaintiff. On October 24, 1994, plaintiffs also filed in the
United States District Court for the District of Maryland, a lawsuit containing
claims of discrimination on the basis of race in violation of 42 U.S.C. Section
1981 and loss of consortium. Both counts sought compensatory damages of
$1,000,000 per plaintiff and punitive damages of $5,000,000 per plaintiff. The
loss of consortium claims apply to eight of the plaintiffs. On January 6,
1995, the parties stipulated to the dismissal of the case without prejudice,
which dismissal the Court approved on January 9, 1995. The Company intends to
contest the state court case. Based upon the facts available, management
believes that, although no assurance can be given as to the outcome of this
action, the ultimate disposition should not have a material adverse effect upon
the financial condition of the Company.
Elmer Lewis v. Tele-Communications, Inc., et al. On June 23, 1994,
plaintiff filed suit in the United States District Court for the District of
Maryland against Tele-Communications, Inc., TCI East, Inc., UCTC of Baltimore,
Inc. and United Cable Television of Baltimore Limited Partnership. On August
2, 1994, the suit was consolidated for all purposes with Tyrone Belgrave, et
al. v. Tele-Communications, Inc. et al. The suit alleges, inter alia, false
imprisonment, assault, employment defamation, intentional infliction of
emotional distress, unreasonable intrusion upon seclusion, invasion of privacy
by false light, wrongful discharge and discrimination on the basis of race.
The complaint also seeks divestiture of the Baltimore City cable franchise from
the Company. Each of the ten counts in the complaint seek compensatory damages
of $1,000,000 and punitive damages of $5,000,000. In a decision dated October
3, 1994, the Court granted defendants' motion to dismiss the intentional
infliction of emotional distress, unreasonable intrusion upon seclusion,
invasion of privacy by false light, wrongful discharge and violation of cable
franchise agreement claims. On February 4, 1995, the federal court dismissed
the federal claims without prejudice and remanded the remaining state claims to
Circuit Court for Baltimore City. On February 14, 1995, Lewis and his spouse
filed an amended complaint in Circuit Court for Baltimore City against the
current defendants (the amended complaint was consolidated with the Belgrave
and Fannell plaintiffs). Lewis alleges assault, civil conspiracy to commit
assault, battery, civil conspiracy to commit battery, false imprisonment, civil
conspiracy to commit false imprisonment, intentional infliction of emotional
distress, civil conspiracy to intentionally inflict emotional distress,
invasion of privacy by intrusion, civil conspiracy to commit invasion of
privacy by intrusion, defamation, civil conspiracy to defame, invasion of
privacy by false light, and civil conspiracy to commit invasion of privacy by
false light. Lewis and his spouse also allege loss of consortium. Each claim
seeks $1,000,000 in compensatory damages and $5,000,000 in punitive damages per
plaintiff. The Company intends to contest the case. Based upon the facts
available, management believes that, although no assurance can be given as to
the outcome of this action, the ultimate disposition should not have a material
adverse effect upon the financial condition of the Company.
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53
Tyrone Belgrave, et al., v. Tele-Communications, Inc., et al. On
February 8, 1994, Tyrone Belgrave and 26 other current or former employees of
United Cable Television of Baltimore Limited Partnership filed suit in the
Circuit Court for Baltimore City against Tele-Communications, Inc., TCI East,
Inc., UCTC of Baltimore, Inc., and United Cable Television of Baltimore Limited
Partnership. The action alleges, inter alia, false imprisonment, assault,
employment defamation, intentional infliction of emotional distress,
unreasonable intrusion upon seclusion, invasion of privacy by false light,
wrongful discharge and discrimination on the basis of race. The complaint also
seeks divestiture of the Baltimore City cable franchise from the Company. Six
counts in the complaint each seek compensatory damages of $1,000,000 per
plaintiff, and punitive damages of $5,000,000 per plaintiff. Three other
counts in the complaint each seek compensatory damages for $1,000,000 per
plaintiff and punitive damages of $5,000,000 per plaintiff. On March 29, 1994,
the defendants removed the case to the United States District Court for the
District of Maryland. In a decision dated October 3, 1994, the Court granted
defendants motion to dismiss the intentional infliction of emotional distress,
unreasonable intrusion upon seclusion, invasion of privacy by false light,
wrongful discharge and violation of cable franchise agreement claims. On
February 9, 1995, the federal court dismissed the federal claims without
prejudice and remanded the remaining state claims to the Circuit Court for
Baltimore City. On February 14, 1995, 37 persons (the 27 original plaintiffs
and 10 spouses of plaintiffs) filed an amended complaint in Circuit Court for
Baltimore City against the current defendants. (The amended complaint was
consolidated with the Lewis and Fannell plaintiffs). The 27 existing
plaintiffs allege assault, civil conspiracy to commit assault, battery, civil
conspiracy to commit battery, false imprisonment, civil conspiracy to commit
false imprisonment, intentional infliction of emotional distress, civil
conspiracy to intentionally inflict emotional distress, invasion of privacy by
intrusion, civil conspiracy to commit invasion of privacy by intrusion,
defamation, civil conspiracy to defame, invasion of privacy by false light, and
civil conspiracy to commit invasion of privacy by false light. Ten existing
plaintiffs and their spouses allege loss on consortium. Ten existing
plaintiffs also allege wrongful discharge and civil conspiracy to wrongfully
terminate. Each claim seeks $1,000,000 in compensatory damages and $5,000,000
in punitive damages per plaintiff. The Company intends to contest the case.
Based upon the facts available, management believes that, although no assurance
can be given as to the outcome of this action, the ultimate disposition should
not have a material adverse effect upon the financial condition of the Company.
Viacom International, Inc. v. Tele-Communications, Inc., Liberty Media
Corporation, Satellite Services, Inc., Encore Media Corporation, NetLink USA,
Comcast Corporation, and QVC Network, Inc. This suit was filed on September
23, 1993 in the United States District Court for the Southern District of New
York, and the complaint was amended on November 9, 1993. The amended complaint
alleges that the Company violated the antitrust laws of the United States and
the State of New York, violated the 1992 Cable Act, breached an affiliation
agreement, and tortiously interfered with the Viacom Inc. - Paramount
Communications, Inc. ("Paramount") merger agreement and with plaintiff's
prospective business advantage. The amended complaint further alleges that
even if plaintiff is ultimately successful in its bid to acquire Paramount, its
competitive position will still be diminished because the Company, through
Liberty, will have forced plaintiff to expend additional financial resources to
consummate the acquisition. Plaintiff is seeking permanent injunctive relief
and actual and punitive or treble damages of an undisclosed amount. Plaintiff
claims that the Company, along with Liberty, has conspired to use its monopoly
power in cable television markets to weaken unaffiliated programmers and deny
access to essential facilities necessary for distributing programming to cable
television
I-51
54
systems. Plaintiff also alleges that the Company has conspired to deny
essential, technology necessary for distributing programming to owners of home
satellite dishes. Plaintiff claims that the Company is engaging in these
alleged conspiracies in an attempt to monopolize alleged national markets for
non-broadcast television programming and distribution. On October 11, 1994,
the United States District Court granted Tele-Communications, Inc. and the
other defendants' motion for partial summary judgment and dismissed Viacom's $2
billion damage claim alleging that defendants tortiously interfered with its
contract to merge with Paramount and with the prospective business advantage
Viacom claimed it had in seeking to merge with Paramount. The Court also held
that the $2 billion difference between plaintiff's cost to acquire Paramount
under its original proposed merger agreement with Paramount and the costs it
finally incurred when plaintiff acquired Paramount pursuant to a merger
agreement entered into after an auction, was not incurred as a result of an
antitrust injury and could not be asserted as a discreet element of Viacom's
damage even if Viacom was ultimately successful in proving any or all of its
antitrust claims. Viacom has also voluntarily dismissed its claims that the
defendants violated Section 7 of the Clayton Act and that certain of the
defendants breached the affiliation agreement they had with Viacom. On January
20, 1995, the parties entered into a settlement agreement under which this
action is to be dismissed with prejudice contemporaneously with the first
closing of the sale of certain cable systems pursuant to the Tele-Vue
Agreement. The Stipulation of Discontinuance with Prejudice has been executed
by the parties and is being held in escrow pending the first closing described
above. Based upon the facts available, management believes that, although no
assurance can be given as to the outcome of this action, the ultimate
disposition should not have a material adverse effect upon the financial
condition of the Company.
Euan Fannell v. Tele-Communications, Inc., et al. On February 8,
1994, Euan Fannell, the former general manager of UCTC of Baltimore, Inc. filed
suit in the Circuit Court for Baltimore City against Tele-Communications, Inc.,
TCI East, Inc., UCTC of Baltimore, Inc., and United Cable Television of
Baltimore Limited Partnership. The suit alleges, inter alia, employment
defamation, intentional infliction of emotional distress, unreasonable
intrusion upon seclusion, invasion of privacy by false light, breach of
contract, and discrimination on the basis of race. The complaint also seeks
divestiture of the Baltimore City cable franchise of the Company. The
plaintiff seeks $10,000,000 in compensatory damages and $50,000,000 in punitive
damages with respect to the intentional infliction of emotional distress claim;
and $10,000,000 in compensatory damages and $50,000,000 in punitive damages
with respect to each of five other counts. On March 29, 1994, the defendants
removed the case to the United States District Court for the District of
Maryland and the case was subsequently consolidated with the Belgrave case. In
a decision dated November 15, 1994, the federal court dismissed plaintiffs'
intentional infliction of emotional distress, unreasonable intrusion upon
seclusion, invasion of privacy by false light, and violation of cable franchise
agreement claims. On February 9, 1995, the federal court dismissed the federal
claims without prejudice and remanded the remaining state claims to the Circuit
Court for Baltimore City. On February 14, 1995, plaintiff filed an amended
complaint in Circuit Court for Baltimore City against the current defendants.
The amended action alleges intentional infliction of emotional distress, civil
conspiracy to intentionally inflict emotional distress, invasion of privacy by
intrusion, civil conspiracy to commit invasion of privacy by intrusion,
defamation, civil conspiracy to defame, invasion of privacy by false light,
civil conspiracy to commit invasion of privacy by false light, wrongful
discharge, civil conspiracy to wrongfully terminate, and breach of contract.
With respect to all claims other than breach of contract, plaintiff seeks
$1,000,000 in compensatory damages and $5,000,000 in punitive damages. With
respect to the breach of contract claim, plaintiff seeks $100,000 plus
prejudgment interest. The Company intends to contest the case. Based upon the
facts available, management believes that, although no assurance can be given
as to the outcome of this action, the ultimate disposition should not have a
material adverse effect upon the financial condition of the Company.
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55
Leonie Palumbo, et al. v. Tele-Communications, Inc., et al. On
February 8, 1994, Leonie Palumbo, a former employee of TCI East, Inc., filed a
class action suit in the United States District Court for the District of
Columbia against Tele-Communications, Inc., John Malone, and J.C. Sparkman.
The action alleges, on behalf of a class of past, present and future black
employees of the Company, and all past, present and future black applicants for
employment with the Company, discrimination on the basis of race. The
complaint seeks unspecified compensation and punitive damages as well as
injunctive relief for these violations. The Company intends to contest the
action. Based upon the facts available, management believes that, although no
assurance can be given as to the outcome of this action, the ultimate
disposition should not have a material adverse effect upon the financial
condition of the Company.
Les Dunnaville v. United Artists Cable, et al. On February 9, 1994,
Les Dunnaville and Jay Sharrieff, former employees of United Cable Television
of Baltimore Limited Partnership, filed an amended complaint in the Circuit
Court for Baltimore City against United Cable Television of Baltimore Limited
Partnership, TCI Cablevision of Maryland, Tele-Communications, Inc. and three
company employees, Roy Harbert, Tony Peduto, and Richard Bushie (the suit was
initially filed on December 3, 1993, but the parties agreed on December 30,
1993 that no responsive pleading would be due pending filing of an amended
complaint). The action alleges, inter alia, intentional interference with
contract, tortious interference with prospective advantage, defamation, false
light, invasion of privacy, intentional infliction of emotional distress, civil
conspiracy, violation of Maryland's Fair Employment Practices Law, and
respondeat superior with respect to the individual defendants. Six counts in
the complaint each seek compensatory damages of $1,000,000 and punitive damages
of $1,000,000; the intentional infliction of emotional distress count seeks
compensatory damages of $1,000,000 and punitive damages of $2,000,000; and the
count which alleges violation of Maryland's Fair Employment Practices Law seeks
damages of $500,000. By order dated May 18, 1994, the Court dismissed the
respondant superior claim. The Company intends to contest the action. Based
upon the facts available, management believes that, although no assurance can
be given as to the outcome of this action, the ultimate disposition should not
have a material adverse effect upon the financial condition of the Company.
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Tony Jeffreys, et al v. Tele-Communications, Inc. et al. On February
7, 1995, Tony Jeffreys and 41 current and former employees of United Cable
Television of Baltimore Limited Partnership filed a complaint in Circuit Court
for Baltimore City against Tele-Communications, Inc., UCT of Baltimore, Inc.,
United Cable Television of Baltimore Limited Partnership, UCTC of Baltimore,
Inc. and TCI East, Inc. With two exceptions, these plaintiffs are also
parties to identical claims asserted in the amended complaints filed on
February 14, 1994 in the previously described Belgrave, Fannell and Lewis
actions. The action alleges, in part, that the Companies engaged U.S.
Corporate Investigations, Inc. and Blackburn Associates and conspired to
illegally terminate the employment of management personnel and employees of the
Baltimore system which culminated in the October 26, 1993, incident described
in earlier reports. Plaintiffs seek damages in connection with their claims of
assault, civil conspiracy to commit assault, battery, civil conspiracy to
commit battery, false imprisonment, civil conspiracy to commit false
imprisonment, intentional infliction of emotion distress, civil conspiracy to
intentionally inflict emotional distress, invasion of privacy by intrusion,
civil conspiracy to commit invasion of privacy by intrusion, defamation as to
plaintiff Fannell, defamation as to all plaintiffs except Fannell, civil
conspiracy to defame, invasion of privacy by false light, civil conspiracy to
commit invasion of privacy by false light, wrongful discharge, civil conspiracy
to wrongfully terminate, breach of contract as to plaintiff Fannell, and loss
of consortium. Each count seeks $1,000,000 in compensatory damages and
$5,000,000 in punitive damages per plaintiff. The Company intends to contest
this action. Based upon the facts available, management believes that,
although no assurance can be given as to the outcome of this action, the
ultimate disposition should not have a material adverse effect upon the
financial condition of the Company.
Leo Wagner v. United Cable Television of Baltimore Limited
Partnership. On February 8, 1994, a current salesman of the Baltimore system
filed a suit in the United States District Court for the District of Maryland
against United Cable Television of Baltimore Limited Partnership. The
plaintiff alleges that he has been the victim of reverse discrimination in
violation of 42 U.S.C. Section 1981 and Title VII of the Civil Rights Act of
1946, and that the Partnership has retaliated against him because he filed
charges of discrimination with the Baltimore Community Relations Commission and
the Equal Employment Opportunity Commission. He seeks unspecified back pay and
lost wages, $250,000 in compensatory damages, and $10,000,000 in punitive
damages. The Company intends to contest this action. Based upon the facts
available, management believes that, although no assurance can be given as to
the outcome of this action, the ultimate disposition should not have a material
adverse effect upon the financial condition of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
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57
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Shares of Tele-Communications, Inc.'s Class A and Class B common stock
are traded in the over-the-counter market on the Nasdaq National Market under
the symbols TCOMA and TCOMB, respectively. The following table sets forth the
range of high and low sales prices of shares of Class A and Class B common
stock for the periods indicated as furnished by Nasdaq. The prices have been
rounded up to the nearest eighth, and do not include retail markups, markdowns,
or commissions. The transaction whereby TCI Communications, Inc. and Liberty
Media Corporation became wholly-owned subsidiaries of Tele-Communications, Inc.
was consummated on August 4, 1994.
Class A Class B
---------------- ----------------
High Low High Low
---- --- ---- ---
1993:
----
First quarter 25-1/2 20-3/4 25-1/2 21
Second quarter 24 17-1/2 24 18-3/8
Third quarter 26-3/4 21-5/8 27 22
Fourth quarter 33-1/4 24-7/8 40 25-1/2
1994:
----
First quarter 30-1/4 20-3/8 32-3/4 22
Second quarter 23-3/8 18-1/4 24-3/4 21-1/4
Third quarter 23-7/8 19-3/4 25-3/4 21-1/4
Fourth quarter 25 20-1/4 25-3/4 21-1/2
As of March 9, 1995, there were 8,802 holders of record of the
Company's Class A common stock and 671 holders of record of the Company's
Class B common stock (which amounts do not include the number of shareholders
whose shares are held of record by brokerage houses but include each brokerage
house as one shareholder).
The Company has not paid cash dividends on its Class A or Class B
common stock and has no present intention of so doing. Payment of cash
dividends, if any, in the future will be determined by the Company's Board of
Directors in light of the Company's earnings, financial condition and other
relevant considerations. Certain loan agreements contain provisions that limit
the amount of dividends, other than stock dividends, that the Company may pay
(see note 7 to the Tele-Communications, Inc. consolidated financial
statements). See also related discussion under the caption Management's
Discussion and Analysis of Financial Condition and Results of Operations.
II-1
58
Item 6. Selected Financial Data.
The following tables present selected information relating to the
financial condition and results of operations of Tele-Communications, Inc. for
the past five years.
December 31,
----------------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
amounts in millions
Summary Balance Sheet Data:
--------------------------
Property and equipment, net $ 5,876 4,935 4,562 4,081 4,156
Franchise costs, net $ 9,444 9,197 9,300 8,104 7,348
Net assets of discontinued
operations $ -- -- -- 242 54
Total assets $ 19,528 16,520 16,310 15,166 14,106
Debt $ 11,162 9,900 10,285 9,455 8,922
Stockholders' equity $ 2,971 2,112 1,726 1,570 748
Common shares outstanding
(net of treasury shares):
Class A common stock 491 403 382 370 310
Class B common stock 85 47 48 49 48
Years ended December 31,
-----------------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
amounts in millions, except per share data
Summary Statement of
--------------------
Operations Data:
---------------
Revenue $ 4,936 4,153 3,574 3,214 2,940
Operating income $ 788 916 864 674 546
Earnings (loss) from:
Continuing operations $ 55 (7) 7 (78) (191)
Discontinued operations -- -- (15) (19) (63)
------- ------ ------ ------ ------
55 (7) (8) (97) (254)
Dividend requirement on
redeemable preferred stocks (8) (2) (15) -- --
------- ------ ------ ------ ------
Net earnings (loss) attributable
to common shareholders $ 47 (9) (23) (97) (254)
======= ====== ====== ====== ======
Earnings (loss) attributable to
common shareholders
per common share:
Continuing operations $ .09 (.02) (.01) (.22) (.54)
Discontinued operations -- -- (.04) (.05) (.18)
------- ------ ------ ------ ------
$ .09 (.02) (.05) (.27) (.72)
======= ====== ====== ====== ======
Weighted average common
shares outstanding 541 433 424 360 355
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59
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
TELE-COMMUNICATIONS, INC.
General
As of January 27, 1994, TCI Communications, Inc. (formerly
Tele-Communications, Inc. or "Old TCI") and Liberty Media Corporation
("Liberty") entered into a definitive merger agreement (the "TCI/Liberty Merger
Agreement") to combine the two companies (the "TCI/Liberty Combination"). The
transaction was consummated on August 4, 1994 and was structured as a tax free
exchange of Class A and Class B shares of both companies and preferred stock of
Liberty for like shares of a newly formed holding company, TCI/Liberty Holding
Company. In connection with the TCI/Liberty Combination, Old TCI changed its
name to TCI Communications, Inc. ("TCIC") and TCI/Liberty Holding Company
changed its name to Tele-Communications, Inc. ("TCI" or the "Company"). Old
TCI common shareholders received one share of TCI for each of their common
shares. Liberty common shareholders received 0.975 of a share of TCI for each
of their common shares. Upon consummation of the TCI/Liberty Combination,
certain subsidiaries of TCIC exchanged the 79,335,038 shares of Old TCI Class A
common stock held by such subsidiaries for 79,335,038 shares of TCI Class A
common stock. Such ownership is reflected as treasury stock at such
subsidiaries' historical cost.
TCIC owned 3,477,778 shares of Liberty Class A common stock and 55,070
shares of Liberty Class E, 6% Cumulative Redeemable Exchangeable Junior
Preferred Stock ("Liberty Class E Preferred Stock"). Upon consummation of the
TCI/Liberty Combination, TCIC received 3,390,833 shares of TCI Class A common
stock and 55,070 shares of TCI Class B 6% Cumulative Redeemable Exchangeable
Junior Preferred Stock ("Class B Preferred Stock"), a new preferred stock of
TCI having designations, preferences, rights and qualifications, limitations
and restrictions that are substantially identical to those of the Liberty Class
E Preferred Stock, except that the holders of the Class B Preferred Stock will
be entitled to one vote per share in any general election of directors of TCI.
The Class B Preferred Stock received by TCIC eliminates in consolidation.
Upon consummation of the TCI/Liberty Combination, the remaining
classes of preferred stock of Liberty held by TCIC were converted into shares
of Class A Preferred Stock, a new series of preferred stock of TCI having a
substantially equivalent fair market value to that which was given up. All
such preferred stock eliminates in consolidation.
Liberty owned 2,988,009 shares of Old TCI Class A common stock and
3,537,712 shares of Old TCI Class B common stock. Such shares were replaced
with the same number of shares of TCI Class A and Class B common stock upon
consummation of the TCI/Liberty Combination.
TCIC's and Liberty's ownership of TCI common stock are reflected as
treasury stock in the accompanying consolidated financial statements. Such
amounts have been recorded at the historical cost previously reflected by TCIC
and Liberty.
Due to the significant economic interest held by TCIC through its
ownership of Liberty preferred stock and Liberty common stock and other related
party considerations, TCIC accounted for its investment in Liberty under the
equity method. Accordingly, TCIC had not recognized any income relating to
dividends, including preferred stock dividends, and TCIC recorded the earnings
or losses generated by Liberty (by recognizing 100% of Liberty's earnings or
losses before deducting preferred stock dividends) through the date the
TCI/Liberty Combination was consummated.
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The TCI/Liberty Combination was accounted for using predecessor cost
due to the aforementioned related party considerations.
During the fourth quarter of 1994, the Company was reorganized based
upon four lines of business: Domestic Cable and Communications; Programming;
International Cable and Programming; and Technology/Venture Capital (the
"Reorganization").
The Board of Directors of TCI has adopted a proposal which, if
approved by the stockholders, would authorize the Board to issue a new class of
stock ("Liberty Group Common Stock") which corresponds to TCI's programming
services ("Liberty Media Group"). The programming services include the
production, acquisition and distribution of globally branded entertainment,
education and information programming services and software for distribution
through all available formats and media; and home shopping via television and
other interactive media, direct marketing, advertising sales, infomercials and
transaction processing. While the Liberty Group Common Stock would constitute
common stock of TCI, it is intended to reflect the separate performance of such
programming services. TCI intends to distribute to its security holders one
hundred percent of the equity value of TCI attributable to Liberty Media Group.
Summary of Operations
The Company operates principally in two industry segments subsequent
to consummation of the TCI/Liberty Combination: cable and communications
services and programming services. Home shopping is a programming service
which includes a retail function. Separate amounts of the aforementioned
services have been provided to enhance the readers understanding of the
Company. The Technology/Venture Capital and the International Cable and
Programming portions of the Company's business have been included with cable
and communications services due to their immateriality. The tables below set
forth for the periods presented, the percentage relationship that certain items
bear to revenue. This summary provides trend data relating to the normal
recurring operations of the Company. Other items of significance are discussed
separately under separate captions below. Amounts set forth below reflect the
Company's motion picture theatre exhibition industry segment as discontinued
operations.
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Years ended December 31,
-------------------------------------------------
1994 1993 1992
---- ---- ----
amounts in millions, except for percentages
Cable and Communications Services
---------------------------------
Revenue 100% $ 4,247 100% $ 4,153 100% $ 3,574
Operating costs and expenses
before depreciation
and amortization 56 2,390 56 2,326 54 1,946
Depreciation and amortization 23 992 22 911 22 764
---- ------- ---- ------- ---- -------
Operating income 21% $ 865 22% $ 916 24% $ 864
==== ======= ==== ======= ==== =======
Programming Services:
--------------------
Electronic Retailing Services:
Net revenue 100% $ 482 -- $ -- -- $ --
Cost of sales 65 313 -- -- -- --
Operating costs and expenses
before depreciation
and amortization 30 145 -- -- -- --
Depreciation and amortization 3 15 -- -- -- --
---- ------- ---- ------- ---- -------
Operating income 2% $ 9 -- $ -- -- $ --
==== ======= ==== ======= ==== =======
Other Programming Services:
Revenue 100% $ 207 -- $ -- -- $ --
Operating costs and expenses
before depreciation and
amortization 136 282 -- -- -- --
Depreciation and amortization 5 11 -- -- -- --
---- ------- ---- ------- ---- -------
Operating income (loss) (41)% $ (86) -- $ -- -- $ --
==== ======= ==== ======= ==== =======
Cable and Communications Services
Revenue increased by approximately 2% from 1993 to 1994. Such
increase was the result of the TCI/Liberty Combination in August of 1994
(1%), growth in subscriber levels within the Company's cable television
systems (5%), the effect of certain other acquisitions (2%) and certain new
services (1%), net of a decrease in revenue (4%) due to rate reductions
required by rate regulation implemented pursuant to the Cable Television
Consumer Protection and Competition Act of 1992 (the "1992 Cable Act") and a
decrease in revenue (3%) due to the transfer of Netlink USA to the Programming
unit in the Reorganization. In the second half of 1994, the Company
experienced an additional decrease, in excess of that which was incurred in
1993, in the price charged for those services that are subject to rate
regulation under the 1992 Cable Act. Revenue increased by approximately 16%
from 1992 to 1993. Such increase was the result of an acquisition in late 1992
(10%), growth in subscriber levels within the Company's cable television
systems (4%) and increases in prices charged for cable services (3%), net of a
decrease in revenue (1%) due to rate reductions required by rate regulation
implemented pursuant to the 1992 Cable Act. See related discussion below.
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On October 5, 1992, Congress enacted the 1992 Cable Act. In 1993 and
1994, the Federal Communications Commission ("FCC") adopted certain rate
regulations required by the 1992 Cable Act and imposed a moratorium on certain
rate increases. As a result of such actions, the Company's basic and tier
service rates and its equipment and installation charges (the "Regulated
Services") are subject to the jurisdiction of local franchising authorities and
the FCC.
The Company estimates that the FCC's 1993 and 1994 rate regulations
will result in an aggregate annualized reduction of revenue and operating
income ranging from $280 million to $300 million based upon rates charged prior
to implementation of such rate regulation. The estimated annualized reduction
in revenue assumes that the FCC will not require further reductions beyond the
current regulations and is prior to any possible mitigating factors (none of
which is assured) such as (i) the provision of alternate service offerings (ii)
the implementation of rate adjustments to non-regulated services and (iii) the
utilization of cost-of-service methodologies, as described below.
Cable operators may justify rates higher than the benchmark rates
established by the FCC through demonstrating higher costs based upon a
cost-of-service showing. Under this methodology, cable operators may be
allowed to recover through the rates they charge for Regulated Services, their
normal operating expenses plus an interim rate of return of 11.25% on the rate
base, as defined, which rate may be subject to change in the future.
The FCC rate regulations govern changes in the rates which cable
operators may charge when adding or deleting a service from a regulated tier of
service. The FCC substantially revised its rules for adding and deleting
services in November 1994 and has provided an alternative methodology for
adding services to cable programming service tiers which includes a flat fee
increase per added channel and an aggregate limit on such increases with an
additional license fee reserve. The FCC's rate regulations also permit
cable operators to "pass through" increases in programming costs and certain
other external costs which exceed the rate of inflation. However, a cable
operator may pass through increases in the cost of programming services
affiliated with such cable operator to the extent such costs exceed the
rate of inflation only if the price charged by the programmer to the
affiliated cable operator reflects prevailing prices offered in the
marketplace by the programmer to unaffiliated third parties or the fair
market value of the programming.
Based on the foregoing, the Company believes that the 1993 and 1994
rate regulations have had and will continue to have a material adverse effect
on its results of operations.
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Operating costs and expenses before depreciation and amortization have
increased by 3% for the year ended December 31, 1994 compared to the
corresponding period of 1993. The consolidation of Liberty resulted in an
increase of $18 million in operating, selling, general and administrative
expenses from Liberty's cable television systems. The Company cannot determine
whether and to what extent increases in the cost of programming will affect its
future operating costs. However, such programming costs have increased at a
greater percentage than increases in revenue of Regulated Services. In 1993,
the Company incurred certain one-time direct charges relating to the
implementation of the FCC rate regulations. Due to a program to upgrade and
install optical fiber in its cable systems, the Company's capital expenditures
and depreciation expense have increased. The Company recorded an adjustment of
$6 million in 1994 to reduce its liability for compensation relating to stock
appreciation rights resulting from a decline in the market price of the
Company's Class A common stock. The Company made several separate grants (in
1992 and 1993) of stock options issued in tandem with stock appreciation
rights. The Company recorded compensation relating to such stock appreciation
rights of $31 million and $1 million in 1993 and 1992, respectively. During
1992, the Company streamlined its operating structure through the consolidation
of three of its regional operating divisions into two divisions. In connection
with the consolidation of these divisional offices, the Company incurred
restructuring charges of approximately $8 million which are reflected in the
accompanying consolidated financial statements for the year ended December 31,
1992.
Effective April 1, 1993, based upon changes in FCC regulations, the
Company revised its estimate of the useful lives of certain distribution
equipment to correspond to the Company's anticipated remaining period of
ownership of such equipment. The revision resulted in a decrease in net
earnings of approximately $12 million (or $.03 per share) for the year ended
December 31, 1993.
Electronic Retailing Services
This information reflects the results of Home Shopping Network, Inc.
("HSN"), which became a consolidated subsidiary of the Company in the
TCI/Liberty Combination. HSN's primary business is the sale of merchandise to
viewers of the home shopping programming produced and distributed by Home
Shopping Club, Inc. ("HSC"), a wholly-owned subsidiary of HSN.
Revenue for 1994 represents net sales for HSC. HSN believes that
future levels of net sales of HSC will be dependent, in large part, on program
carriage, market penetration and merchandising management. Program carriage is
defined as the number of cable systems and broadcast television stations that
carry HSC programming. Market penetration represents the level of active
purchasers within a market.
Cable television systems and affiliated broadcast television stations
broadcast HSC programming under affiliation agreements with varying original
terms. HSN seeks to increase the number of cable television systems and
broadcast television stations that televise HSC programming while evaluating
the expected profitability of each contract.
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The 1992 Cable Act contains "must carry" provisions which mandate that
cable companies within a broadcast television station's reach retransmit its
signal, subject to certain limitations on this obligation depending upon a
cable system's channel capacity. The FCC adopted rules which extend such "must
carry" provisions to broadcast television stations with shop-at-home formats
effective October 6, 1993. As a result of the mandatory carriage of stations
carrying home-shopping programming, HSN has experienced growth in cable
carriage. However, the constitutionality of the "must carry" provisions of the
1992 Cable Act has been challenged in the courts. Although the "must carry"
provisions were upheld as constitutional by a three-judge panel of the United
States District Court for the District of Columbia, the Supreme Court vacated
the District Court's decision because genuine issues of material fact remain
unresolved. The "must-carry" statutory provisions and regulations remain in
effect pending the outcome of the ongoing proceedings before the District
Court. During the past year, HSN has aggressively pursued and obtained long
term carriage commitments from a number of cable operators. As a result of
HSN's success in obtaining such commitments, the exposure to loss of revenue
should the "must-carry" rules be declared unconstitutional has been largely
mitigated.
HSN expects that certain of its costs will increase in the future.
Management believes that selling and marketing expenses will be at higher
levels in future periods as HSN maintains its efforts to increase the number of
cable systems carrying HSC programming, increase market penetration and develop
new electronic opportunities. In addition, these expenses will increase if
program carriage increases. Broadcast expenses are expected to increase in
future periods. "Must carry" legislation, as discussed above, is expected to
result in increases in certain operating expenses related to cable and
broadcast carriage in dollars. However, as a percentage of sales, the effect
is not currently determinable.
HSN believes that seasonality does impact its business, but not to the
same extent it impacts the retail industry in general.
Other Programming Services
Revenue of TCI's consolidated entertainment and information
programming services represented 4% or $207 million, of total consolidated
revenue for 1994. This revenue was attributable to subscription and
advertising revenue at TCI's consolidated sports programming businesses ($58
million), revenue from Netlink USA, a marketer and distributor of programming
to the United States home satellite dish subscriber market ($132 million) and
subscription revenue generated by Southern Satellite Systems, Inc. ("Southern")
and Encore Media Corporation ("EMC") ($17 million). Programming expenses
represented 4% or $136 million total operating expenses (including cost of
sales). The Company incurred $44 million of programming costs and $7 million
of marketing costs associated with the launch in 1994 of a new premium
programming service to its subscribers. The programming costs of such new
premium service is included in the aforementioned $136 million total
programming costs.
Other Income and Expense
The Company's weighted average interest rate on borrowings was 7.5%,
7.2% and 7.6% during 1994, 1993 and 1992, respectively. At December 31, 1994,
after considering the net effect of various interest rate hedge and exchange
agreements (see note 7 to the consolidated financial statements) with notional
amounts aggregating $1,730 million, the Company had $4,818 million (or 43%) of
fixed-rate debt with a weighted average interest rate of 8.9% and $6,344
million (or 57%) of variable-rate debt with interest rates approximating the
prime rate (8.5% at December 31, 1994).
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The Company is a shareholder of TeleWest Communications plc (formerly
TCI/US WEST Cable Communications Group or "TeleWest UK") ("TeleWest
Communications"), a company that is currently operating and constructing cable
television and telephone systems in the United Kingdom ("UK"). TeleWest
Communications, which is accounted for under the equity method, had a carrying
value at December 31, 1994 of $454 million and comprised $43 million, $28
million and $26 million of the Company's share of its affiliates' losses in
1994, 1993 and 1992, respectively. In February 1994, the Company acquired a
consolidated investment in Flextech p.l.c. ("Flextech"). Flextech accounted
for net losses of $24 million (before deducting the minority interests' 40%
share of such losses) in 1994. In addition, the Company has other less
significant equity method investments in video distribution and programming
businesses located in the UK, other parts of Europe, Asia, Latin America and
certain other foreign countries. In the aggregate, such other equity method
investments had a carrying value of $135 million at December 31, 1994 and
accounted for $50 million of the Company's share of its affiliates' losses in
1994.
In November of 1994, TCI and US West, Inc. each exchanged their
respective 50% ownership interest in TeleWest UK for 302,250,000 ordinary
shares and 76,500,000 convertible preference shares of TeleWest Communications
(the "TeleWest Exchange"). Following the completion of the TeleWest Exchange,
TeleWest Communications conducted an initial public offering in November of
1994 in which it sold 243,740,000 ordinary shares for aggregate net proceeds of
401 million pounds (the "TeleWest IPO"). Upon completion of the TeleWest
Exchange and the TeleWest IPO, TCI and US WEST, Inc. each became the owners of
36% of the ordinary shares and 38% of the total outstanding ordinary and
convertible preference shares of TeleWest Communications. As a result of the
TeleWest IPO and the associated dilution of the Company's ownership interest of
TeleWest Communications, the Company has recognized a nonrecurring pre-tax gain
amounting to $161 million. There is no assurance that the Company will realize
similar nonrecurring gains in future periods.
In connection with its investments in the above-described foreign
entities, the Company is exposed to the risk that unfavorable and potentially
volatile fluctuations in exchange rates with respect to the UK currency and
other foreign currencies will cause the Company to experience unrealized
foreign currency translation losses. To a much lesser extent, the Company is
exposed to the risk that unfavorable and potentially volatile foreign currency
fluctuations will cause the Company to experience unrealized losses with
respect to transactions denominated in currencies other than the respective
functional currencies of the Company and its various foreign affiliates.
Because the Company views its foreign assets as long-term investments, the
Company generally does not hedge its exposure to short-term movements in
foreign amounts of future foreign cash inflows and outflows associated with the
Company's foreign investments. Although the Company continually evaluates the
advantages and disadvantages of hedging its exposure to currency risk on a
long-term basis, the Company historically has not entered into any significant
long-term hedge agreements.
On July 11, 1994, Rainbow Program Enterprise ("Rainbow") purchased
49.9% of Liberty's 50% general partnership interest in American Movie Classics
Company ("AMC"). The gain recognized by Liberty in connection with the
disposition of AMC was $183 million and is included in the Company's share of
Liberty's earnings prior to the TCI/Liberty Combination.
The Company sold certain investments and other assets for an aggregate
net pre-tax gain of $42 million and $9 million in 1993 and 1992, respectively.
During 1994, 1993 and 1992, the Company recorded losses of $9 million,
$17 million and $67 million, respectively, from early extinguishments of debt.
Included in the 1992 amount was $52 million from the extinguishment of the SCI
Holdings, Inc. ("SCI") indebtedness (see note 4 to the consolidated financial
statements). There may be additional losses associated with early
extinguishments of debt in the future.
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Interest and dividend income was $36 million, $34 million and $69
million in 1994, 1993 and 1992, respectively. Included in the 1992 amounts was
$30 million earned on the preferred stock investment that was repurchased by a
subsidiary of SCI in 1992 (see note 4 to the consolidated financial
statements). In connection with such repurchase, the Company received a
premium amounting to $14 million which has been separately reflected in the
accompanying consolidated statements of operations.
Income Taxes
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. Such tax rate change resulted in an increase of $76
million to the Company's income tax expense and deferred income tax liability
in the third quarter of 1993.
Net Earnings (Loss)
The Company's net earnings (before preferred stock dividends) of $55
million for the year ended December 31, 1994 represented an increase of $62
million as compared to the Company's net loss (before preferred stock
dividends) of $7 million for the corresponding period of 1993. Such increase
is principally the result of the effect of improved share of earnings from
Liberty prior to the TCI/Liberty Combination (principally resulting from the
gain recognized by Liberty upon the sale of its investment in AMC), the
recognition of a nonrecurring gain resulting from the TeleWest IPO and the
associated dilution of TCI's ownership in TeleWest Communications, and the
reduction in income tax expense (principally resulting from the required
recognition in the third quarter of 1993 of the cumulative effect of the change
in the Federal income tax rate from 34% to 35%), net of the effect of the
aforementioned reduction in rates charged for Regulated Services and the
decrease in gain on disposition of assets.
The Company's loss (before preferred stock dividends) of $7 million
for the year ended December 31, 1993 represented a decrease of $14 million as
compared to the Company's earnings from continuing operations of $7 million for
the corresponding period of 1992. Such decline was due primarily to an
increase in income tax expense arising from the aforementioned tax rate change
enacted in the third quarter of 1993, an increase in compensation relating to
stock appreciation rights and the reduction of interest and dividend income
resulting from the disposition at the end of 1992 of a preferred stock
investment, net of an increase in gain on disposition of assets, a reduction in
loss from early extinguishment of debt and a reduction in minority interest in
earnings of consolidated subsidiaries attributable to the repurchase of certain
preferred stock of a consolidated subsidiary.
On May 12, 1992, the Company sold its motion picture theatre business
and certain theatre-related real estate assets (see note 14 to the accompanying
consolidated financial statements). Accordingly, the operations of the
Company's motion picture theatre exhibition industry segment have been
reclassified and reflected as "discontinued operations" in the accompanying
consolidated financial statements.
Inflation has not had a significant impact on the Company's results of
operations during the three-year period ended December 31, 1994.
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Recent Accounting Pronouncements
In November of 1992, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits" ("Statement No. 112"). As the
Company's present accounting policies generally are in conformity with the
provisions of Statement No. 112, the Company does not believe that Statement
No. 112 will have a material effect on the Company. Statement No. 112 is
effective for years beginning after December 31, 1994.
In May 1993, the FASB issued Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities ("Statement No. 115"), effective for fiscal years beginning after
December 15, 1993. Under Statement No. 115, debt securities that TCI has both
the positive intent and ability to hold to maturity are carried at amortized
cost. Debt securities that TCI does not have the positive intent and ability
to hold to maturity and all marketable equity securities are classified as
available-for-sale or trading and are carried at fair value. Unrealized
holding gains and losses on securities classified as available-for-sale are
carried net of taxes as a separate component of stockholders' equity.
Unrealized holding gains and losses on securities classified as trading are
reported in earnings.
The Company applied Statement No. 115 beginning in the first quarter
of 1994. Application of Statement No. 115 resulted in a net increase of $304
million to stockholders' equity on January 1, 1994, representing the
recognition of unrealized appreciation, net of taxes, for the Company's
investments in marketable equity securities determined to be
available-for-sale. Such amount was adjusted by $182 million recorded in the
TCI/Liberty Combination. The amount of net unrealized gain was reduced by $233
million through December 31, 1994. The majority of the aggregate unrealized
gain is comprised of the Company's investment in Turner Broadcasting System,
Inc. ("TBS") common stock ($100 million) and QVC, Inc. ("QVC") common stock
($127 million). The Company holds no material debt securities.
The FASB has recently issued other accounting pronouncements which are
not yet effective. The Company does not expect that these pronouncements will
have a material effect on the Company's consolidated financial statements.
Liquidity and Capital Resources
During 1994, subsidiaries of the Company, Comcast Corporation
("Comcast"), Cox Communications, Inc. ("Cox") and Sprint Corporation ("Sprint")
formed a partnership ("WirelessCo") to engage in the business of providing
wireless communications services on a nationwide basis. Through WirelessCo,
the partners have been participating in auctions ("PCS Auctions") of broadband
personal communications services ("PCS") licenses being conducted by the FCC.
In the first round auction, which concluded during the first quarter of 1995,
WirelessCo was the winning bidder for PSC licenses for 29 markets, including
New York, San Francisco-Oakland-San Jose, Detroit, Dallas-Fort Worth,
Boston-Providence, Minneapolis-St. Paul and Miami-Fort Lauderdale. The
aggregate license cost for these licenses is approximately $2.1 billion.
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WirelessCo has also invested in American PSC, L.P. ("APC"), which
holds a PCS license granted under the FCC's pioneer preference program for the
Washington-Baltimore market. WirelessCo acquired its 49% limited partnership
interest in APC for $23 million and has agreed to make capital contributions to
APC equal to 49/51 of the cost of APC's PCS license. Additional capital
contributions may be required in the event APC is unable to finance the full
cost of its PCS license. WirelessCo may also be required to finance the
build-out expenditures for APC's PCS system. Cox, which holds a pioneer
preference PCS license for the Los Angeles-San Diego market, and WirelessCo
have also agreed on the general terms and conditions upon which Cox (with a 60%
interest) and WirelessCo (with a 40% interest) would form a partnership to hold
and develop a PCS system using the Los Angeles-San Diego license. APC and the
Cox partnership would affiliate their PCS systems with WirelessCo and be part
of WirelessCo's nationwide integrated network, offering wireless communications
services under the "Sprint" brand. The Company owns a 30% interest in
WirelessCo.
During 1994, subsidiaries of Cox, Sprint and the Company also formed a
separate partnership ("PhillieCo"), in which the Company owns a 35.3% interest.
PhillieCo was the winning bidder in the first round auction for a PCS license
for the Philadelphia market at a license cost of $85 million. To the extent
permitted by law, the PCS system to be constructed by PhillieCo would also be
affiliated with WirelessCo's nationwide network.
WirelessCo may bid in subsequent rounds of the PCS Auctions and may
invest in, affiliate with or acquire licenses from other successful bidders.
The capital that WirelessCo will require to fund the construction of the PCS
systems, in addition to the license costs and investments described above, will
be substantial. The Company anticipates funding its portion of WirelessCo's
capital requirements through borrowings under a new credit facility.
At the end of the first quarter of 1995, subsidiaries of the Company,
Comcast, Cox and Sprint formed two new partnerships, of which the principal
partnership is MajorCo, L.P. ("MajorCo"), to which they contributed their
respective interests in WirelessCo and through which they formed another
partnership, NewTelco, L.P. ("NewTelco") to engage in the business of providing
local wireline communications services to residences and businesses on a
nationwide basis. NewTelco will serve its customers primarily through the
cable television facilities of cable television operators that affiliate with
NewTelco in exchange for agreed-upon compensation. The modification of
existing regulations and laws governing the local telephony market will be
necessary in order for NewTelco to provide its proposed services on a
competitive basis in most states. Subject to agreement upon a schedule for
upgrading its cable television facilities in selected markets and certain other
matters, the Company has agreed to affiliate certain of its cable systems with
NewTelco. The capital required for the upgrade of the Company's cable
facilities for the provision of telephony services is expected to be
substantial.
Subsidiaries of the Company, Cox and Comcast, together with
Continental Cablevision, Inc. ("Continental"), own Teleport Communications
Group, Inc. and TCG Partners (collectively, "TCG"), which is one of the largest
competitive access providers in the United States in terms of route miles. The
Company, Cox and Comcast have entered into an agreement with MajorCo and
NewTelco to contribute their interests in TCG and its affiliated entities to
NewTelco. The Company currently owns an approximate 29.9% interest in TCG.
The closing of this contribution is subject to the satisfaction of certain
conditions, including the receipt of necessary regulatory and other consents
and approvals. In addition, the Company, Comcast and Cox intend to negotiate
with Continental, which owns a 20% interest in TCG, regarding their acquisition
of Continental's TCG interest. If such agreement cannot be reached, they will
need to obtain Continental's consent to certain aspects of their agreement with
Sprint.
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Subject to agreement upon an initial business plan, the MajorCo
partners have committed to make cash capital contributions to MajorCo of $4.0
to $4.4 billion in the aggregate over a three- to five-year period, which
amount includes the approximately $500 million already contributed by the
partners to WirelessCo. The partners intend for MajorCo and its subsidiary
partnerships to be the exclusive vehicles through which they engage in the
wireless and wireline telephony service businesses, subject to certain
exceptions.
As of January 26, 1995, TCI, TCIC, a wholly-owned subsidiary of TCI,
and TeleCable Corporation ("TeleCable") consummated a transaction whereby
TeleCable was merged into TCIC (the "TeleCable Merger"). The aggregate $1.6
billion purchase price was satisfied by TCIC's assumption of approximately $300
million of TeleCable's net liabilities and the issuance to TeleCable's
shareholders of approximately 42 million shares of TCI Class A common stock and
1 million shares of TCI Convertible Preferred stock, Series D (the "Series D
Preferred Stock") with an aggregate initial liquidation value of $300 million.
The Series D Preferred Stock, which accrues dividends at a rate of 5.5% per
annum, is convertible into 10 million shares of TCI Class A common stock. The
Series D Preferred Stock is redeemable for cash at the option of TCI after five
years and at the option of either TCI or the holder after ten years. The
amount of net liabilities assumed by TCIC and the number of shares of TCI Class
A common stock issued to TeleCable's shareholders are subject to post-closing
adjustments.
On January 20, 1995, Tele-Vue Systems, Inc. ("Tele-Vue"), Viacom
International, Inc. ("Viacom"), InterMedia Partners IV, L.P. ("IP-IV") and RCS
Pacific, L.P. ("RCS Pacific") entered into an Asset Purchase Agreement (the
"Tele-Vue Agreement") pursuant to which RCS Pacific agreed to acquire from
Tele-Vue the assets of cable television systems serving approximately 1 million
subscribers as of December 31, 1994 for total consideration of approximately
$1,983,000,000, subject to adjustment in accordance with the terms of the
Tele-Vue Agreement. A subsidiary of TCI has agreed to loan $600 million in
cash to IP-IV. IP-IV will, in turn, loan such $600 million to RCS Pacific. RCS
Pacific could use the proceeds of the aforementioned loan as a portion of the
total cash consideration to be paid to Tele-Vue, or at the option of TCI, to
purchase $600 million of TCI Class A common stock. Should TCI elect to sell
such common stock, RCS Pacific has the option to pay the consideration to
Tele-Vue by delivery of RCS Pacific's short-term note of up to $600 million of
the total consideration with the balance to be paid in cash. Such note, if it
is delivered, will be secured by RCS Pacific's pledge of shares of stock of TCI
having an aggregate market value equal to the principal amount of, and accrued
interest on, the note delivered to Tele-Vue. The consummation of the
transactions contemplated by the Tele-Vue Agreement is conditioned, among other
things, on receipt of approvals of various franchise and other governmental
authorities and receipt of "minority tax certificates" from the FCC. Both
Houses of Congress have passed legislation to repeal previous legislation
which provided for minority tax certificates. The bills are currently in
conference. There can be no assurance that the conditions precedent to closing
the asset purchase will be satisfied, or that the parties will be able to agree
on different terms, if necessary. Separately, TCI and Viacom have reached
agreement regarding the settlement of litigation currently pending between
them. Final settlement of the litigation will be subject, among other things,
to the effectiveness of a new affiliation agreement covering TCI's long-term
carriage of Showtime and The Movie Channel. Effectiveness of this affiliation
agreement, in turn, is subject to certain conditions, including completion of
the cable transactions described above.
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TCI, through its indirect wholly-owned subsidiary, TCID-IP IV, Inc.
("TCID-IP IV"), would hold a 25% limited partnership interest in IP-IV, and
IP-IV would in turn hold a 79% limited partnership interest in RCS Pacific. TCI
would account for its investment in IP-IV under the equity method of accounting.
It is anticipated that if the transactions contemplated by the Tele-Vue
Agreement are consummated, TCI's consolidated net income will be significantly
reduced because of losses allocable to TCID-IP IV from its investment in IP-IV.
As a result of the depreciation and amortization arising from allocation of the
purchase price to the assets to be acquired by RCS Pacific and as a result of
the interest expense resulting from the third party debt incurred by RCS
Pacific to finance the acquisition, it is expected that RCS Pacific will incur
losses for some time after the acquisition.
Pursuant to an Agreement and Plan of Merger dated as of August 4,
1994, as amended (the "QVC Merger Agreement"), QVC Programming Holdings, Inc.
(the "Purchaser"), a corporation which is jointly owned by Comcast and Liberty,
commenced an offer (the "QVC Tender Offer") to purchase all outstanding shares
of common stock and preferred stock of QVC, Inc. ("QVC").
The QVC Tender Offer expired at midnight, New York City time, on
February 9, 1995, at which time the Purchaser accepted for payment all shares
of QVC which had been tendered in the QVC Tender Offer. Following consummation
of the QVC Tender Offer, the Purchaser was merged with and into QVC with QVC
continuing as the surviving corporation. The Company owns an approximate 43%
interest of the post-merger QVC.
In connection with the financing of the QVC merger, the Purchaser
entered into a credit facility. The credit facility is secured by
substantially all of the assets of QVC. In addition, Comcast and Liberty have
pledged their shares of QVC (as the surviving corporation following the QVC
merger) pursuant to the credit facility. Neither Liberty nor Comcast has
provided any guarantees of the credit facility.
In connection with the transactions contemplated under a stockholders
agreement entered into among Comcast, Liberty and the Purchaser, TCI has
undertaken to cause Liberty to comply with each of its representations,
warranties, covenants, agreements and obligations under the stockholders
agreement. All such undertakings will terminate at such time as equity
securities of Liberty or the Liberty Group Common Stock have been distributed
and such securities impute a market capitalization of Liberty in excess of $2
billion.
Upon consummation of the aforementioned QVC transactions, the Company
is deemed to exercise significant influence over QVC and, as such, will account
for its investment in QVC under the equity method. Had the Company accounted
for its investment under the equity method during 1994, the Company would have
reflected additional share of earnings of QVC of $8 million (of which $1
million would have been included in the Company's share of Liberty's earnings
prior to the TCI/Liberty Combination). Additionally, the Company's investment
in QVC, its deferred tax liability and its unrealized gain from
available-for-sale securities would have been reduced by $216 million, $89
million and $127 million, respectively, had the Company accounted for its
investment in QVC under the equity method during 1994. The 1994 consolidated
financial statements will be restated in the first quarter of 1995.
Pursuant to an underwritten public offering, the Company sold
19,550,000 shares of TCI Class A common stock in February of 1995. The Company
received net proceeds of approximately $401 million. Such proceeds were
immediately used to reduce outstanding indebtedness under credit facilities.
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The Company's assets consist primarily of investments in its
subsidiaries. The Company's rights, and therefore the extent to which the
holders of the Company's preferred stocks will be able to participate in the
distribution of assets of any subsidiary upon the latter's liquidation or
reorganization, will be subject to prior claims of the subsidiary's creditors,
including trade creditors, except to the extent that the Company may itself be
a creditor with recognized claims against such subsidiary (in which case the
claims of the Company would still be subject to the prior claims of any secured
creditor of such subsidiary and of any holder of indebtedness of such
subsidiary that is senior to that held by the Company).
The Company's ability to pay dividends on any classes or series of
preferred stock is dependent upon the ability of the Company's subsidiaries to
distribute amounts to the Company in the form of dividends, loans or advances
or in the form of repayment of loans and advances from the Company. The
subsidiaries are separate and distinct legal entities and have no obligation,
contingent or otherwise, to pay the dividends on any class or series of
preferred stock of TCI or to make any funds available therefor, whether by
dividends, loans or their payments. The payment of dividends, loans or
advances to the Company by its subsidiaries may be subject to statutory or
regulatory restrictions, is contingent upon the cash flows generated by those
subsidiaries and is subject to various business considerations. Further,
certain of the Company's subsidiaries are subject to loan agreements that
prohibit or limit the transfer of funds by such subsidiaries to the Company in
the form of dividends, loans, or advances and require that such subsidiaries'
indebtedness to the Company be subordinate to the indebtedness under such loan
agreements. The amount of net assets of subsidiaries subject to such
restrictions exceeds the Company's consolidated net assets. The Company's
subsidiaries currently have the ability to transfer funds to the Company in
amounts exceeding the Company's dividend requirement on any class or series of
preferred stock. Net cash provided by operating activities of subsidiaries
which are not restricted from making transfers to the parent company have been
and are expected to continue to be sufficient to enable the parent company to
meet its cash obligations.
Subsidiaries of the Company had approximately $1.8 billion in unused
lines of credit at December 31, 1994 excluding amounts related to lines of
credit which provide availability to support commercial paper. Although
subsidiaries of the Company were in compliance with the restrictive covenants
contained in their credit facilities at said date, additional borrowings under
the credit facilities are subject to the subsidiaries' continuing compliance
with such restrictive covenants (which relate primarily to the maintenance of
certain ratios of cash flow to total debt and cash flow to debt service, as
defined). The Company believes that the aforementioned FCC 1993 and 1994 rate
regulations will not materially impact the availability under its subsidiaries'
lines of credit or its ability to repay indebtedness as it matures. See note 7
to the accompanying consolidated financial statements for additional
information regarding the material terms of the subsidiaries' lines of credit.
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One measure of liquidity is commonly referred to as "interest
coverage." Interest coverage, which is measured by the ratio of Operating Cash
Flow (operating income before depreciation, amortization and other non-cash
operating credits or charges)($1,798 million, $1,858 million and $1,637 million
in 1994, 1993 and 1992, respectively) to interest expense ($785 million, $731
million and $718 million in 1994, 1993 and 1992, respectively), is determined
by reference to the consolidated statements of operations. The Company's
interest coverage ratio was 229%, 254% and 228% for 1994, 1993 and 1992,
respectively. Management of the Company believes that the foregoing interest
coverage ratio is adequate in light of the consistency and nonseasonal nature
of its cable television operations and the relative predictability of the
Company's interest expense, almost half of which results from fixed rate
indebtedness. Operating Cash Flow is a measure of value and borrowing capacity
within the cable television industry and is not intended to be a substitute for
cash flows provided by operating activities, a measure of performance prepared
in accordance with generally accepted accounting principles, and should not be
relied upon as such.
In order to achieve the desired balance between variable and fixed
rate indebtedness and to diminish its exposure to extreme increases in variable
interest rates, the Company has entered into various interest rate exchange
agreements and interest rate hedge agreements. Pursuant to the interest rate
exchange agreements, the Company pays (i) fixed interest rates ranging from
7.2% to 9.9% on notional amounts of $550 million at December 31, 1994 and (ii)
variable interest rates on notional amounts of $2,605 million at December 31,
1994. During the years ended December 31, 1994, 1993 and 1992, the Company's
net payments pursuant to its fixed rate exchange agreements were $26 million,
$38 million and $46 million, respectively. During the years ended December 31,
1994, 1993 and 1992, the Company's net receipts pursuant to its variable rate
exchange agreements were $36 million, $31 million and $7 million, respectively.
The Company's interest rate hedge agreements fix the maximum variable interest
rates on notional amounts of $325 million at 11%. The Company is exposed to
credit losses for the periodic settlements of amounts due under the interest
rate exchange agreements in the event of nonperformance by the other parties to
the agreements. However, the Company does not anticipate that it will incur
any material credit losses because it does not anticipate nonperformance by the
counterparties.
Approximately thirty-five percent of the franchises held by the
Company, involving approximately 3.8 million basic subscribers, expire within
five years. There can be no assurance that the franchises for the Company's
systems will be renewed as they expire although the Company believes that its
cable television systems generally have been operated in a manner which
satisfies the standards established by the Cable Communications Policy Act of
1984 (the "1984 Cable Act"), as supplemented by the renewal provisions of the
1992 Cable Act, for franchise renewal. However, in the event they are renewed,
the Company cannot predict the impact of any new or different conditions that
might be imposed by the franchising authorities in connection with the
renewals. To date they have not varied significantly from the original terms.
The Company competes with operators who provide, via alternative
methods of distribution, the same or similar video programming as that offered
by the Company's cable systems. Technologies competitive with cable television
have been encouraged by Congress and the FCC. One such technology is direct
broadcast satellite ("DBS"). DBS services are offered directly to subscribers
owning home satellite dishes that vary in size depending upon the power of the
satellite; two DBS operators recently began offering nationwide video services
that can be received by a satellite that measures approximately eighteen inches
in diameter. DBS operators can acquire the right to distribute over satellite
all of the significant cable television programming currently available on the
Company's cable systems. As the cost of equipment needed to receive these
transmissions declines, the Company expects that it will experience increased
and substantial competition from DBS operators.
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The 1984 Cable Act and FCC rules prohibit telephone companies from
offering video programming directly to subscribers in their telephone service
areas (except in limited circumstances in rural areas). However, a number of
Federal Court decisions have held that the cross-entry prohibition in the 1984
Cable Act is unconstitutional as a violation of the telephone company's First
Amendment right to free expression. In addition, certain proposals are also
pending before the FCC and Congress which would eliminate or relax these
restrictions on telephone companies. As the current cross-entry restrictions
are removed or relaxed, the Company will face increased competition from
telephone companies which, in most cases, have greater financial resources than
the Company. All major telephone companies have announced plans to acquire
cable television systems or provide video services to the home through fiber
optic technology.
The FCC authorized the provision of so-called "video-dialtone"
services by which independent video programmers may deliver services to the
home over telephone-provided circuits, thereby by-passing the local cable
system or other video provider. Under the FCC decision, such services would
require no local franchise agreement or payment to the city or local
governmental authority. Although telephone companies providing
"video-dialtone" were originally allowed only a limited financial interest in
programming services and their role was limited largely to that of a
traditional "common carrier," the FCC recently has proposed relaxation of these
restrictions and has authorized some telephone companies to offer programming
services directly to subscribers. Telephone companies have filed numerous
applications with the FCC for authorization to construct video-dialtone systems
to provide such services. This alternative means of distributing video
services to the consumer's home represents a direct competitive threat to the
Company.
The Company's entertainment and information programming services
subsidiaries and 50% owned affiliates lease satellite transponders as follows:
6 full time leases and one shared lease on a "protected" or "transponder
protected" basis, and 15 full time "unprotected" leases for an aggregate of 21
transponders on 10 domestic and 2 international communications satellites.
Domestic communications satellite transponders may be leased full or part time
on a "protected", "transponder protected" or "unprotected" basis. When the
carrier provides services to a customer on a "protected" basis, replacement
transponders are reserved on board the satellite for use in the event the
"protected" transponder fails. Should there be no reserve transponders
available, the "protected" customer will displace an "unprotected" transponder
customer on the same satellite. In certain cases, the carrier also maintains a
protection satellite and should a satellite fail completely, all lessors'
"protected" transponders would be moved to the protection satellite. The
customer who leases an "unprotected" transponder has no reserve transponders
available, and may have its service interrupted for an indefinite period when
its transponder is required to restore a "protected" service.
Although the Company believes it has taken reasonable steps to ensure
its continued satellite transmission capability, there can be no assurance that
termination or interruption of satellite transmissions will not occur. Such a
termination or interruption of service by one or more of these satellites could
have a material adverse effect on the results of operations and financial
condition of the programming group.
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The availability of replacement satellites and transponder time beyond
current leases is dependent on a number of factors over which the Company has
no control, including competition among prospective users for available
transponders and the availability of satellite launching facilities for
replacement satellites. Many of the commercial satellites now in orbit will
have to be replaced in the next few years. The federal government has placed
restrictions on the launching of commercial satellites by means of the space
shuttle, causing manufacturers of commercial satellites to rely on alternative
delivery systems to place these satellites in orbit. Additional commercial
launching facilities are being developed currently, but there can be no
assurance that the launch systems currently in place, or to be developed, will
be able to replace the domestic communications satellites as their useful lives
end.
The Company is currently the sole satellite carrier of WTBS, a 24-hour
independent UHF television station originated by TBS to cable television system
operators and operators of other non-broadcast distribution media who receive
the signal on their earth stations and offer the service to their subscribers.
Other independent television stations are transmitted by other carriers.
Southern does not have an agreement with TBS with respect to the retransmission
of the WTBS signal and there are no specific statutory or regulatory
restrictions that would prevent any satellite carrier from transmitting the
WTBS signal so long as the carrier meets the passive carrier requirements of
the Copyright Revision Act of 1976, as amended and any applicable requirements
of the Communications Act of 1934, as amended, or, if the carrier serves home
satellite dish owners, so long as the carrier meets the requirements of the
Satellite Home Viewer Act of 1988. Further, Southern has no control over the
programming on such station. TBS produces and distributes other cable
programming services, and TBS has and may be expected to continue to give
priority to the programming needs of such services in allocating programming
owned by it or to which it has national distribution rights. Southern's
business could be adversely affected by any change in the type, mix or quality
of the programming on WTBS that results in the service being less desirable to
cable operators and their subscribers. TBS derives significant revenue from
the sale of advertising time on WTBS, however, and the Company therefore
believes that TBS has an economic incentive to maintain the audience appeal of
WTBS's programming.
The Company is upgrading and installing optical fiber in its cable
systems at a rate such that in two years TCI anticipates that it will be
serving the majority of its customers with state-of-the-art fiber optic cable
systems. The Company made capital expenditures of $1,264 million in 1994 and
the Company expects to expend similar amounts in 1995 to provide for the
continued rebuilding of its cable systems. However, such proposed expenditures
are subject to reevaluation based upon changes in the Company's liquidity,
including those resulting from rate regulation.
The Company is obligated to pay fees for the license to exhibit
certain qualifying films that are released theatrically by various motion
picture studios through December 31, 2006 (the "Film License Obligations").
The aggregate minimum liability under certain of the license agreements is
approximately $405 million. The aggregate amount of the Film License
Obligations under other license agreements is not currently estimable because
such amount is dependent upon the number of qualifying films produced by the
motion picture studios, the amount of United States theatrical film rentals for
such qualifying films, and certain other factors. Nevertheless, the Company's
aggregate payments under the Film License Obligations could prove to be
significant.
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The Company intends to continue to develop its entertainment and
information programming services and has made certain financial commitments
related to the acquisition of programming. The Company's obligation for
certain sports program rights contracts as of December 31, 1994 was $170
million. It is expected that sufficient cash will be generated by the
programming services to satisfy these commitments. However, the continued
development of such services may require additional financing and it cannot be
predicted whether the Company will obtain such financing on terms acceptable to
the Company.
The Company believes that it has complied, in all material respects,
with the provisions of the 1992 Cable Act, including its rate setting
provisions. However, the Company's rates for Regulated Services are subject to
adjustment upon review, as described above. If, as a result of the review
process, a system cannot substantiate its rates, it could be required to
retroactively reduce its rates to the appropriate benchmark and refund the
excess portion of rates received. Any refunds of the excess portion of tier
service rates would be retroactive to the date of complaint. Generally, any
refunds of the excess portion of all other Regulated Services rates would be
retroactive to the later of September 1, 1993, or one year prior to the
implementation of the rate reduction. The amount of refunds, if any, which
could be payable by the Company in the event that any system's rates were to be
successfully challenged, is not considered to be material.
The Company believes that the FCC's comprehensive system of rate
regulation, including regulation of the changes in rates when programming
services are added or deleted from service tiers, also may have an adverse
effect on the programming services in which the Company has an ownership
interest by limiting the carriage of such services and/or the ability and
willingness of cable operators to pay the rights fees for such carriage.
The FCC has adopted rules providing for mandatory carriage by cable
systems after September 1, 1993 of all local full-power commercial television
broadcast signals (up to one-third of all channels), including the signals of
stations carrying home-shopping programming after October 6, 1993, and,
depending on a cable system's channel capacity, non-commercial television
broadcast signals. Alternatively, after October 6, 1993, commercial
broadcasters have the right to deny such carriage unless they grant
retransmission consent. The "must-carry" statutory provisions and regulations
remain in effect pending the outcome of ongoing judicial proceedings to resolve
challenges to their constitutionality. TCI believes that, by requiring such
carriage of broadcast signals, these regulations may adversely affect the
ability of TCI's programming services to obtain carriage on cable systems with
limited channel capacity. To the extent that carriage is thereby limited, the
subscriber and advertising revenues available to TCI's programming services
also will be limited. However, as discussed above, such regulations have
resulted in expanded cable distribution of HSN, which is carried by a number of
full-power commercial broadcast television stations.
The FCC has adopted regulations limiting carriage by a cable operator
of national programming services in which that operator holds an attributable
interest to 40 percent of the first 75 activated channels on each of the
operator's systems. The rules provide for the use of two additional channels
or a 45 percent limit, whichever is greater, provided that the additional
channels carry minority controlled programming services. The regulations
grandfather existing carriage arrangements which exceed the channel limits, but
require new channel capacity to be devoted to unaffiliated programming services
until the system achieves compliance with the regulations. Channels beyond the
first 75 activated channels are not subject to such limitations, and the rules
do not apply to local or regional programming services. These rules, which
currently are subject to pending petitions for reconsideration before the FCC,
may limit carriage of the Company's programming services on certain cable
systems of cable operators in which TCI has ownership interests.
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On September 23, 1993, the FCC also adopted regulations establishing a
30% limit on the number of homes passed nationwide that a cable operator may
reach through cable systems in which it holds an attributable interest, with an
increase to 35% if the additional cable systems are minority controlled.
However, the FCC stayed the effectiveness of its ownership limits pending the
appeal of a September 16, 1993 decision by the United States District Court for
the District of Columbia which, among other things, found unconstitutional the
provision of the 1992 Cable Act requiring the FCC to establish such ownership
limits. Under the FCC regulations, if the ownership limits are determined to
be constitutional, they may limit TCI's future ability to acquire interests in
additional cable systems.
A number of petitions for reconsideration of various aspects of the
regulations implementing the 1992 Cable Act remain pending before the FCC.
Petitions for judicial review of regulations adopted by the FCC, as well as
other court challenges to the 1992 Cable Act and the FCC's regulations, also
remain pending. The Company is uncertain how the courts and/or the FCC
ultimately will rule or whether such rulings will materially change any
existing rules or statutory requirements.
The Company's various partnerships and other affiliates accounted for
under the equity method generally fund their acquisitions, required debt
repayments and capital expenditures through borrowings under and refinancing of
their own credit facilities (which are generally not guaranteed by the Company)
and through net cash provided by their own operating activities.
The Company's subsidiaries generally finance acquisitions and capital
expenditures through net cash provided by operating and financing activities.
Amounts expended for acquisitions and capital expenditures exceed net cash
provided by operating activities. However, management believes that net cash
provided by operating activities, the ability of the Company and its
subsidiaries to obtain additional financing (including the subsidiaries
available lines of credit and access to public debt markets), issuances and
sales of the Company's equity or equity of its subsidiaries, proceeds from
disposition of assets will provide adequate sources of short-term and long-term
liquidity in the future. See the Company's consolidated statements of cash
flows included in the accompanying consolidated financial statements.
TCI COMMUNICATIONS, INC.
General
During the fourth quarter of 1994, TCI was reorganized based upon four
lines of business: Domestic Cable and Communications; Programming;
International Cable and Programming; and Technology/Venture Capital (the
"Reorganization"). Upon Reorganization, certain of the assets of TCIC (the
most significant of which were TCIC's investments in TBS, Discovery
Communications, Inc. ("Discovery") and TeleWest UK) were transferred to the
other operating units. As consideration for such transfers of assets, TCIC
received 8 shares of TCI Class A common stock and 169,155 shares of TCI
Redeemable Convertible Preferred Stock, Series E with a liquidation value of
$22,303 per share. Such investment in TCI has been reflected at TCIC's
historical cost of the transferred assets and is included as a reduction of
stockholder's(s') equity.
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Summary of Operations
The following table sets forth, for the periods indicated, the
percentage relationship that certain items bear to revenue and the percentage
increase or decrease of the dollar amount of such items as compared to the
prior period. This summary provides trend data relating to TCIC's normal
recurring operations. Other items of significance are discussed separately
under the captions "Other Income and Expense", "Income Taxes" and "Net Loss"
below.
Relationship to
Revenue Period to Period
Years ended Increase
December 31, Years ended
---------------------- December 31,
1994 1993 1993-94
---- ---- -------------
Revenue 100% 100% 4%
Operating costs and
expenses before
depreciation and
amortization 58 56 8%
Depreciation and
amortization 23 22 8%
---- ----
Operating income 19% 22% (11)%
==== ====
Revenue increased by approximately 4% from 1993 to 1994. Such
increase was the result of growth in subscriber levels within TCIC's cable
television systems (5%), the effect of certain acquisitions (2%) and certain
new services (1%), net of a decrease in revenue (4%) due to rate reductions
required by rate regulation implemented pursuant to the 1992 Cable Act. In the
second half of 1994, TCIC experienced an additional decrease, in the excess of
that which was incurred in 1993, in price charged for those services that are
subject to rate regulation under the 1992 Cable Act.
On October 5, 1992, Congress enacted the 1992 Cable Act. In 1993 and
1994, the FCC adopted certain rate regulations required by the 1992 Cable Act
and imposed a moratorium on certain rate increases. As a result of such
actions, TCIC's Regulated Services are subject to the jurisdiction of local
franchising authorities and the FCC.
TCIC estimates that the FCC's 1993 and 1994 rate regulations will
result in an aggregate annualized reduction of revenue and operating income
ranging from $280 million to $300 million based upon rates charged prior to
implementation of such regulation. The estimated annualized reduction in
revenue assumes that the FCC will not require further reductions beyond the
current regulations and is prior to any possible mitigating factors (none of
which is assured) such as (i) the provision of alternate service offerings (ii)
the implementation of rate adjustments to non-regulated services and (iii) the
utilization of cost-of-service methodologies, as described below.
Cable operators may justify rates higher than the benchmark rates
established by the FCC through demonstrating higher costs based upon a
cost-of-service showing. Under this methodology, cable operators may be
allowed to recover through the rates they charge for Regulated Services, their
normal operating expenses plus an interim rate of return of 11.25% on the rate
base, as defined, which rate may be subject to change in the future.
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The FCC rate regulations govern changes in the rates which cable
operators may charge when adding or deleting a service from a regulated tier of
service. The FCC substantially revised its rules for adding and deleting
services in November 1994 and has provided an alternative methodology for
adding services to cable programming service tiers which includes a flat fee
increase per added channel and an aggregate limit on such increases with an
additional license fee reserve. The FCC's rate regulations also permit cable
operators to "pass through" increases in programming costs and certain other
external costs which exceed the rate of inflation. However, a cable operator
may pass through increases in the cost of programming services affiliated with
such cable operator to the extent such costs exceed the rate of inflation only
if the price charged by the programmer to the affiliated cable operator
reflects prevailing prices offered in the marketplace by the programmer to
unaffiliated third parties or the fair market value of the programming.
Based on the foregoing, TCIC believes that the 1993 and 1994 rate
regulations have had and will continue to have a material adverse effect on its
results of operations.
Operating costs and expenses before depreciation and amortization have
increased by 8% for the year ended December 31, 1994 compared to the
corresponding period of 1993. TCIC incurred $29 million of programming and
marketing costs associated with the launch in 1994 of a new premium programming
service to its subscribers. Such premium programming service became a part of
the Programming unit in the Reorganization. TCIC cannot determine whether and
to what extent increases in the cost of programming will effect its operating
costs. However, such programming costs have increased at a greater percentage
than increases in revenue of Regulated Services. In 1993, TCIC incurred
certain one-time direct charges relating to the implementation of the FCC rate
regulations. Due to a program to upgrade and install optical fiber in its
cable systems, TCIC's capital expenditures and depreciation expense have
increased. TCIC recorded an adjustment of $5 million in 1994 to reduce its
liability for compensation relating to stock appreciation rights resulting from
a decline in the market price of TCIC's Class A common stock. TCIC made several
separate grants (in 1992 and 1993) of stock options issued in tandem with stock
appreciation rights. TCIC recorded compensation relating to such stock
appreciation rights of $31 million in 1993.
Effective April 1, 1993, based upon changes in FCC regulations, TCIC
revised its estimate of the useful lives of certain distribution equipment to
correspond to TCIC's anticipated remaining period of ownership of such
equipment. The revision resulted in a decrease in net earnings of
approximately $12 million (or $.03 per share) for the year ended December 31,
1993.
Other Income and Expense
TCIC's weighted average interest rate on borrowings was 7.5% and 7.2%
during 1994 and 1993, respectively. At December 31, 1994, after considering
the net effect of various interest rate hedge and exchange agreements (see
note 6 to the consolidated financial statements) with notional amounts
aggregating $1,730 million, TCIC had $4,770 million (or 45%) of fixed-rate debt
with a weighted average interest rate of 8.9% and $5,942 million (or 55%) of
variable-rate debt with interest rates approximating the prime rate (8.5% at
December 31, 1994).
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TCIC had an investment in TeleWest UK, a company that is currently
operating and constructing cable television and telephone systems in the UK.
TeleWest UK, which was accounted for under the equity method comprised $40
million and $28 million of TCIC's share of its affiliates' losses in 1994 and
1993, respectively. In February 1994, TCIC acquired a consolidated investment
in Flextech. Flextech accounted for net losses in 1994 of $21 million (before
deducting the minority interests' 40% share of such losses). In addition, TCIC
had other less significant investments in video distribution and programming
businesses located in the UK, other parts of Europe, Asia, Latin America and
certain other foreign countries. In the aggregate, such other investments
accounted for $44 million of TCIC's share of its affiliates' losses in 1994.
In connection with the Reorganization, TCIC's ownership in the aforementioned
entities was transferred to another operating unit effective December 1, 1994,
and TCIC is no longer exposed to the risk associated with unfavorable
fluctuations in foreign currency exchange rates nor will it continue to incur
the aforementioned losses associated with such investments.
In November of 1994, TCI and US WEST, Inc. each exchanged their
respective 50% ownership interest in TeleWest UK for 302,250,000 ordinary
shares and 76,500,000 convertible preference shares of Telewest Communications.
Following the completion of the TeleWest Exchange, TeleWest Communications
conducted an initial public offering in November of 1994 in which it sold
243,740,000 ordinary shares for aggregate net proceeds of pounds sterling 401
million. Upon completion of the TeleWest Exchange and the TeleWest IPO, TCI
and US WEST, Inc. each became the owners of 36% of the ordinary shares and
38% of the total outstanding ordinary and convertible preference shares of
TeleWest Communications. As a result of the TeleWest IPO and the associated
dilution of TCI's ownership interest of TeleWest Communications, TCIC has
recognized a nonrecurring pre-tax gain amounting to $161 million. There is no
assurance that TCIC will realize similar nonrecurring gains in future periods.
Due to the significant economic interest held by TCIC through its
ownership of Liberty preferred stock and Liberty common stock and other related
party considerations, TCIC accounted for its investment in Liberty under the
equity method. Accordingly, TCIC had not recognized any income relating to
dividends, including preferred stock dividends, and TCIC recorded the earnings
or losses generated by Liberty (by recognizing 100% of Liberty's earnings or
losses before deducting preferred stock dividends) through the date the
TCI/Liberty Combination were consummated.
On July 11, 1994, Rainbow purchased 49.9% of Liberty's 50% general
partnership interest in AMC. The gain recognized by Liberty in connection with
the disposition of AMC was $183 million and is included in TCIC's share of
Liberty's earnings prior to the TCI/Liberty Combination.
TCIC recognized share of earnings from Discovery of $5 million and $6
million in 1994 and 1993, respectively. Subsequent to the Reorganization, TCIC
will no longer include such share of earnings in its operations.
TCIC sold certain investments and other assets for an aggregate net
pre-tax gain of $42 million in 1993.
During 1994 and 1993, TCIC recorded losses of $9 million and $17
million, respectively, from early extinguishments of debt. There may be
additional losses associated with early extinguishments of debt in the future.
Interest and dividend income was $35 million and $34 million in 1994
and 1993, respectively. Included in each amount was $5 million of dividends
earned on TCIC's investment in TBS. Subsequent to the Reorganization, TCIC
will no longer be the recipient of such stock dividends.
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Income Taxes
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%. TCIC reflected the tax rate change in its consolidated statements of
operations. Such tax rate change resulted in an increase of $76 million to
TCIC's income tax expense and deferred income tax liability in the third
quarter of 1993.
Net Earnings (Loss)
TCIC's net earnings of $92 million for the year ended December 31,
1994 represented an increase of $99 million as compared to TCIC's net loss
(before preferred stock dividends) of $7 million for the corresponding period
of 1993. Such increase is principally the result of the effect of improved
share of earnings from Liberty prior to the TCI/Liberty Combination
(principally resulting from the gain recognized by Liberty upon the sale of its
investment in AMC), TCIC's recognition of a nonrecurring gain resulting from
the TeleWest IPO and the associated dilution of TCIC's ownership interest in
TeleWest Communications, and the reduction in income tax expense (principally
resulting from the required recognition in the third quarter of 1993 of the
cumulative effect of the change in the Federal income tax rate from 34% to
35%), net of the effect of the aforementioned reduction in rates charged for
Regulated Services and the decrease in gain on disposition of assets.
Inflation has not had a significant impact on TCIC's results of
operations during the two-year period ended December_31, 1994.
Recent Accounting Pronouncements
In November of 1992, the FASB issued Statement No. 112. As TCIC's
present accounting policies generally are in conformity with the provisions of
Statement No. 112, TCIC does not believe that Statement No. 112 will have a
material effect on TCIC. Statement No. 112 is effective for years beginning
after December 31, 1994.
In May 1993, the FASB issued Statement No. 115, effective for fiscal
years beginning after December 15, 1993. Under Statement No. 115, debt
securities that TCIC has both the positive intent and ability to hold to
maturity are carried at amortized cost. Debt securities that TCIC does not
have the positive intent and ability to hold to maturity and all marketable
equity securities are classified as available-for-sale or trading and are
carried at fair value. Unrealized holding gains and losses on securities
classified as available-for-sale are carried net of taxes as a separate
component of stockholder's(s') equity. Unrealized holding gains and losses
classified as trading are reported in earnings.
TCIC applied Statement No. 115 beginning in the first quarter of 1994.
Application of Statement No. 115 resulted in a net increase of $304 million to
stockholder's(s') equity on January 1, 1994, representing the recognition of
unrealized appreciation, net of taxes, for TCIC's investments in marketable
equity securities determined to be available-for-sale. Such amount was
subsequently reduced by $139 million immediately prior to the Reorganization.
In conjunction with the Reorganization, TCIC transferred its investments in
certain marketable equity securities, the most significant of which was its
investment in TBS common stock. As a result, TCIC's unrealized holding gain
for available-for-sale securities, net of taxes, was reduced by $163 million in
the Reorganization.
The FASB has recently issued other accounting pronouncements which are
not yet effective. TCIC does not expect that these pronouncements will have a
material effect on TCIC's consolidated financial statements.
II-24
81
Item 8. Financial Statements and Supplementary Data.
The consolidated financial statements of Tele-Communications, Inc. are
filed under this Item, beginning on Page II-26 and the consolidated financial
statements of TCI Communications, Inc. are filed under this Item, beginning on
Page II-75. The financial statement schedules required by Regulation S-X are
filed under Item 14 of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
II-25
82
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Tele-Communications, Inc.:
We have audited the accompanying consolidated balance sheets of
Tele-Communications, Inc. and subsidiaries as of December 31, 1994 and 1993,
and the related consolidated statements of operations, stockholders' equity,
and cash flows for each of the years in the three-year period ended
December 31, 1994. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of
Tele-Communications, Inc. and subsidiaries as of December 31, 1994 and 1993,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1994, in conformity with generally
accepted accounting principles.
As discussed in notes 1 and 5 to the consolidated financial statements, the
Company adopted the provisions of Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities" in
1994.
KPMG Peat Marwick LLP
Denver, Colorado
March 27, 1995
II-26
83
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Consolidated Balance Sheets
December 31, 1994 and 1993
1994 1993
------------------ -----------------
Assets amounts in millions
------
Cash $ 74 1
Trade and other receivables, net 301 232
Inventories, net 121 --
Investment in Liberty Media Corporation
("Liberty") (note 3) -- 489
Investments in affiliates, accounted for
under the equity method, and related
receivables (note 4) 1,215 645
Investment in Turner Broadcasting System, Inc.
("TBS") (note 5) 660 491
Investment in QVC, Inc. ("QVC") (note 6) 281 2
Property and equipment, at cost:
Land 91 73
Distribution systems 7,705 6,629
Support equipment and buildings 1,085 818
Computer and broadcast equipment 61 --
-------- ------
8,942 7,520
Less accumulated depreciation 3,066 2,585
-------- ------
5,876 4,935
-------- ------
Franchise costs 11,152 10,620
Less accumulated amortization 1,708 1,423
-------- ------
9,444 9,197
-------- ------
Other assets, at cost, net of amortization 1,556 528
-------- ------
$ 19,528 16,520
======== ======
(continued)
II-27
84
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Consolidated Balance Sheets, continued
December 31, 1994 and 1993
1994 1993
------------------ -----------------
Liabilities and Stockholders' Equity amounts in millions
------------------------------------
Accounts payable $ 201 124
Accrued interest 183 157
Other accrued expenses 809 500
Debt (note 7) 11,162 9,900
Deferred income taxes (note 11) 3,613 3,310
Other liabilities 160 114
-------- ------
Total liabilities 16,128 14,105
-------- ------
Minority interests in equity
of consolidated subsidiaries 429 285
Redeemable preferred stocks (note 8) -- 18
Stockholders' equity (note 9):
Series Preferred Stock, $.01 par value -- --
Class B 6% Cumulative Redeemable
Exchangeable Junior Preferred Stock,
$.01 par value -- --
Convertible Preferred Stock, Series C,
$.01 par value -- --
Class A common stock, $1 par value
Authorized 1,100,000,000 shares;
issued 576,979,498 shares in 1994
and 481,837,347 shares in 1993 577 482
Class B common stock, $1 par value
Authorized 150,000,000 shares;
issued 89,287,429 shares in 1994
and 47,258,787 shares in 1993 89 47
Additional paid-in capital 2,959 2,293
Cumulative foreign currency
translation adjustment, net of taxes (4) (29)
Unrealized holding gains for
available-for-sale securities, net of taxes 253 --
Accumulated deficit (293) (348)
-------- ------
3,581 2,445
Treasury stock, at cost (86,030,992 and
79,335,038 shares of Class A common
stock in 1994 and 1993 and 4,172,629
shares of Class B common stock in 1994) (610) (333)
-------- ------
Total stockholders' equity 2,971 2,112
-------- ------
Commitments and contingencies (note 12)
$ 19,528 16,520
======== ======
See accompanying notes to consolidated financial statements.
II-28
85
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Consolidated Statements of Operations
Years ended December 31, 1994, 1993 and 1992
1994 1993 1992
-------- -------- --------
amounts in millions,
except per share amounts
Revenue (note 13):
From cable and programming services (note 3) $ 4,454 4,153 3,574
Net sales from home shopping services 482 -- --
-------- ----- -----
4,936 4,153 3,574
-------- ----- -----
Operating costs and expenses:
Operating (note 3) 1,445 1,190 1,028
Cost of sales 313 -- --
Selling, general and administrative (note 4) 1,380 1,105 909
Compensation relating to stock
appreciation rights -- 31 1
Adjustment to compensation relating to stock
appreciation rights (8) -- --
Restructuring charge -- -- 8
Depreciation 700 622 512
Amortization 318 289 252
-------- ----- -----
4,148 3,237 2,710
-------- ----- -----
Operating income (note 13) 788 916 864
Other income (expense):
Interest expense (785) (731) (718)
Interest and dividend income 36 34 69
Share of earnings of Liberty (note 3) 125 4 22
Share of losses of other affiliates, net (note 4) (120) (76) (105)
Gain on sale of stock by equity investee (note 4) 161 -- --
Gain (loss) on disposition of assets (10) 42 9
Premium received on redemption of
preferred stock investment (note 4) -- -- 14
Loss on early extinguishment of debt (9) (17) (67)
Minority interests in losses (earnings) of
consolidated subsidiaries, net 2 (5) (41)
Other, net (17) (6) (2)
-------- ----- -----
(617) (755) (819)
-------- ----- -----
Earnings from continuing operations
before income taxes 171 161 45
Income tax expense (note 11) (116) (168) (38)
-------- ----- -----
Earnings (loss) from continuing operations 55 (7) 7
Loss from discontinued operations,
net of income taxes (note 14) -- -- (15)
-------- ----- -----
Net earnings (loss) 55 (7) (8)
Dividend requirements on preferred stocks (8) (2) (15)
-------- ----- -----
Net earnings (loss) attributable
to common stockholders $ 47 (9) (23)
======== ===== =====
Primary and fully diluted earnings (loss)
attributable to common stockholders per
common and common equivalent share (note 1):
Continuing operations $ .09 (.02) (.01)
Discontinued operations -- -- (.04)
-------- ----- -----
$ .09 (.02) (.05)
======== ===== =====
See accompanying notes to consolidated financial statements.
II-29
86
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1994, 1993 and 1992
Cumulative
foreign
Class B Series C Common stock Additional currency
Preferred Preferred ------------------- paid-in translation
Stock Stock Class A Class B capital adjustment
-------- --------- ------- ------- ----------- ----------
amounts in millions
Balance at December 31, 1991 $ -- -- 449 49 1,738 --
Net loss -- -- -- -- -- --
Conversion of public debentures
(note 7) -- -- 7 -- 105 --
Issuance of common stock upon
exercise of options -- -- 1 -- 13 --
Issuance of Class A common
stock for acquisition and
investment -- -- 5 -- 93 --
Dividends on redeemable
preferred stocks -- -- -- -- (15) --
Foreign currency translation
adjustment -- -- -- -- -- (19)
Acquisition and retirement
of common stock -- -- -- (1) (25) --
------- ----- --- -- ----- ---
Balance at December 31, 1992 -- -- 462 48 1,909 (19)
Net loss -- -- -- -- -- --
Issuance of common stock
upon conversion of notes
(note 7) -- -- 20 -- 383 --
Issuance of common stock upon
exercise of options -- -- -- -- 7 --
Dividends on redeemable
preferred stocks -- -- -- -- (2) --
Foreign currency translation
adjustment -- -- -- -- -- (10)
Acquisition and retirement
of common stock -- -- -- (1) (4) --
------- ----- --- -- ----- ---
Balance at December 31, 1993 $ -- -- 482 47 2,293 (29)
------- ----- --- -- ----- ---
Unrealized
holding Note
gains for receivable
available- from Total
for-sale related Accumulated Treasury stockholders'
securities party deficit stock equity
---------- --------- ----------- -------- ---------------
amounts in millions
Balance at December 31, 1991 -- -- (333) (333) 1,570
Net loss -- -- (8) -- (8)
Conversion of public debentures
(note 7) -- -- -- -- 112
Issuance of common stock upon
exercise of options -- -- -- -- 14
Issuance of Class A common
stock for acquisition and
investment -- -- -- -- 98
Dividends on redeemable
preferred stocks -- -- -- -- (15)
Foreign currency translation
adjustment -- -- -- -- (19)
Acquisition and retirement
of common stock -- -- -- -- (26)
---- ---- ---- ---- -----
Balance at December 31, 1992 -- -- (341) (333) 1,726
Net loss -- -- (7) -- (7)
Issuance of common stock
upon conversion of notes
(note 7) -- -- -- -- 403
Issuance of common stock upon
exercise of options -- -- -- -- 7
Dividends on redeemable
preferred stocks -- -- -- -- (2)
Foreign currency translation
adjustment -- -- -- -- (10)
Acquisition and retirement
of common stock -- -- -- -- (5)
---- ---- ---- ---- -----
Balance at December 31, 1993 -- -- (348) (333) 2,112
---- ---- ---- ---- -----
(continued)
II-30
87
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Consolidated Statements of Stockholders' Equity, continued
Years ended December 31, 1994, 1993 and 1992
Cumulative
foreign
Class B Series C Common stock Additional currency
Preferred Preferred ------------------- paid-in translation
Stock Stock Class A Class B capital adjustment
-------- --------- ------- ------- ----------- ----------
amounts in millions
Balance at December 31, 1993 $ -- -- 482 47 2,293 (29)
Unrealized holding gains for
available-for-sale securities
as of January 1, 1994 (note 5) -- -- -- -- -- --
Net earnings -- -- -- -- -- --
Conversion of redeemable preferred
stock (note 8) -- -- 1 -- 17 --
Issuance of common stock upon
conversion of notes (note 7) -- -- 3 -- -- --
Issuance of common stock upon
exercise of stock option -- -- -- -- 3 --
Acquisition and retirement of
common stock -- -- -- -- (2) --
Consummation of the TCI/Liberty
Combination (notes 1 and 3) -- -- 85 42 383 --
Issuance of Series C Preferred
Stock in acquisition (note 9) -- -- -- -- 168 --
Accreted dividends on all classes of
preferred stock -- -- -- -- (8) --
Accreted dividends on all classes of
preferred stock not subject
to mandatory redemption
requirements -- -- -- -- 8 --
Payment of preferred stock
dividends -- -- -- -- (4) --
Foreign currency translation
adjustment -- -- -- -- -- 25
Issuance of TCI Class A common
stock to subsidiaries of TCI
in Reorganization -- -- -- -- (23) --
Issuance of Class A common stock
for investment -- -- 6 -- 124 --
Repayment of note receivable
from related party (note 9) -- -- -- -- -- --
Change in unrealized holding gains
for available-for-sale
securities (note 5) -- -- -- -- -- --
------- ----- --- -- ----- ---
Balance at December 31, 1994 $ -- -- 577 89 2,959 (4)
======= ===== === == ===== ===
Unrealized
holding Note
gains for receivable
available- from Total
for-sale related Accumulated Treasury stockholders'
securities party deficit stock equity
---------- --------- ----------- -------- ---------------
amounts in millions
Balance at December 31, 1993 -- -- (348) (333) 2,112
Unrealized holding gains for
available-for-sale securities
as of January 1, 1994 (note 5) 304 -- -- -- 304
Net earnings -- -- 55 -- 55
Conversion of redeemable
preferred stock (note 8) -- -- -- -- 18
Issuance of common stock upon
conversion of notes (note 7) -- -- -- -- 3
Issuance of common stock upon
exercise of stock option -- -- -- -- 3
Acquisition and retirement of
common stock -- -- -- -- (2)
Consummation of the TCI/Liberty
Combination (notes 1 and 3) 182 (15) -- (285) 392
Issuance of Series C Preferred
Stock in acquisition (note 9) -- -- -- -- 168
Accreted dividends on all
classes of preferred stock -- -- -- -- (8)
Accreted dividends on all
classes of preferred stock
not subject to mandatory
redemption requirements -- -- -- -- 8
Payment of preferred stock
dividends -- -- -- -- (4)
Foreign currency translation
adjustment -- -- -- -- 25
Issuance of TCI Class A common
stock to subsidiaries of TCI
in Reorganization -- -- -- 23 --
Issuance of Class A common stock
for investment -- -- -- -- 130
Repayment of note receivable
from related party (note 9) -- 15 -- (15) --
Change in unrealized holding
gains for available-for-sale
securities (note 5) (233) -- -- -- (233)
------ ---- --- ---- ----
Balance at December 31, 1994 253 -- (293) (610) 2,971
====== ==== === ==== =====
See accompanying notes to consolidated financial statements.
II-31
88
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Consolidated Statements of Cash Flows
Years ended December 31, 1994, 1993 and 1992
1994 1993 1992
------ ------ ------
amounts in millions
(see note 2)
Cash flows from operating activities:
Net earnings (loss) $ 55 (7) (8)
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation and amortization 1,018 911 764
Compensation relating to stock appreciation
rights -- 31 1
Adjustment to compensation relating to stock
appreciation rights (8) -- --
Payment for stock appreciation rights -- -- (80)
Share of earnings of Liberty (125) (4) (22)
Share of losses of other affiliates 120 76 105
Gain on sale of stock by equity investee (161) -- --
Deferred income tax expense 33 139 28
Minority interests in earnings (losses) (2) 5 41
Amortization of debt discount 1 27 27
Loss on early extinguishment of debt 9 17 67
Loss (gain) on disposition of assets 10 (42) (9)
Noncash interest expense 5 -- --
Premium received on preferred stock
investment redemption -- -- (14)
Payment of premium received on
preferred stock investment redemption -- 14 --
Noncash interest and dividend income (8) (7) (40)
Discontinued operations -- -- 15
Restructuring charge -- -- 8
Payment on restructuring charge -- (8) --
Changes in operating assets and liabilities,
net of the effect of acquisitions:
Change in receivables 15 (32) (3)
Change in inventories (26) -- --
Change in accrued interest 13 63 --
Change in other accruals and payables 56 68 77
----------- ----- ------
Net cash provided by operating activities 1,005 1,251 957
----------- ----- ------
(continued)
II-32
89
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Consolidated Statements of Cash Flows, continued
Years ended December 31, 1994, 1993 and 1992
1994 1993 1992
------ ------ ------
amounts in millions
(see note 2)
Cash flows from investing activities:
Cash paid for acquisitions (358) (158) (1,256)
Capital expended for property and equipment (1,264) (947) (526)
Cash proceeds from disposition of assets 39 149 66
Payment received on preferred
stock investment redemption -- 183 --
Cash proceeds from disposition of discontinued
operations -- -- 220
Discontinued operations -- -- 9
Additional investments in and
loans to affiliates and others (445) (361) (205)
Repayment of loans by affiliates and others 148 62 32
Return of capital from affiliates 24 1 1
Other investing activities (136) (99) (155)
------- ------ ------
Net cash used in investing activities (1,992) (1,170) (1,814)
------- ------ ------
Cash flows from financing activities:
Borrowings of debt 4,676 6,305 5,354
Repayments of debt (3,607) (6,321) (4,435)
Repayment of short-term notes to affiliate -- -- (22)
Preferred stock dividends of subsidiaries (6) (6) (6)
Preferred stock dividends (4) (2) (15)
Repurchases of preferred stock -- (92) (5)
Issuances of common stock 1 6 7
Repurchases of common stock -- (4) (19)
-------- ------ ------
Net cash provided (used) by financing
activities 1,060 (114) 859
-------- ------ ------
Net increase (decrease) in cash 73 (33) 2
Cash at beginning of year 1 34 32
-------- ------ ------
Cash at end of year $ 74 1 34
========= ====== ======
See accompanying notes to consolidated financial statements.
II-33
90
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
December 31, 1994, 1993 and 1992
(1) Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Tele-Communications, Inc. (formerly TCI/Liberty Holding Company) and those
of all majority-owned subsidiaries ("TCI" or the "Company"). All
significant intercompany accounts and transactions have been eliminated in
consolidation.
The TCI/Liberty Combination
As of January 27, 1994, TCI Communications, Inc. (formerly
Tele-Communications, Inc. or "Old TCI") and Liberty entered into a
definitive merger agreement (the "TCI/Liberty Merger Agreement") to combine
the two companies (the "TCI/Liberty Combination"). The transaction was
consummated on August 4, 1994 and was structured as a tax free exchange of
Class A and Class B shares of both companies and preferred stock of Liberty
for like shares of a newly formed holding company, TCI/Liberty Holding
Company. In connection with the TCI/Liberty Combination, Old TCI changed
its name to TCI Communications, Inc. ("TCIC") and TCI/Liberty Holding
Company changed its name to Tele-Communications, Inc. Old TCI shareholders
received one share of TCI for each of their shares. Liberty common
shareholders received 0.975 of a share of TCI for each of their common
shares (see note 3). Upon consummation of the TCI/Liberty Combination,
certain subsidiaries of TCIC exchanged the 79,335,038 shares of Old TCI
Class A common stock held by such subsidiaries for 79,335,038 shares of TCI
Class A common stock. Such ownership is reflected as treasury stock at
such subsidiaries' historical cost in the accompanying consolidated
financial statements.
Reorganization
During the fourth quarter of 1994, the Company was reorganized based upon
four lines of business: Domestic Cable and Communications; Programming;
International Cable and Programming; and Technology/Venture Capital (the
"Reorganization"). Upon Reorganization, certain of the assets of TCIC and
Liberty were transferred to the other operating units. As consideration
for such transfer of assets by TCIC and Liberty, TCI issued 317,112 shares
of TCI Class A common stock and 246,402 shares of Redeemable Convertible
Preferred Stock, Series E ("Series E Preferred Stock") (see note 9).
(continued)
II-34
91
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
Receivables
Receivables are reflected net of an allowance for doubtful accounts. Such
allowance at December 31, 1994 and 1993 was not material.
Inventories, net
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. The inventory balances are presented net of a reserve of $19
million at December 31, 1994.
Investments
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" ("Statement No. 115"), effective for fiscal
years beginning after December 15, 1993. Under Statement No. 115, debt
securities that the Company has both the positive intent and ability to
hold to maturity are carried at amortized cost. Debt securities that the
Company does not have the positive intent and ability to hold to maturity
and all marketable equity securities are classified as available-for-sale
or trading and carried at fair value. Unrealized holding gains and losses
on securities classified as available-for-sale are carried net of taxes as
a separate component of shareholders' equity. Unrealized holding gains and
losses on securities classified as trading are reported in earnings.
Marketable equity securities held by the Company were reported at the lower
of cost or market prior to the adoption of Statement No. 115, and any
declines in the value which were other than temporary were reflected as a
reduction in the Company's carrying value of such investment.
Other investments in which the ownership interest is less than 20% but do
not fall within the guidelines of Statement No. 115 are generally carried
at cost. For those investments in affiliates in which the Company's voting
interest is 20% to 50%, the equity method of accounting is generally used.
Under this method, the investment, originally recorded at cost, is adjusted
to recognize the Company's share of the net earnings or losses of the
affiliates as they occur rather than as dividends or other distributions
are received, limited to the extent of the Company's investment in,
advances to and guarantees for the investee. The Company's share of net
earnings or losses of affiliates includes the amortization of purchase
adjustments.
Changes in the Company's proportionate share of the underlying equity of a
subsidiary or equity method investee, which result from the issuance of
additional equity securities by such subsidiary or equity investee, are
recognized as gains or losses in the Company's consolidated statement of
operations.
(continued)
II-35
92
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
Property and Equipment
Property and equipment is stated at cost, including acquisition costs
allocated to tangible assets acquired. Construction costs, including
interest during construction and applicable overhead, are capitalized.
During 1994, 1993 and 1992, interest capitalized was not material.
Depreciation is computed on a straight-line basis using estimated useful
lives of 3 to 15 years for distribution systems, 3 to 40 years for support
equipment and buildings and 6 to 13 years for computer and broadcast
equipment.
Repairs and maintenance are charged to operations, and renewals and
additions are capitalized. At the time of ordinary retirements, sales or
other dispositions of property, the original cost and cost of removal of
such property are charged to accumulated depreciation, and salvage, if any,
is credited thereto. Gains or losses are only recognized in connection
with the sales of properties in their entirety. However, recognition of
gains on sales of properties to affiliates accounted for under the equity
method is deferred in proportion to the Company's ownership interest in
such affiliates.
Franchise Costs
Franchise costs include the difference between the cost of acquiring cable
television systems and amounts assigned to their tangible assets. Such
amounts are generally amortized on a straight-line basis over 40 years.
Costs incurred by the Company in obtaining franchises are being amortized
on a straight-line basis over the life of the franchise, generally 10 to 20
years.
Interest Rate Derivatives
Amounts receivable or payable under derivative financial instruments used
to manage interest rate risks arising from the Company's financial
liabilities are recognized as interest expense. Gains and losses on early
terminations of derivatives are included in the carrying amount of the
related debt and amortized as yield adjustments over the remaining terms of
the debt. The Company does not use such instruments for trading purposes.
Minority Interests
Recognition of minority interests' share of losses of consolidated
subsidiaries is limited to the amount of such minority interests' allocable
portion of the common equity of those consolidated subsidiaries. Further,
the minority interests' share of losses is not recognized if the minority
holders of common equity of consolidated subsidiaries have the right to
cause the Company to repurchase such holders' common equity.
Included in minority interests in equity of consolidated subsidiaries is
$50 million in each of 1994 and 1993 of preferred stocks (and accumulated
dividends thereon) of certain subsidiaries. The current dividend
requirements on these preferred stocks aggregate $6 million per annum and
such dividend requirements are reflected as minority interests in the
accompanying consolidated statements of operations.
(continued)
II-36
93
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
Foreign Currency Translation
All balance sheet accounts of foreign investments are translated at the
current exchange rate as of the end of the accounting period. Statement of
operations items are translated at average currency exchange rates. The
resulting translation adjustment is recorded as a separate component of
stockholders' equity.
Net Sales from Home Shopping Services
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.
Earnings (Loss) Per Common and Common Equivalent Share
Primary earnings per common and common equivalent share attributable to
common stockholders was computed by dividing net earnings attributable to
common stockholders by the weighted average number of common and common
equivalent shares outstanding (540.8 million for the year ended December
31, 1994).
Fully diluted earnings per common and common equivalent share attributable
to common stockholders was computed by dividing earnings attributable to
common stockholders by the weighted average number of common and common
equivalent shares outstanding (540.8 million for the year ended December
31, 1994). Shares issuable upon conversion of the Convertible Preferred
Stock, Series C ("Series C Preferred Stock") (see note 9) have not been
included in the computation of weighted average shares because their effect
would be anti-dilutive.
Loss per common share attributable to common stockholders for the years
ended December 31, 1993 and 1992 was computed by dividing net loss
attributable to common stockholders by the weighted average number of
common shares outstanding (432.6 million for the year ended December 31,
1993 and 424.1 million for the year ended December 31, 1992). Common
stock equivalents were not included in the computation of weighted average
shares outstanding because their inclusion would be anti-dilutive.
Reclassification
Certain amounts have been reclassified for comparability with the 1994
presentation.
II-37
(continued)
94
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
(2) Supplemental Disclosures to Consolidated Statements of Cash Flows
Cash paid for interest was $758 million, $641 million and $689 million for
the years ended December 31, 1994, 1993 and 1992, respectively. Also,
during these periods, cash paid for income taxes was not material.
Significant noncash investing and financing activities are as follows:
Years ended
December 31,
------------------------------
1994 1993 1992
------ ------ ------
amounts in millions
Cash paid for acquisitions:
Fair value of assets acquired $1,921 172 1,231
Liabilities assumed, net of current assets (648) (7) 21
Deferred tax liability recorded
in acquisitions (190) (7) 7
Minority interests in equity of
acquired entities (35) -- --
Note receivable from related party
assumed 15 -- --
Common stock and preferred stock
issued in acquisitions (808) -- (3)
Common stock issued to TCIC and
Liberty in the TCI/Liberty Combination
reflected as treasury stock (note 3) 285 -- --
Unrealized gains on available-for-sale
securities of acquired entities (182) -- --
------ --- -----
Cash paid for acquisitions $ 358 158 1,256
====== === =====
Common stock issued upon conversion
of redeemable preferred stock $ 18 -- --
====== === =====
Effect of foreign currency translation
adjustment on book value of foreign
consolidated subsidiaries and equity
method investments $ 25 10 19
====== === =====
TCI common stock issued to subsidiaries
in Reorganization reflected as
treasury stock $ 23 -- --
====== === =====
(continued)
II-38
95
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
Years ended
December 31,
----------------
1994 1993 1992
------ ------ ------
amounts in millions
Unrealized gains, net of deferred income
taxes, on available-for-sale securities
as of January 1, 1994 $ 304 -- --
====== ====== ======
Reduction in unrealized gains, net of deferred
income taxes, on available-for-sale securities
exclusive of unrealized gains recorded in
the TCI/Liberty Combination $ 233 -- --
====== ====== ======
Common stock issued upon conversion
of notes (with accrued interest
through conversion) $ 3 403 112
====== ====== ======
Repayment of note receivable from related
party with shares of TCI Class A
common stock $ 15 -- --
====== ====== ======
Receipt of notes receivable upon
disposition of Liberty common
stock and preferred stock $ -- 182 --
====== ====== ======
Noncash exchange of equity investment
for consolidated subsidiary and
equity investment $ -- 22 --
====== ====== ======
Noncash capital contribution to
Community Cable Television ("CCT") $ -- 22 --
====== ====== ======
Common stock surrendered in lieu of cash
upon exercise of stock options $ 2 1 7
====== ====== ======
Value of TCI Class A common stock issued
as part of purchase price of equity
investment $ -- -- 95
====== ====== ======
Note received upon disposition of assets $ -- -- 15
====== ====== ======
(continued)
II-39
96
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
(3) Investment in Liberty Media Corporation
TCIC owned 3,477,778 shares of Liberty Class A common stock and 55,070
shares of Liberty Class E, 6% Cumulative Redeemable Exchangeable Junior
Preferred Stock ("Liberty Class E Preferred Stock"). Upon consummation of
the TCI/Liberty Combination, TCIC received 3,390,833 shares of TCI Class A
common stock and 55,070 shares of TCI Class B 6% Cumulative Redeemable
Exchangeable Junior Preferred Stock ("Class B Preferred Stock"), a new
preferred stock of TCI having designations, preferences, rights and
qualifications, limitations and restrictions that are substantially
identical to those of the Liberty Class E Preferred Stock, except that the
holders of the Class B Preferred Stock will be entitled to one vote per
share in any general election of directors of TCI (see note 9). The Class
B Preferred Stock received by TCIC eliminates in consolidation.
Upon consummation of the TCI/Liberty Combination, the remaining classes of
preferred stock of Liberty held by TCIC were converted into shares of Class
A Preferred Stock, a new series of preferred stock of TCI having a
substantially equivalent fair market value to that which was given up. All
such preferred stock eliminates in consolidation (See note 9.)
Liberty owned 2,988,009 shares of Old TCI Class A common stock and
3,537,712 shares of Old TCI Class B common stock. Such shares were
replaced with the same number of shares of TCI Class A and Class B common
stock upon consummation of the TCI/Liberty Combination.
TCIC's and Liberty's ownership of TCI common stock are reflected as
treasury stock in the accompanying consolidated financial statements. Such
amounts have been recorded at the historical cost previously reflected by
TCIC and Liberty.
Due to the significant economic interest held by TCIC through its ownership
of Liberty preferred stock and Liberty common stock and other related party
considerations, TCIC accounted for its investment in Liberty under the
equity method. Accordingly, TCIC had not recognized any income relating to
dividends, including preferred stock dividends, and TCIC recorded the
earnings or losses generated by Liberty (by recognizing 100% of Liberty's
earnings or losses before deducting preferred stock dividends) through the
date the TCI/Liberty Combination was consummated.
(continued)
II-40
97
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
The TCI/Liberty Combination was accounted for using predecessor cost due to
the aforementioned related party considerations. The results of operations
of such acquired entity have been consolidated with those of the Company
since the date the TCI/Liberty Combination was consummated. On a pro forma
basis, the Company's revenue would have been increased by approximately
$790 million and $1,153 million for the years ended December 31, 1994 and
1993, respectively, had the acquisition occurred prior to January 1, 1993.
On a pro forma basis, the Company's net earnings would have remained
unchanged as the Company had recognized 100% of Liberty's earnings or
losses through the date the TCI/Liberty Combination was consummated. On a
pro forma basis, the Company's earnings per share would have decreased by
$ .01 for the year ended December 31, 1994 and the Company's loss per
share would have remained unchanged for the year ended December 31, 1993
had the acquisition occurred prior to January 1, 1993. 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 entity prior to January 1, 1993.
Summarized unaudited financial information of Liberty as of December 31,
1993 and for the period from January 1, 1994 through August 4, 1994 and for
the years ended December 31, 1993 and 1992 is as follows:
December 31,
------------
1993
----
Consolidated Financial Position amounts in millions
-------------------------------
Cash and cash equivalents $ 91
Investment in TCI common stock 104
Other investments and
related receivables 372
Other assets, net 870
-------
Total assets $ 1,437
=======
Debt $ 446
Deferred income taxes 2
Other liabilities 307
Minority interests 175
Redeemable preferred stocks 155
Stockholders' equity 352
-------
Total liabilities and
stockholders' equity $ 1,437
=======
(continued)
II-41
98
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
1994 1993 1992
---- ---- ----
Consolidated Operations amounts in millions
-----------------------
Revenue $ 790 1,153 157
Operating expenses (726) (1,105) (144)
Depreciation and amortization (32) (49) (16)
------ ------ ----
Operating income (loss) 32 (1) (3)
Interest expense (22) (31) (7)
Other, net 115 36 32
------ ------ ----
Net earnings $ 125 4 22
====== ====== ====
Prior to the TCI/Liberty Combination, TCIC purchased sports and other
programming from certain subsidiaries of Liberty. Charges to TCIC (which
were based upon customary rates charged to others) for such programming
were $27 million, $44 million and $44 million for the period from January
1, 1994 through August 4, 1994 and for the years ended December 31, 1993
and 1992, respectively. Such amounts are included in operating expenses in
the accompanying consolidated statements of operations. Certain
subsidiaries of Liberty purchased from TCIC, at TCIC's cost plus an
administrative fee, certain pay television and other programming. In
addition, a consolidated subsidiary of Liberty paid a commission to TCIC
for merchandise sales to customers who were subscribers of TCIC's cable
systems. Aggregate commission and charges for such programming were $10
million, $11 million and $3 million for the period from January 1, 1994
through August 4, 1994 and for the years ended December 31, 1993 and 1992,
respectively. Such amounts are recorded in revenue in the accompanying
consolidated statements of operations.
On July 11, 1994, Rainbow Program Enterprise ("Rainbow") purchased 49.9% of
Liberty's 50% general partnership interest in American Movie Classics
Company ("AMC"). The gain recognized by Liberty in connection with the
disposition of AMC was $183 million and is included in the Company's share
of Liberty's earnings prior to the TCI/Liberty Combination.
In January 1992, the Company and Liberty formed CCT, a general partnership
created for the purpose of acquiring and operating cable television
systems. The definitive partnership agreement was executed in March 1992.
Pursuant to a cable television management agreement, a subsidiary of TCI
provided management services for cable television systems owned by CCT.
The subsidiary received a fee equal to 3% of the gross cable television
revenue of the partnership prior to the TCI/Liberty Combination.
(4) Investments in Affiliates
The Company has various investments accounted for under the equity method.
Some of the more significant investments held by the Company at
December 31, 1994 are TeleWest Communications plc ("TeleWest
Communications") (carrying value of $454 million), Discovery
Communications, Inc. (carrying value of $113 million) and Teleport
Communications Group, Inc. ("TCG") (carrying value of $126 million).
(continued)
II-42
99
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
The Company is a shareholder of TeleWest Communications plc (formerly
TCI/US WEST Cable Communications Group or "TeleWest UK") ("TeleWest
Communications"), a company that is currently operating and constructing
cable television and telephone systems in the United Kingdom ("UK").
TeleWest Communications, which is accounted for under the equity method,
had a carrying value at December 31, 1994 of $454 million and comprised $43
million, $28 million and $26 million of the Company's share of its
affiliates' losses in 1994, 1993 and 1992, respectively. In February 1994,
the Company acquired a consolidated investment in Flextech p.l.c.
("Flextech"). Flextech accounted for net losses of $24 million (before
deducting the minority interests' 40% share of such losses) in 1994. In
addition, the Company has other less significant equity method investments
in video distribution and programming businesses located in the UK, other
parts of Europe, Asia, Latin America and certain other foreign countries.
In the aggregate, such other equity method investments had a carrying
value of $135 million at December 31, 1994 and accounted for $50 million of
the Company's share of its affiliates' losses in 1994.
On November 22, 1994, TCI and US West, Inc. each exchanged their respective
50% ownership interest in TeleWest UK for 302,250,000 ordinary shares and
76,500,000 convertible preference shares of TeleWest Communications (the
"TeleWest Exchange"). Following the completion of the TeleWest Exchange,
TeleWest Communications conducted an initial public offering on
November 23, 1994 in which it sold 243,740,000 ordinary shares for
aggregate net proceeds of 401 million pounds (the "TeleWest IPO"). Upon
completion of the TeleWest Exchange and the TeleWest IPO, TCI and US West,
Inc. each became the owners of 36% of the ordinary shares and 38% of the
total outstanding ordinary and convertible preference shares of TeleWest
Communications. As a result of the TeleWest IPO and the associated
dilution of the Company's ownership interest of TeleWest Communications,
Inc., the Company has recognized a nonrecurring pre-tax gain amounting to
$161 million.
On December 2, 1992, SCI Holdings, Inc. ("SCI") consummated a transaction
(the "Split-Off") that resulted in the ownership of its cable systems being
split between its two stockholders, which stockholders were Comcast
Corporation ("Comcast") and the Company. Prior to the Split-Off, the
Company had an investment in the common stock of SCI and the preferred
stock of its wholly-owned subsidiary, Storer Communications, Inc.
("Storer").
The Split-Off, which permitted refinancing of substantially all of the
publicly held debt of SCI and the preferred stock of Storer, was effected
by the distribution of approximately 50% of the net assets of SCI to three
holding companies formed by the Company (the "Holding Companies").
Prior to the Split-Off, the Company contributed its SCI common stock to the
Holding Companies in exchange for 100% of such Holding Companies' common
stock. The amount of SCI common stock contributed to each of the Holding
Companies was based upon the proportionate value of net assets to be
received by each of the Holding Companies in the Split-Off. SCI then
merged into Storer and the SCI common stock held by the Holding Companies
was converted into Storer common stock.
(continued)
II-43
100
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
Also prior to the Split-Off, (i) the Holding Companies incurred long-term
debt aggregating approximately $1.1 billion and contributed substantially
all of the resulting proceeds to Storer and (ii) a consolidated subsidiary
of TCI redeemed approximately $476 million of its debt securities held by
Storer with proceeds of its separate financing, and an affiliate of Comcast
redeemed approximately $274 million of its debt securities held by Storer.
In turn, Storer utilized substantially all of the proceeds of such
contributions and redemptions to repurchase its preferred stock and
extinguish all of its debt. The Company's share of Storer's loss on early
extinguishment of debt was $52 million and such amount is included in loss
on early extinguishment of debt in the accompanying consolidated statements
of operations. Additionally, the Company received a premium, amounting to
$14 million, on the repurchase of the Storer preferred stock. Such amount
is reflected separately in the accompanying consolidated financial
statements.
In the Split-Off, Storer redeemed its common stock held by the Holding
Companies in exchange for 100% of the capital stock of certain operating
subsidiaries of Storer.
Immediately following the Split-Off, the Company owned a majority of the
common stock of the Holding Companies and Comcast owned 100% of the common
stock of Storer. As such, the Company, which previously accounted for its
investment in SCI using the equity method, now consolidates its investment
in the Holding Companies. The assets of the Holding Companies were
recorded at predecessor cost.
In connection with the Company's 1988 acquisition of an equity interest in
SCI, a subsidiary of the Company issued certain debt and equity securities
to Storer for $650 million. Such debt securities were redeemed and the
equity securities were received by one of the Holding Companies in the
Split-Off. Interest charges and preferred stock dividend requirements on
these debt and equity securities, prior to the Split-Off, aggregated $81
million for the period ended December 2, 1992. The Company's share of
losses of SCI, prior to the Split-Off for the period ended December 2, 1992
amounted to $51 million, as adjusted for the effect of interest and
dividends accounted for by Storer as capital transactions due to their
related party nature.
(continued)
II-44
101
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
Summarized unaudited financial information for affiliates other than
Liberty is as follows:
December 31,
------------
1994 1993
---- ----
Combined Financial Position amounts in millions
---------------------------
Property and equipment, net $ 2,243 1,059
Franchise costs, net 1,231 266
Feature film inventory 115 --
Other assets, net 1,512 727
-------- -----
Total assets $ 5,101 2,052
======== =====
Debt $ 2,579 593
Due to (from) TCI (2) 78
Feature film rights payable 16 --
Other liabilities 681 338
Owners' equity 1,827 1,043
-------- -----
Total liabilities and equity $ 5,101 2,052
======== =====
Years ended December 31,
------------------------
1994 1993 1992
---- ---- ----
Combined Operations amounts in millions
-------------------
Revenue $ 2,015 713 1,224
Operating expenses (1,674) (648) (786)
Depreciation and amortization (398) (127) (303)
---------- ------- -------
Operating income (loss) (57) (62) 135
Interest expense (169) (37) (295)
Other, net 82 98 (234)
---------- ------- -------
Net loss $ (144) (1) (394)
========== ======= =======
(continued)
II-45
102
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
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 (other than non-recourse debts) of that partnership in the event
liabilities of that partnership were to exceed its assets.
(5) Investment in Turner Broadcasting System, Inc.
The Company owns shares of a class of preferred stock of TBS which has
voting rights and are convertible into shares of TBS common stock. The
holders of those preferred shares, as a group, are entitled to elect seven
of fifteen members of the board of directors of TBS, and the Company
appoints three such representatives. However, voting control over TBS
continues to be held by its chairman of the board and chief executive
officer. The Company's total holdings of TBS common and preferred stocks
represent an approximate 12% voting interest for those matters for which
preferred and common stock vote as a single class.
The Company's investment in TBS common stock had an aggregate market value
of $803 million (which exceeded cost by $485 million) at December 31, 1993.
The Company applied Statement No. 115 beginning in the first quarter of
1994. Application of Statement No. 115 resulted in a net increase of $304
million to stockholders' equity on January 1, 1994, representing the
recognition of unrealized appreciation, net of taxes, for the Company's
investment in marketable equity securities determined to be
available-for-sale. Such amount was adjusted by $182 million recorded in
the TCI/Liberty Combination. The amount of net unrealized gain was reduced
by $233 million through December 31, 1994. The majority of such unrealized
gain is comprised of the Company's investment in TBS common stock ($100
million) and QVC common stock ($127 million) (see note 6). The Company
holds no material debt securities.
The Company's investment in TBS preferred stock, carried at cost, had an
aggregate market value of $579 million and $954 million, based upon the
market value of the common stock into which it is convertible, (which
exceeded cost by $406 million and $781 million) at December 31, 1994 and
1993, respectively.
(6) Investment in QVC, Inc.
Pursuant to an Agreement and Plan of Merger dated as of August 4, 1994,
as amended (the "QVC Merger Agreement"), QVC Programming Holdings, Inc.
(the "Purchaser"), a corporation which is jointly owned by Comcast
Corporation ("Comcast") and Liberty, commenced an offer (the "QVC Tender
Offer") to purchase all outstanding shares of common stock and preferred
stock of QVC, Inc. ("QVC").
(continued)
II-46
103
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
The QVC Tender Offer expired at midnight, New York City time, on
February 9, 1995, the Purchaser accepted for payment all shares of QVC
which had been tendered in the QVC Tender Offer. Following consummation of
the QVC Tender Offer, the Purchaser was merged with and into QVC with QVC
continuing as the surviving corporation. The Company owns an approximate
43% interest of the post-merger QVC.
A credit facility entered into by the Purchaser is secured by substantially
all of the assets of QVC. In addition, Comcast and Liberty have pledged
their shares of QVC pursuant to such credit facility.
TCI's ownership of QVC was received in the TCI/Liberty Combination.
Liberty had begun accounting for its investment in QVC under the cost
method in May 1994, upon its determination to remain outside of the
previous QVC shareholders agreement. Prior to such determination, Liberty
had accounted for its investment in QVC under the equity method.
Upon consummation of the aforementioned QVC transactions, the Company is
deemed to exercise significant influence over QVC and, as such, will
account for its investment in QVC under the equity method. Had the Company
accounted for its investment under the equity method during 1994, the
Company would have reflected additional share of earnings of QVC of $8
million (of which $1 million would have been included in the Company's
share of Liberty's earnings prior to the TCI/Liberty Combination).
Additionally, the Company's investment in QVC, its deferred tax liability
and its unrealized gain from available-for-sale securities would have been
reduced by $216 million, $89 million and $127 million, respectively, had
the Company accounted for its investment in QVC under the equity method
during 1994. The 1994 consolidated financial statements will be restated
in the first quarter of 1995.
(continued)
II-47
104
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
(7) Debt
Debt is summarized as follows:
Weighted average December 31,
interest rate at ------------
December 31, 1994 1994 1993
----------------- ---- ----
amounts in millions
Debt of subsidiaries:
Senior notes 8.5% $ 5,412 5,052
Bank credit facilities 7.3% 4,045 3,344
Commercial paper 6.6% 445 44
Notes payable 10.2% 1,024 1,321
Convertible notes (a) 9.5% 45 47
Other debt -- 191 92
-------- -----
$ 11,162 9,900
======== =====
(a) These convertible notes, which are stated net of unamortized discount
of $186 million and $197 million at December 31, 1994 and 1993,
respectively, mature on December 18, 2021. The notes require (so long
as conversion of the notes has not occurred) an annual interest
payment through 2003 equal to 1.85% of the face amount of the notes.
During the year ended December 31, 1993, certain of these notes were
converted into 819,000 shares of TCI Class A common stock. During the
year ended December 31, 1994, certain of these notes were converted
into 2,350,000 shares of TCI Class A common stock. At December 31,
1994, the notes were convertible, at the option of the holders, into
an aggregate of 38,710,990 shares of TCI Class A common stock.
On October 28, 1993, the Company called for redemption of its remaining
Liquid Yield Option(TM) Notes. In connection with such call for
redemption, Notes aggregating $405 million were converted into 18,694,377
shares of TCI Class A common stock and Notes aggregating less than $1
million were redeemed together with accrued interest to the redemption
date. Prior to the aforementioned redemption, Notes aggregating $6 million
were converted into 259,537 shares of TCI Class A common stock during 1993.
During the year ended December 31, 1992, TCI called for redemption all of
its 7% convertible subordinated debentures. Debentures aggregating $114
million were converted into 6,636,881 shares of TCI Class A common stock
and the remaining debentures were redeemed at 104.2% of the principal
amount together with accrued interest to the redemption date.
The bank credit facilities and various other debt instruments of the
Company's subsidiaries generally contain restrictive covenants which
require, among other things, the maintenance of certain earnings, specified
cash flow and financial ratios (primarily the ratios of cash flow to total
debt and cash flow to debt service, as defined), and include certain
limitations on indebtedness, investments, guarantees, dispositions, stock
repurchases and/or dividend payments.
(continued)
II-48
105
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
As security for borrowings under one of its credit facilities, TCI pledged
a portion of the common stock (with a quoted market value of approximately
$479 million at December 31, 1994) it holds of TBS.
In order to achieve the desired balance between variable and fixed rate
indebtedness, the Company has entered into various interest rate exchange
agreements pursuant to which it pays (i) fixed interest rates (the "Fixed
Rate Agreements") ranging from 7.2% to 9.9% on notional amounts of $550
million at December 31, 1994 and (ii) variable interest rates (the
"Variable Rate Agreements") on notional amounts of $2,605 million at
December 31, 1994. During the years ended December 31, 1994, 1993 and
1992, the Company's net payments pursuant to the Fixed Rate Agreements were
$26 million, $38 million and $47 million, respectively; and the Company's
net receipts pursuant to the Variable Rate Agreements were $36 million, $31
million and $7 million, respectively. After giving effect to the Company's
interest rate exchange agreements, approximately 43% of the Company's
indebtedness bears interest at fixed rates.
The Company's Fixed Rate Agreements and Variable Rate Agreements expire as
follows (amounts in millions, except percentages):
Fixed Rate Agreements Variable Rate Agreements
--------------------- ------------------------
Expiration Interest Rate Notional Expiration Interest Rate Notional
Date To Be Paid Amount Date To Be Received Amount
-------------- ------------- ------ -------------- -------------- ------
August 1995 7.2% $ 10 April 1995 6.4% $ 75
April 1996 9.9% 30 August 1995 7.7% 10
May 1996 8.3% 50 April 1996 6.8% 50
July 1996 8.2% 10 July 1996 8.2% 10
August 1996 8.2% 10 August 1996 8.2% 10
November 1996 8.9% 150 September 1996 4.6% 150
October 1997 7.2%-9.3% 60 April 1997 7.0% 200
December 1997 8.7% 230 September 1998 4.8%-5.2% 300
----
April 1999 7.4% 100
$550 September 1999 7.2%-7.4% 300
====
February 2000 5.8%-6.6% 650
March 2000 5.8%-6.0% 675
September 2000 5.1% 75
-------
$ 2,605
=======
The Company is exposed to credit losses for the periodic settlements of
amounts due under these interest rate exchange agreements in the event of
nonperformance by the other parties to the agreements. However, the
Company does not anticipate that it will incur any material credit losses
because it does not anticipate nonperformance by the counterparties.
(continued)
II-49
106
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
The fair value of the interest rate exchange agreements is the estimated
amount that the Company would pay or receive to terminate the agreements at
December 31, 1994, taking into consideration current interest rates and
assuming the current creditworthiness of the counterparties. The Company
would pay an estimated $195 million at December 31, 1994 to terminate the
agreements.
In order to diminish its exposure to extreme increases in variable interest
rates, the Company has entered into various interest rate hedge agreements
on notional amounts of $325 million which fix the maximum variable interest
rates at 11%. Such agreements expire during the third and fourth quarters
of 1995.
The fair value of the Company's debt is estimated based on the quoted
market prices for the same or similar issues or on the current rates
offered to the Company for debt of the same remaining maturities. The fair
value of debt, which has a carrying value of $11,162 million, was $11,065
million at December 31, 1994.
TCI and certain of its subsidiaries are required to maintain unused
availability under bank credit facilities to the extent of outstanding
commercial paper. Also, TCI and certain of its subsidiaries pay fees,
ranging from 1/4% to 1/2% per annum, on the average unborrowed portion of
the total amount available for borrowings under bank credit facilities.
TCI has not assumed any of TCIC's or Liberty's indebtedness or other
obligations that were outstanding at the time the TCI/Liberty Combination
was consummated.
Annual maturities of debt for each of the next five years are as follows
(amounts in millions):
1995 $1,206*
1996 890
1997 839
1998 813
1999 823
* Includes $445 million of commercial paper.
(8) Redeemable Preferred Stocks
4-1/2% Convertible Preferred Stock. The 4-1/2% Convertible Preferred Stock
was stated at its redemption value of $3,000 per share, and each share was
convertible into 204 shares of TCI Class A common stock. In February of
1994, all of the shares of such convertible preferred stock were tendered
to the Company for conversion and, on March 3, 1994, 1,265,004 shares of
TCI Class A common stock were issued to the holders of such preferred
stock.
(continued)
II-50
107
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
Convertible Preferred Stock, Series D. Subsequent to December 31, 1994,
the Company issued 1,000,000 shares of a series of TCI Series Preferred
Stock (see note 9) designated "Convertible Preferred Stock, Series D" (the
"Series D Preferred Stock"), par value $.01 per share, as partial
consideration for the merger between TCIC and TeleCable Corporation
("TeleCable") (see note 16).
The holders of the Series D Preferred Stock shall be entitled to receive,
when and as declared by the Board of Directors out of unrestricted funds
legally available therefor, cumulative dividends, in preference to
dividends on any stock that ranks junior to the Series D Preferred Stock
(currently the Class A common stock, the Class B common stock and the Class
B Preferred Stock), that shall accrue on each share of Series D Preferred
stock at the rate of 5-1/2% per annum of the liquidation value
($300 per share). Dividends are cumulative, and in the event that
dividends are not paid in full on two consecutive dividend payment dates or
in the event that TCI fails to effect any required redemption of Series D
Preferred Stock, accrue at the rate of 10% per annum of the liquidation
value. The Series D Preferred Stock ranks on parity with the Class A
Preferred Stock, the Series C Preferred Stock and the Series E Preferred
Stock.
Each share of Series D Preferred Stock is convertible into 10 shares of TCI
Class A common stock, subject to adjustment upon certain events specified
in the certificate of designation establishing Series D Preferred Stock.
To the extent any cash dividends are not paid on any dividend payment date,
the amount of such dividends will be deemed converted into shares of TCI
Class A common stock at a conversion rate equal to 95% of the then current
market price of TCI Class A common stock, and upon issuance of TCI Class A
common stock to holders of Series D Preferred Stock in respect of such
deemed conversion, such dividend will be deemed paid for all purposes.
Shares of Series D Preferred Stock are redeemable for cash at the option of
the holder at any time after the tenth anniversary of the issue date at a
price equal to the liquidation value in effect as of the date of the
redemption. Shares of Series D Preferred Stock may also be redeemed for
cash at the option of TCI after the fifth anniversary of the issue date at
such redemption price or after the third anniversary of the issue date if
the market value per share of TCI Class A common stock shall have exceeded
$37.50 for periods specified in the certificate of designation.
If TCI fails to effect any required redemption of Series D Preferred Stock,
the holders thereof will have the option to convert their shares of Series
D Preferred Stock into TCI Class A common stock at a conversion rate of 95%
of the then current market value of TCI Class A common stock, provided that
such option may not be exercised unless the failure to redeem continues for
more than a year.
Except as required by law, holders of Series D Preferred Stock are not
entitled to vote on any matters submitted to a vote of the shareholders of
TCI.
(continued)
II-51
108
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
(9) Stockholders' Equity
Common Stock
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.
Employee Benefit Plans
The Company has an Employee Stock Purchase Plan ("ESPP") to provide
employees an opportunity for ownership in the Company and to create a
retirement fund. Terms of the ESPP provide for employees to contribute up
to 10% of their compensation to a trust for investment in TCI common stock.
The Company, by annual resolution of the Board of Directors, contributes up
to 100% of the amount contributed by employees. Certain of the Company's
subsidiaries have their own employee benefit plans. Contributions to all
plans aggregated $19 million, $16 million and $13 million for 1994, 1993
and 1992, respectively.
Preferred Stock
Class A Preferred Stock. The Company is authorized to issue 700,000 shares
of Class A Preferred Stock, par value $.01 per share. Subsidiaries of TCI
hold all of the issued and outstanding shares of such stock, amounting to
592,797 shares. Such preferred stock is eliminated in consolidation. The
holders of the Class A Preferred Stock are entitled to receive, when and as
declared by the Board of Directors, out of unrestricted funds legally
available therefor, cumulative dividends, in preference to dividends on any
stock that ranks junior to the Class A Preferred Stock (currently the Class
A common stock, the Class B common stock and the Class B Preferred Stock),
that accrue on each share of the Class A Preferred Stock at the rate of
9-3/8% per annum of the Stated Liquidation Value of such share ($322.84 per
share). Dividends are fully cumulative and are payable in cash. The Class
A Preferred Stock ranks on a parity basis with the Series C Preferred
Stock, the Series D Preferred Stock and the Series E Preferred Stock as to
dividend rights, rights of redemption or rights on liquidation. The Class
A Preferred Stock is subject to mandatory redemption by the Company on the
twelfth anniversary of the issue date. The Class A Preferred Stock may be
redeemed at the option of the Company. The holders of the Class A
Preferred Stock have the right to vote at any annual or special meeting of
stockholders for the purpose of electing directors. Each share of Class A
Preferred Stock shall have one vote for such purpose.
Class B 6% Cumulative Redeemable Exchangeable Junior Preferred Stock. The
Company is authorized to issue 1,675,096 shares of Class B Preferred Stock.
All such shares are issued and outstanding. Subsidiaries of TCIC hold
55,070 of such issued and outstanding shares.
(continued)
II-52
109
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
Dividends accrue cumulatively (but without compounding) at an annual rate
of 6% of the stated liquidation value of $100 per share (the "Stated
Liquidation Value"), whether or not such dividends are declared or funds
are legally available for payment of dividends. Accrued dividends will be
payable annually on March 1 of each year (or the next succeeding business
day if March 1 does not fall on a business day), commencing March 1, 1995,
and, in the sole discretion of the TCI Board, may be declared and paid in
cash, in shares of TCI Class A common stock or in any combination of the
foregoing. Accrued dividends not paid as provided above on any dividend
payment date will accumulate and such accumulated unpaid dividends may be
declared and paid in cash, shares of TCI Class A common stock or any
combination thereof at any time (subject to the rights of any senior stock
and, if applicable, to the concurrent satisfaction of any dividend
arrearages on any class or series of TCI preferred stock ranking on a
parity with the Class B Preferred Stock with respect to dividend rights)
with reference to any regular dividend payment date, to holders of record
of Class B Preferred Stock as of a special record date fixed by the TCI
Board (which date may not be more than 45 days nor less than 10 days prior
to the date fixed for the payment of such accumulated unpaid dividends).
The Class B Preferred Stock ranks junior to the Class A Preferred Stock
with respect to the declaration and payment of dividends.
If all or any portion of a dividend payment is to be paid through the
issuance and delivery of shares of TCI Class A common stock, the number of
such shares to be issued and delivered will be determined by dividing the
amount of the dividend to be paid in shares of TCI Class A common stock by
the Average Market Price of the TCI Class A common stock. For this
purpose, "Average Market Price" means the average of the daily last
reported sale prices (or, if no sale price is reported on any day, the
average of the high and low bid prices on such day) of a share of TCI Class
A common stock for the period of 20 consecutive trading days ending on the
tenth trading day prior to the regular record date or special record date,
as the case may be, for the applicable dividend payment.
In the event of any liquidation, dissolution or winding up of TCI, the
holders of Class B Preferred Stock will be entitled, after payment of
preferential amounts on any class or series of stock ranking prior to the
Class B Preferred Stock with respect to liquidating distributions, to
receive from the assets of TCI available for distribution to stockholders
an amount in cash or property or a combination thereof, per share, equal to
the Stated Liquidation Value thereof, plus all accumulated and accrued but
unpaid dividends thereon to and including the redemption date. TCI does
not have any mandatory obligation to redeem the Class B Preferred Stock as
of any fixed date, at the option of the holders or otherwise.
(continued)
II-53
110
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
Subject to the prior preferences and other rights of any class or series of
TCI preferred stock, the Class B Preferred Stock will be exchangeable at
the option of TCI in whole but not in part at any time for junior
subordinated debt securities of TCI ("Junior Exchange Notes"). The Junior
Exchange Notes will be issued pursuant to an indenture (the "Indenture"),
to be executed by TCI and a qualified trustee to be chosen by TCI.
If TCI exercises its optional exchange right, each holder of outstanding
shares of Class B Preferred Stock will be entitled to receive in exchange
therefor newly issued Junior Exchange Notes of a series authorized and
established for the purpose of such exchange, the aggregate principal
amount of which will be equal to the aggregate Stated Liquidation Value of
the shares of Class B Preferred Stock so exchanged by such holder, plus all
accumulated and accrued but unpaid dividends thereon to and including the
exchange date. The Junior Exchange Notes will be issuable only in
principal amounts of $100 or any integral multiple thereof and a cash
adjustment will be paid to the holder for any excess principal that would
otherwise be issuable. The Junior Exchange Notes will mature on the
fifteenth anniversary of the date of issuance and will be subject to
earlier redemption at the option of TCI, in whole or in part, for a
redemption price equal to the principal amount thereof plus accrued but
unpaid interest. Interest will accrue, and be payable annually, on the
principal amount of the Junior Exchange Notes at a rate per annum to be
determined prior to issuance by adding a spread of 215 basis points to the
"Fifteen Year Treasury Rate" (as defined in the Indenture). Interest will
accrue on overdue principal at the same rate, but will not accrue on
overdue interest.
The Junior Exchange Notes will represent unsecured general obligations of
TCI and will be subordinated in right of payment to all Senior Debt (as
defined in the Indenture). Accordingly, holders of Class B Preferred Stock
who receive Junior Exchange Notes in exchange therefor may have difficulty
selling such Notes.
(continued)
II-54
111
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
For so long as any dividends are in arrears on the Class B Preferred Stock
or any class or series of TCI preferred stock ranking pari passu with the
Class B Preferred Stock which is entitled to payment of cumulative
dividends prior to the redemption, exchange, purchase or other acquisition
of the Class B Preferred Stock, and until all dividends accrued up to the
immediately preceding dividend payment date on the Class B Preferred Stock
and such parity stock shall have been paid or declared and set apart so as
to be available for payment in full thereof and for no other purpose,
neither TCI nor any subsidiary thereof may redeem, exchange, purchase or
otherwise acquire any shares of Class B Preferred Stock, any such parity
stock or any class or series of its capital stock ranking junior to the
Class B Preferred Stock (including the TCI common stock), or set aside any
money or assets for such purpose, unless all of the outstanding shares of
Class B Preferred Stock and such parity stock are redeemed. If TCI fails
to redeem or exchange shares of Class B Preferred Stock on a date fixed for
redemption or exchange, and until such shares are redeemed or exchanged in
full, TCI may not redeem or exchange any parity stock or junior stock,
declare or pay any dividend on or make any distribution with respect to any
junior stock or set aside money or assets for such purpose and neither TCI
nor any subsidiary thereof may purchase or otherwise acquire any Class B
Preferred Stock, parity stock or junior stock or set aside money or assets
for any such purpose. The failure of TCI to pay any dividends on any class
or series of parity stock or to redeem or exchange on any date fixed for
redemption or exchange any shares of Class B Preferred Stock shall not
prevent TCI from (i) paying any dividends on junior stock solely in shares
of junior stock or the redemption purchase or other acquisition of junior
stock solely in exchange for (together with cash adjustment for fractional
shares, if any) or (but only in the case of a failure to pay dividends on
any parity stock) through the application of the proceeds from the sale of,
shares of junior stock; or (ii) the payment of dividends on any parity
stock solely in shares of parity stock and/or junior stock or the
redemption, exchange, purchase or other acquisition of Class B Preferred
Stock or parity stock solely in exchange for (together with a cash
adjustment for fractional shares, if any), or (but only in the case of
failure to pay dividends on any parity stock) through the application of
the proceeds from the sale of, parity stock and/or junior stock.
The Class B Preferred Stock will vote in any general election of directors,
will have one vote per share for such purpose and will vote as a single
class with the TCI common stock, the Class A Preferred Stock and any other
class or series of TCI preferred stock entitled to vote in any general
election of directors. The Class B Preferred Stock will have no other
voting rights except as required by the Delaware General Corporation Law
("DGCL").
Series Preferred Stock. The TCI Series Preferred Stock is issuable, from
time to time, in one or more series, with such designations, preferences
and relative participating, option or other special rights, qualifications,
limitations or restrictions thereof, as shall be stated and expressed in a
resolution or resolutions providing for the issue of such series adopted by
the TCI Board.
(continued)
II-55
112
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
All shares of any one series of the TCI Series Preferred Stock are required
to be alike for every particular and all shares are required to rank
equally and be identical in all respects, except insofar as they may vary
with respect to matters which the TCI Board is expressly authorized by the
TCI Charter to determine in the resolution or resolutions providing for the
issue of any series of the TCI Series Preferred Stock.
Convertible Preferred Stock, Series C. TCI has issued 70,559 shares of a
series of TCI Series Preferred Stock designated "Convertible Preferred
Stock, Series C," par value $.01 per share, as partial consideration for an
acquisition by TCI .
Each share of Series C Preferred Stock is convertible, at the option of the
holders, into 100 shares of TCI Class A common stock, subject to
anti-dilution adjustments. The dividend, liquidation and redemption
features of the Series C Preferred Stock will be determined by reference to
the liquidation value of the TCI Series C Preferred Stock, which as of any
date of determination is equal, on a per share basis, to the sum of (i)
$2,375, plus (ii) all dividends accrued on such share through the dividend
payment date on or immediately preceding such date of determination to the
extent not paid on or before such date, plus (iii), for purposes of
determining liquidation and redemption payments, all unpaid dividends
accrued on the sum of clauses (i) and (ii) above, to such date of
determination.
Subject to the prior preferences and other rights of any class or series of
TCI preferred stock ranking pari passu with the Series C Preferred Stock,
the holders of Series C Preferred Stock are entitled to receive and,
subject to any prohibition or restriction contained in any instrument
evidencing indebtedness of TCI, TCI is obligated to pay preferential
cumulative cash dividends out of funds legally available therefor.
Dividends accrue cumulatively at an annual rate of 5-1/2% of the
liquidation value per share, whether or not such dividends are declared or
funds are legally or contractually available for payment of dividends,
except that if TCI fails to redeem shares of Series C Preferred Stock
required to be redeemed on a redemption date, dividends will thereafter
accrue cumulatively at an annual rate of 15% of the liquidation value per
share. Accrued dividends are payable quarterly on January 1, April 1,
July 1 and October 1 of each year, commencing on the first dividend payment
date after the issuance of the Series C Preferred Stock. Dividends not
paid on any dividend payment date will be added to the liquidation value on
such date and remain a part thereof until such dividends and all dividends
accrued thereon are paid in full. Dividends accrue on unpaid dividends at
the rate of 5-1/2% per annum, unless such dividends remain unpaid for two
consecutive quarters in which event such rate will increase to 15% per
annum. The Series C Preferred Stock ranks prior to the TCI common stock
and Class B Preferred Stock and pari passu with the Class A Preferred Stock
with respect to the declaration and payment of dividends.
(continued)
II-56
113
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
Upon the dissolution, liquidation or winding up of TCI, holders of the
Series C Preferred Stock will be entitled to receive from the assets of TCI
available for distribution to stockholders an amount in cash, per share,
equal to the liquidation value. The Series C Preferred Stock will rank
prior to the TCI common stock and Class B Preferred Stock and pari passu
with the Class A Preferred Stock as to any such distributions.
The Series C Preferred Stock is subject to optional redemption at any time
after the seventh anniversary of its issuance, in whole or in part, by TCI
at a redemption price, per share, equal to the then liquidation value of
the Series C Preferred Stock.
For so long as any dividends are in arrears on the Series C Preferred Stock
or any class or series of TCI preferred stock ranking pari passu (including
the Class A Preferred Stock) with the Series C Preferred Stock and until
all dividends accrued up to the immediately preceding dividend payment date
on the Series C Preferred Stock and such parity stock shall have been paid
or declared and set apart so as to be available for payment in full thereof
and for no other purpose, TCI may not redeem or otherwise acquire any
shares of Series C Preferred Stock, any such parity stock or any class or
series of its preferred stock ranking junior (including the TCI common
stock and Series C Preferred Stock) unless all then outstanding shares of
Series C Preferred Stock and such parity stock are redeemed. If TCI fails
to redeem shares of Series C Preferred Stock required to be redeemed on a
redemption date, and until all such shares are redeemed in full, TCI may
not redeem any such parity stock or junior stock, or otherwise acquire any
shares of such stock or Series C Preferred Stock. Nothing contained in the
two immediately preceding sentences shall prevent TCI from acquiring (i)
shares of Series C Preferred Stock and any such parity stock pursuant to a
purchase or exchange offer made to holders of all outstanding shares of
Series C Preferred Stock and such parity stock, if (a) as to holders of all
outstanding shares of Series C Preferred Stock, the terms of the purchase
or exchange offer for all such shares are identical, (b) as to holders for
all outstanding shares of a particular series or class of parity stock, the
terms of the purchase or exchange offer for all such shares are identical
and (c) as among holders of all outstanding shares of Series C Preferred
Stock and parity stock, the terms of each purchase or exchange offer are
substantially identical relative to the respective liquidation prices of
the shares of Series C Preferred Stock and each series or class of such
parity stock, or (ii) shares of Series C Preferred Stock, parity stock or
junior stock in exchange for, or through the application of the proceeds of
the sale of, shares of junior stock.
(continued)
II-57
114
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
The Series C Preferred Stock is subject to restrictions on transfer
although it has certain customary registration rights with respect to the
underlying shares of TCI Class A common stock. The Series C Preferred
Stock may vote on all matters submitted to a vote of the holders of the TCI
common stock, has one vote for each share of TCI Class A common stock into
which the shares of Series C Preferred Stock are converted for such
purpose, and may vote as a single class with the TCI common stock. The
Series C Preferred Stock has no other voting rights except as required by
the DGCL and except that the consent of the holders of record of shares
representing at least two-thirds of the liquidation value of the
outstanding shares of the Series C Preferred Stock is necessary to (i)
amend the designation, rights, preferences and limitations of the Series C
Preferred Stock as set forth in the TCI Charter and (ii) to create or
designate any class or series of TCI preferred stock that would rank prior
to the Series C Preferred Stock.
Redeemable Convertible Preferred Stock, Series E. In connection with the
Reorganization, the Board of Directors created and authorized the issuance
of the Redeemable Convertible Preferred Stock, Series E, par value $.01 per
share. The Company is authorized to issue 400,000 shares. Subsidiaries of
TCI hold all of the issued and outstanding shares of such stock, amounting
to 246,402 shares. All such preferred stock eliminates in consolidation.
The holders of the Series E Preferred Stock are entitled to receive, when
and as declared by the Board of Directors, out of unrestricted funds
legally available therefor, cumulative dividends, in preference to
dividends on any stock that ranks junior to the Series E Preferred Stock
(currently the Class A common stock, the Class B common stock and the Class
B Preferred Stock), that shall accrue on each share of Series E Preferred
Stock at the rate of 5.0% per annum of the Stated Liquidation Value
($22,303 per share). Dividends are fully cumulative and are payable in
cash. The Series E Preferred Stock ranks on parity with the Class A
Preferred Stock, the Series C Preferred Stock and the Series D Preferred
Stock as to dividend rights, rights of redemption or rights on liquidation.
The Series E Preferred Stock may be redeemed at the option of the Company.
The Company may elect to pay the redemption price by issuing to the holder
thereof a number of shares of Class A common stock equal to the aggregate
redemption price of such shares divided by the Average Quoted Price (as
defined) of a share of Class A common stock.
Unless previously called for redemption, shares of Series E Preferred Stock
shall be convertible, at the option of the holder thereof, into shares of
Class A common stock at any time subsequent to a duly approved amendment to
the Company's Restated Certificate of Incorporation increasing the number
of Class A shares to a number that would permit conversion of all shares of
Series E Preferred Stock then outstanding into Class A common stock. The
Series E Preferred Stock may be converted into Class A common stock at the
initial conversion rate of 1,000 shares of Class A common stock for one
share of the Series E Preferred Stock.
(continued)
II-58
115
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
The holders of the Series E Preferred Stock have the right to vote at any
annual or special meeting of stockholders for the purpose of electing
directors. Each share of Series E Preferred Stock shall have one vote for
such purpose.
Stock Options
The Company has adopted the Tele-Communications, Inc. 1994 Stock Incentive
Plan (the "Plan"). The Plan provides for awards to be made in respect of a
maximum of 16 million shares of TCI Class A common stock. Awards may be
made as grants of stock options, stock appreciation rights, restricted
shares, stock units or any combination thereof. Pursuant to the
TCI/Liberty Merger Agreement and certain assumption agreements, stock
options and/or stock appreciation rights granted (or assumed) by Old TCI
and stock options and/or stock appreciation rights granted by Liberty were
assumed by the Company and new options and/or stock appreciation rights
were substituted under the Plan. The following descriptions represent the
terms of the assumed options and/or stock appreciation rights and
additional awards under the Plan.
TCI assumed certain options which were exercisable through November 9,
1994. During the years ended December 31, 1994, 1993 and 1992, options to
acquire 203,508, 96,242 and 321,406 shares, respectively, were exercised at
prices ranging from $10.00 to $17.25 per share and options for 3,500,
25,000 and 12,000 shares, respectively, were canceled.
TCI assumed certain stock options which are currently exercisable,
representing the right, as of December 31, 1994, to acquire 162,228 shares
of TCI Class A common stock at adjusted purchase prices ranging from $8.83
to $18.63 per share. During the year ended December 31, 1994, options to
acquire 5,100 shares were exercised and no options were canceled. Options
to acquire 19,428 shares of TCI Class A common stock expire August 14,
1995. Options to acquire 142,800 shares of TCI Class A common stock expire
December 15, 1998.
Stock options in tandem with stock appreciation rights to purchase
3,963,000 shares of Class A common stock at a purchase price of $16.75 per
share were outstanding at December 31, 1994. Such options become
exercisable and vest evenly over five years, first became exercisable
beginning November 11, 1993 and expire on November 11, 2002. During the
year ended December 31, 1994, stock appreciation rights covering 7,000
shares of Class A common stock were exercised and the tandem stock options
were canceled. During the year ended December 31, 1993, stock options
covering 50,000 shares of Class A common stock were canceled upon
termination of employment of the option holder.
Stock options in tandem with stock appreciation rights to purchase
1,940,000 shares of TCI Class A common stock at a purchase price of $16.75
per share were outstanding at December 31, 1994. Such options become
exercisable and vest evenly over four years, first became exercisable
beginning October 12, 1994 and expire on October 12, 2003. During the year
ended December 31, 1994, stock options covering 1,875 shares of Class A
common stock were exercised and stock options covering 13,125 shares of
Class A common stock were canceled upon termination of employment of the
option holder.
(continued)
II-59
116
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
Stock options in tandem with stock appreciation rights to purchase
2,000,000 shares of TCI Class A common stock at a purchase price of $16.75
per share were outstanding at December 31, 1994. On November 12, 1993,
twenty percent of such options vested and became exercisable immediately
and the remainder become exercisable evenly over 4 years. The options
expire October 12, 1998.
Stock options in tandem with stock appreciation rights to acquire 54,600
shares of TCI Class A common stock at an adjusted purchase price of $19.56
were outstanding at December 31, 1994. The options vest in five equal
annual installments commencing June 3, 1994 and expire in June 2003.
Stock appreciation rights with respect to 1,423,500 shares of TCI Class A
common stock were outstanding at December 31, 1994. These rights have an
adjusted strike price of $0.82 per share, become exercisable and vest
evenly over seven years, beginning March 28, 1992. Stock appreciation
rights expire on March 28, 2001.
On November 17, 1994, stock options in tandem with stock appreciation
rights to purchase 3,214,000 shares of TCI Class A common stock were
granted pursuant to the Plan to certain officers and other key employees at
a purchase price of $22.00 per share. Such options become exercisable and
vest evenly over five years, first become exercisable beginning November
17, 1995 and expire on November 17, 2004.
Estimated compensation relating to stock appreciation rights has been
recorded through December 31, 1994, but is subject to future adjustment
based upon market value, and ultimately, on the final determination of
market value when the rights are exercised.
An officer of the Company received payments of $512,500 and $569,000 from
the Company (based on the then market value of Class A common stock of
$20.25 and $21.375 per share) in July and December of 1992, respectively,
in cancellation of the remainder of his option covering 100,000 shares of
TCI Class A common stock. Another officer received payment of $2,276,000
from the Company in December of 1992 upon cancellation of his option
covering 200,000 shares of TCI Class A common stock. The amount paid was
based on the then market value of Class A common stock of $21.375 per
share.
Other
In connection with the exercise of a stock option by an officer/director of
Liberty, a note was given to Liberty as partial payment of the exercise
price. This note bore interest at 7.54% per annum. At the date of the
TCI/Liberty Combination, the Company recorded the net assumed note
receivable, amounting to approximately $15 million, from such officer as a
reduction of stockholders' equity. On October 27, 1994, such officer
tendered to the Company 634,917 shares of TCI Class B common stock in full
payment of principal and interest amounting to $15 million. Such Class B
common stock is reflected as treasury stock in the accompanying
consolidated balance sheet.
(continued)
II-60
117
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
The shares issued by Liberty upon exercise of the aforementioned
Liberty option, together with all subsequent dividends and distributions
thereon (collectively totaling 16,000,000 shares of Liberty Class B common
stock and 200,000 shares of Liberty Class E Preferred Stock, the "Option
Units"), were subject to repurchase by Liberty under certain
circumstances. Such shares were exchanged for 15,600,000 shares of TCI
Class A common stock and 200,000 shares of Class B Preferred Stock in the
TCI/Liberty Combination. 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 on March 28, 1996 or in the event
of death, disability or under certain other circumstances.
The excess of consideration received on debentures converted or options
exercised over the par value of the stock issued is credited to additional
paid-in capital.
At December 31, 1994, there were 58,534,218 shares of TCI Class A
common stock reserved for issuance under exercise privileges related to
options, convertible debt securities and convertible preferred stock
described in this note 9 and in note 7. Additionally, subsequent to
December 31, 1994, the Company issued the Series D Preferred Stock (see
note 8) which is convertible into 10,000,000 shares of TCI Class A common
stock. In addition, one share of Class A common stock is reserved for
each share of outstanding Class B common stock.
(10) Transactions with Officers and Directors
On December 10, 1992, pursuant to a restricted stock award agreement,
an officer, who is also a director, of the Company was transferred the
right, title and interest in and to 124.03 shares (having a liquidation
value of $4 million) of the 12% Series B cumulative compounding preferred
stock of WestMarc Communications, Inc. (a wholly-owned subsidiary of the
Company) owned by the Company. Such preferred stock is subject to
forfeiture in the event of certain circumstances from the date of grant
through February 1, 2002, decreasing by 10% on February 1 of each year.
On December 14, 1992, an officer, who is also a director, sold 100,000
shares of Class B common stock to the Company for $2,138,000.
(11) Income Taxes
TCI files a consolidated Federal income 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 income tax return. TCI and such
subsidiaries calculate their respective tax liabilities on a separate
return basis which are combined in the accompanying consolidated financial
statements.
(continued)
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118
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
The Financial Accounting Standards Board Statement No. 109, "Accounting for
Income Taxes" ("Statement No. 109") requires the use of 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.
Income tax expense attributable to income or loss from continuing
operations for the years ended December 31, 1994, 1993 and 1992 consists
of:
Current Deferred Total
------- -------- -------
amounts in millions
Year ended December 31, 1994:
Federal $(69) (25) (94)
State and local (14) (8) (22)
---- ----- -----
$(83) (33) (116)
==== ===== =====
Year ended December 31, 1993:
Federal $(14) (119) (133)
State and local (15) (20) (35)
---- ----- -----
$(29) (139) (168)
==== ===== =====
Year ended December 31, 1992:
Federal $ -- (24) (24)
State and local (10) (4) (14)
---- ----- -----
$(10) (28) (38)
==== ===== =====
The significant components of deferred income tax expense for the years
ended December 31, 1994, 1993 and 1992 are as follows:
Years ended
December 31,
--------------------------------------
1994 1993 1992
------ ------ ------
amounts in millions
Deferred tax expense
(exclusive of effects of other
components listed below) $ (33) (63) (28)
Adjustment to deferred tax assets
and liabilities for enacted change
in tax rates -- (76) --
----- ----- ----
$ (33) (139) (28)
===== ===== ====
(continued)
II-62
119
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
Income tax expense attributable to income or loss from continuing
operations differs from the amounts computed by applying the Federal
income tax rate of 35% in 1994 and 1993 and 34% in 1992 as a result of
the following:
Years ended
December 31,
----------------------------------------
1994 1993 1992
------ ------ ------
amounts in millions
Computed "expected" tax
expense $ (60) (56) (15)
Adjustment to deferred tax assets
and liabilities for enacted change
in Federal income tax rate -- (76) --
Dividends excluded for income
tax purposes 1 4 10
Amortization not deductible for
tax purposes (13) (12) (8)
Minority interest in earnings of
consolidated subsidiaries (3) (1) (14)
Recognition of losses of
consolidated partnership (10) (8) --
State and local income taxes,
net of Federal income
tax benefit (20) (23) (9)
Valuation allowance on
foreign corporations (10) -- --
Other (1) 4 (2)
----- ---- ----
$(116) (168) (38)
===== ==== ====
(continued)
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120
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1994 and 1993 are presented below:
December 31,
----------------------
1994 1993
------ ------
amounts in millions
Deferred tax assets:
Net operating loss carryforwards $ 490 590
Less - valuation allowance (100) (90)
Investment tax credit carryforwards 122 140
Less - valuation allowance (36) (36)
Alternative minimum tax credit
carryforwards 90 19
Investments in affiliates, due
principally to losses of affiliates
recognized for financial statement
purposes in excess of losses
recognized for income tax purposes 294 266
Future deductible amounts principally
due to non-deductible accruals 52 27
Other 19 13
-------- -----
Net deferred tax assets 931 929
--------- -----
Deferred tax liabilities:
Property and equipment, principally
due to differences in depreciation 1,197 1,193
Franchise costs, principally due to
differences in amortization 2,600 2,784
Investment in affiliates, due
principally to undistributed
earnings of affiliates 556 256
Intangible assets, principally due to
differences in amortization 108 --
Other 83 6
-------- -----
Total gross deferred tax liabilities 4,544 4,239
-------- -----
Net deferred tax liability $ 3,613 3,310
======= =====
The valuation allowance for deferred tax assets as of December 31, 1994 was
$136 million. Such balance increased by $10 million from December 31, 1993
resulting from a valuation allowance established against net operating
losses of foreign corporation. Subsequently recognized tax benefits
relating to $126 million of the valuation allowance for deferred tax assets
as of December 31, 1994 will be recorded as reductions of franchise costs.
(continued)
II-64
121
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
At December 31, 1994, the Company had net operating loss carryforwards for
income tax purposes aggregating approximately $927 million of which, if not
utilized to reduce taxable income in future periods, $11 million expires
through 2002, $151 million in 2003, $121 million in 2004, $364 million in
2005, $269 million in 2006, $8 million in 2008 and $3 million in 2009.
Certain subsidiaries of the Company had additional net operating loss
carryforwards for income tax purposes aggregating approximately $247
million and these net operating losses are subject to certain rules
limiting their usage.
At December 31, 1994, the Company had remaining available investment tax
credits of approximately $67 million which, if not utilized to offset
future Federal income taxes payable, expire at various dates through 2005.
Certain subsidiaries of the Company had additional investment tax credit
carryforwards aggregating approximately $55 million and these investment
tax credit carryforwards are subject to certain rules limiting their usage.
Certain of the Federal income tax returns of TCI and its subsidiaries which
filed separate income tax returns are presently under examination by the
Internal Revenue Service ("IRS") for the years 1979 through 1992. In the
opinion of management, any additional tax liability, not previously
provided for, resulting from these examinations, ultimately determined to
be payable, should not have a material adverse effect on the consolidated
financial position of the Company. The Company pursued a course of action
on certain issues (primarily the deductibility of franchise cost
amortization) the IRS had raised and such issues were argued before the
United States Tax Court. During 1990, the Company received a favorable
decision regarding these issues. The IRS appealed this decision but the
Company prevailed in the appeal. The IRS elected not to further appeal the
decision to the Supreme Court. The Company has entered into a closing
agreement with the IRS which settles these matters for all open tax years.
A subsidiary of the Company has filed a petition in United States Tax Court
protesting the disallowance of certain Transitional Investment Tax Credits
and such issue should be litigated by early 1996.
Certain of the Federal income tax returns of a less than 80% owned
subsidiary of the Company (the "Subsidiary") were examined by the IRS for
the Subsidiary's 1986 through 1989 fiscal years and several adjustments
were proposed. On June 8, 1994, the Subsidiary and the IRS agreed to
settle all of the outstanding issues with the exception of the Subsidiary's
deduction of certain royalty payments to a related party. In August of
1994, the Subsidiary paid $15 million, including interest, in settlement of
all the assessments related to all the issues brought upon examination
except the royalty payments issue. The payment covered all of the
Subsidiary's tax returns through August 31, 1993. The assessments had
previously been accrued.
On September 9, 1994, the IRS issued a Statutory Notice of Deficiency for
the Subsidiary's fiscal years 1986 through 1989 related to the royalty
payments issue. In December 1994, the Subsidiary paid the assessments,
totaling $5 million, including interest. The assessments had previously
been accrued. The Subsidiary continues to maintain that it has meritorious
positions regarding the deductibility of the payments and intends to file a
refund claim with the IRS during 1995.
(continued)
II-65
122
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
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. Such tax rate change
resulted in an increase of $76 million to income tax expense and
deferred income tax liability.
(12) Commitments and Contingencies
During 1994, subsidiaries of the Company, Comcast, Cox Communications,
Inc. ("Cox") and Sprint Corporation ("Sprint") formed a partnership
("WirelessCo") to engage in the business of providing wireless
communications services on a nationwide basis. Through WirelessCo, the
partners have been participating in auctions ("PCS Auctions") of
broadband personal communications services ("PCS") licenses being
conducted by the Federal Communications Commission ("FCC"). In the
first round auction, which concluded during the first quarter of 1995,
WirelessCo was the winning bidder for PSC licenses for 29 markets,
including New York, San Francisco-Oakland-San Jose, Detroit, Dallas-Fort
Worth, Boston-Providence, Minneapolis-St. Paul and Miami-Fort
Lauderdale. The aggregate license cost for these licenses is
approximately $2.1 billion.
WirelessCo has also invested in American PSC, L.P. ("APC"), which holds
a PCS license granted under the FCC's pioneer preference program for the
Washington-Baltimore market. WirelessCo acquired its 49% limited
partnership interest in APC for $23 million and has agreed to make
capital contributions to APC equal to 49/51 of the cost of APC's PCS
license. Additional capital contributions may be required in the event
APC is unable to finance the full cost of its PCS license. WirelessCo
may also be required to finance the build-out expenditures for APC's PCS
system. Cox, which holds a pioneer preference PCS license for the Los
Angeles-San Diego market, and WirelessCo have also agreed on the general
terms and conditions upon which Cox (with a 60% interest) and WirelessCo
(with a 40% interest) would form a partnership to hold and develop a PCS
system using the Los Angeles-San Diego license. APC and the Cox
partnership would affiliate their PCS systems with WirelessCo and be
part of WirelessCo's nationwide integrated network, offering wireless
communications services under the "Sprint" brand. The Company owns a 30%
interest in WirelessCo.
During 1994, subsidiaries of Cox, Sprint and the Company also formed a
separate partnership ("PhillieCo"), in which the Company owns a 35.3%
interest. PhillieCo was the winning bidder in the first round auction
for a PCS license for the Philadelphia market at a license cost of
$85 million. To the extent permitted by law, the PCS system to be
constructed by PhillieCo would also be affiliated with WirelessCo's
nationwide network.
(continued)
II-66
123
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
WirelessCo may bid in subsequent rounds of the PCS Auctions and may invest
in, affiliate with or acquire licenses from other successful bidders. The
capital that WirelessCo will require to fund the construction of the PCS
systems, in addition to the license costs and investments described above,
will be substantial.
At the end of the first quarter of 1995, subsidiaries of the Company,
Comcast, Cox and Sprint formed two new partnerships, of which the principal
partnership is MajorCo, L.P. ("MajorCo"), to which they contributed their
respective interests in WirelessCo and through which they formed another
partnership, NewTelco, L.P. ("NewTelco") to engage in the business of
providing local wireline communications services to residences and
businesses on a nationwide basis. NewTelco will serve its customers
primarily through the cable television facilities of cable television
operators that affiliate with NewTelco in exchange for agreed-upon
compensation. The modification of existing regulations and laws governing
the local telephony market will be necessary in order for NewTelco to
provide its proposed services on a competitive basis in most states.
Subject to agreement upon a schedule for upgrading its cable television
facilities in selected markets and certain other matters, the Company has
agreed to affiliate certain of its cable systems with NewTelco. The
capital required for the upgrade of the Company's cable facilities for the
provision of telephony services is expected to be substantial.
Subsidiaries of the Company, Cox and Comcast, together with Continental
Cablevision, Inc. ("Continental"), own Teleport Communications Group, Inc.
and TCG Partners (collectively, "TCG"), which is one of the largest
competitive access providers in the United States in terms of route miles.
The Company, Cox and Comcast have entered into an agreement with MajorCo
and NewTelco to contribute their interests in TCG and its affiliated
entities to NewTelco. The Company currently owns an approximate 29.9%
interest in TCG. The closing of this contribution is subject to the
satisfaction of certain conditions, including the receipt of necessary
regulatory and other consents and approvals. In addition, the Company,
Comcast and Cox intend to negotiate with Continental, which owns a 20%
interest in TCG, regarding their acquisition of Continental's TCG interest.
If such agreement cannot be reached, they will need to obtain Continental's
consent to certain aspects of their agreement with Sprint.
Subject to agreement upon an initial business plan, the MajorCo partners
have committed to make cash capital contributions to MajorCo of $4.0 to
$4.4 billion in the aggregate over a three- to five-year period, which
amount includes the approximately $500 million already contributed by the
partners to WirelessCo. The partners intend for MajorCo and its subsidiary
partnerships to be the exclusive vehicles through which they engage in the
wireless and wireline telephony service businesses, subject to certain
exceptions.
(continued)
II-67
124
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
On January 20, 1995, Tele-Vue Systems, Inc. ("Tele-Vue"), Viacom
International, Inc. ("Viacom"), InterMedia Partners IV, L.P. ("IP-IV") and
RCS Pacific, L.P. ("RCS Pacific") entered into an Asset Purchase Agreement
(the "Tele-Vue Agreement") pursuant to which RCS Pacific agreed to acquire
from Tele-Vue the assets of certain cable television systems for total
consideration of approximately $1,983 million, subject to adjustment in
accordance with the terms of the Tele-Vue Agreement. A subsidiary of TCI
has agreed to loan $600 million in cash to IP-IV. IP-IV will, in turn,
loan such $600 million to RCS Pacific. RCS Pacific could use the proceeds
of the aforementioned loan as a portion of the total cash consideration to
be paid to Tele-Vue, or at the option of TCI, to purchase $600 million of
TCI Class A common stock. Should TCI elect to sell such common stock, RCS
Pacific has the option to pay the consideration to Tele-Vue by delivery of
RCS Pacific's short-term note of up to $600 million of the total
consideration with the balance to be paid in cash. Such note, if it is
delivered, will be secured by RCS Pacific's pledge of shares of stock of
TCI having an aggregate market value equal to the principal amount of, and
accrued interest on, the note delivered to Tele-Vue. The consummation of
the transactions contemplated by the Tele-Vue Agreement is conditioned,
among other things, on receipt of approvals of various franchise and other
governmental authorities and receipt of "minority tax certificates" from
the FCC. Both Houses of Congress have passed legislation to repeal
previous legislation which provided for minority tax certificates. The
bills are currently in conference. There can be no assurance that the
conditions precedent to closing the asset purchase will be satisfied, or
that the parties will be able to agree on different terms, if necessary.
TCI, through an indirect wholly-owned subsidiary, would hold a 25% limited
partnership interest in IP-IV, and IP-IV would in turn hold a 79% limited
partnership interest in RCS Pacific. TCI would account for its investment
in IP-IV under the equity method of accounting.
On October 5, 1992, Congress enacted the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act"). In 1993 and
1994, the FCC adopted certain rate regulations required by the 1992 Cable
Act and imposed a moratorium on certain rate increases. As a result of
such actions, the Company's basic and tier service rates and its equipment
and installation charges (the "Regulated Services") are subject to the
jurisdiction of local franchising authorities and the FCC. Basic and tier
service rates are evaluated against competitive benchmark rates as
published by the FCC, and equipment and installation charges are based on
actual costs. Any rates for Regulated Services that exceeded the
benchmarks were reduced as required by the 1993 and 1994 rate regulations.
The rate regulations do not apply to the relatively few systems which are
subject to "effective competition" or to services offered on an individual
service basis, such as premium movie and pay-per-view services.
(continued)
II-68
125
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
The Company believes that it has complied in all material respects with the
provisions of the 1992 Cable Act, including its rate setting provisions.
However, the Company's rates for Regulated Services are subject to review
by the FCC, if a complaint has been filed, or the appropriate franchise
authority, if such authority has been certified. If, as a result of the
review process, a system cannot substantiate its rates, it could be
required to retroactively reduce its rates to the appropriate benchmark and
refund the excess portion of rates received. Any refunds of the excess
portion of tier service rates would be retroactive to the date of
complaint. Any refunds of the excess portion of all other Regulated
Service rates would be retroactive to the later of September 1, 1993 or one
year prior to the certification date of the applicable franchise authority.
The amount of refunds, if any, which could be payable by the Company in the
event that systems' rates are successfully challenged by franchising
authorities is not considered to be material.
The Company is obligated to pay fees for the license to exhibit certain
qualifying films that are released theatrically by various motion picture
studios through December 31, 2006 (the "Film License Obligations"). The
aggregate minimum liability under certain of the license agreements is
approximately $405 million. The aggregate amount of the Film License
Obligations under other license agreements is not currently estimable
because such amount is dependent upon the number of qualifying films
produced by the motion picture studios, the amount of United States
theatrical film rentals for such qualifying films, and certain other
factors. Nevertheless, the Company's aggregate payments under the Film
License Obligations could prove to be significant. Additionally, the
Company has generated up to $70 million of similar license fee obligations
of another affiliate.
The Company has long-term sports program rights contracts which require
payments through 2006. Future payments for each of the next five years are
as follows (amounts in millions):
1995 $32
1996 32
1997 28
1998 25
1999 22
The Company has guaranteed notes payable and other obligations of
affiliated and other companies with outstanding balances of approximately
$234 million at December 31, 1994.
The Company leases business offices, has entered into pole rental
agreements and uses certain equipment under lease arrangements. Minimum
rental expense under such arrangements, net of sublease rentals, amounted
to $70 million, $59 million and $57 million in 1994, 1993 and 1992,
respectively.
(continued)
II-69
126
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
Future minimum lease payments under noncancellable operating leases for
each of the next five years are summarized as follows (amounts in
millions):
Years ending
December 31,
------------
1995 $48
1996 43
1997 41
1998 34
1999 31
It is expected that, in the normal course of business, expiring leases will
be renewed or replaced by leases on other properties; thus, it is
anticipated that future minimum lease commitments will not be less than the
amount shown for 1995.
In 1993, the President of Home Shopping Network, Inc. ("HSN") received
stock appreciation rights with respect to 984,876 shares of HSN's common
stock at an exercise price of $8.25 per share. These rights vest over a
four year period and are exercisable until February 23, 2003. The stock
appreciation rights will vest upon termination of employment other than for
cause and will be exercisable for up to one year following the termination
of employment. In the event of a change in ownership control of HSN, all
unvested stock appreciation rights will vest immediately prior to the
change in control and shall remain exercisable for a one year period.
Stock appreciation rights not exercised will expire to the extent not
exercised. These rights may be exercised for cash or, so long as HSN is a
public company, for shares of HSN's common stock equal to the excess of the
fair market value of each share of common stock over $8.25 at the exercise
date. The stock appreciation rights also will vest in the event of death
or disability. Estimated compensation related to stock appreciation rights
has been recorded through December 31, 1994, but it is subject to future
adjustment based upon market value, and ultimately on the final
determination of market value when the rights are exercised.
The Company has contingent liabilities related to legal proceedings and
other matters arising in the ordinary course of business. In the opinion
of management, it is expected that amounts, if any, which may be required
to satisfy such contingencies will not be material in relation to the
accompanying consolidated financial statements.
(continued)
II-70
127
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
(13) Information about the Company's Operations
Subsequent to the consummation of the TCI/Liberty Combination, the
Company operates primarily in two industry segments: cable and
communications services ("Cable") and programming services. The
programming services include the production, acquisition and distribution
of globally branded entertainment, education and information programming
services and software for distribution through all available formats and
media; and home shopping via television and other interactive media,
direct marketing, advertising sales, infomercials and transaction
processing ("Programming"). Home shopping is a programming service which
includes a retail function. Separate amounts of the aforementioned home
shopping service have been provided to enhance the readers understanding
of the Company. The Technology/Venture Capital and the International
Cable and Programming portions of the Company's business have been
included in Cable due to their immateriality. Operating income is total
revenue less operating costs and expenses which includes an allocation of
corporate general and administrative expenses. Identifiable assets by
industry are those assets used in the Company's operations in each
industry. The Company has investments, accounted for under the equity
method and the cost method, which also operate in the Cable and
Programming industries. The following is selected information about the
Company's operations for the year ended December 31, 1994:
Programming
-------------------------------
Electronic Other
Cable Retailing Programming Total
----- --------- ----------- -----
amounts in millions
Revenue $ 4,247 482 207 4,936
======= === ===== ======
Operating income
(loss) $ 865 9 (86) 788
======= === ===== ======
Depreciation and
amortization $ 992 15 11 1,018
======= === ===== ======
Capital
expenditures $ 1,239 19 6 1,264
======= === ===== ======
Identifiable assets $16,959 948 1,583 19,490
======= === ===== ======
(continued)
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128
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
(14) Discontinued Operations
The Company sold its motion picture theatre business and certain
theatre-related real estate assets on May 12, 1992. The selling price
(including liabilities assumed) was approximately $680 million. In
connection with the disposition, the Company paid $92.5 million for certain
preferred stock of the buyer. No gain or loss was recognized in connection
with this transaction as the net assets of discontinued operations were
reflected at their net realizable value.
Operating results for the theatre operations for the period from January 1,
1992 through May 12, 1992 are reported separately in the consolidated
statements of operations under the caption "Loss from discontinued
operations" and include:
1992
----
amounts in millions
Revenue $ 211
Loss before income taxes $ (16)
Income tax benefit $ 1
Net loss $ (15)
(continued)
II-72
129
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
(15) Quarterly Financial Information (Unaudited)
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
------- ------- ------- -------
amounts in millions,
except per share amounts
1994:
----
Revenue $ 1,060 1,081 1,286 1,509
Operating income $ 234 205 186 163
Income tax expense $ (31) (21) (33) (31)
Net earnings (loss) $ 32 6 25 (8)
Primary and fully diluted
earnings (loss) attributable to
common shareholders per
common and common
equivalent share $ .07 .01 .04 (.02)
1993:
----
Revenue $ 1,018 1,042 1,044 1,049
Operating income $ 247 246 236 187
Income tax benefit (expense) $ (38) (17) (114) 1
Net earnings (loss) $ 53 26 (65) (21)
Primary and fully diluted
earnings (loss) attributable to
common shareholders per
common and common
equivalent share $ .11 .06 (.14) (.05)
(continued)
II-73
130
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
(16) Subsequent Events (Unaudited)
Comcast had the right, through December 31, 1994, to require TCI to
purchase or cause to be purchased from Comcast all shares of Heritage
Communications, Inc. ("Heritage") directly or indirectly owned by
Comcast for either cash or assets or, at TCI's election shares of TCI
common stock. On October 24, 1994, the Company and Comcast entered
into a purchase agreement whereby the Company would repurchase the
entire 19.9% minority interest in Heritage owned by Comcast for an
aggregate consideration of approximately $290 million, the majority
of which is payable in shares of TCI Class A common stock. Such
acquisition was consummated subsequent to December 31, 1994.
As of January 26, 1995, TCI, TCIC, a wholly-owned subsidiary of TCI,
and TeleCable consummated a transaction, whereby TeleCable was merged
into TCIC, a wholly-owned subsidiary of TCI. The aggregate $1.6
billion purchase price was satisfied by TCIC's assumption of
approximately $300 million of TeleCable's net liabilities and the
issuance to TeleCable's shareholders of approximately 42 million shares
of TCI Class A common stock and 1 million shares of Series D Preferred
Stock with an aggregate initial liquidation value of $300 million (see
note 8).
The Board of Directors of TCI has adopted a proposal which, if approved
by the stockholders, would authorize the Board to issue a new class of
stock ("Liberty Group Common Stock") which corresponds to TCI's
Programming ("Liberty Media Group")(see note 13). While the Liberty
Group Common Stock would constitute common stock of TCI, it is intended
to reflect the separate performance of such programming services. TCI
intends to distribute to its security holders one hundred percent of
the equity value of TCI attributable to Liberty Media Group.
II-74
131
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder
TCI Communications, Inc.:
We have audited the accompanying consolidated balance sheets of TCI
Communications, Inc. and subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of operations, stockholder's(s') equity, and
cash flows for each of the years in the three-year period ended December 31,
1994. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of TCI Communications,
Inc. and subsidiaries as of December 31, 1994 and 1993, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1994, in conformity with generally accepted
accounting principles.
As discussed in notes 1 and 5 to the consolidated financial statements, the
Company adopted the provisions of Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities" in
1994.
KPMG Peat Marwick LLP
Denver, Colorado
March 27, 1995
II-75
132
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Consolidated Balance Sheets
December 31, 1994 and 1993
1994 1993
---------------- ---------------
Assets amounts in millions
------
Cash $ 6 1
Trade and other receivables, net 198 232
Investment in Liberty Media Corporation
("Liberty") (note 3) -- 489
Investments in affiliates, accounted for
under the equity method, and related
receivables (note 4) 341 645
Investment in Turner Broadcasting System, Inc.
("TBS") (note 5) 6 491
Property and equipment, at cost:
Land 68 73
Distribution systems 7,589 6,629
Support equipment and buildings 921 818
------ ------
8,578 7,520
Less accumulated depreciation 2,999 2,585
------ ------
5,579 4,935
------ ------
Franchise costs 10,994 10,620
Less accumulated amortization 1,697 1,423
------ ------
9,297 9,197
------ ------
Other assets, at cost, net of amortization 453 530
------ ------
$15,880 16,520
======= ======
(continued)
II-76
133
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Consolidated Balance Sheets, continued
1994 1993
---------------- ---------------
Liabilities and Stockholder's(s') Equity amounts in millions
----------------------------------------
Accounts payable $ 74 124
Accrued interest 179 157
Other accrued expenses 603 500
Debt (note 6) 10,712 9,900
Deferred income taxes (note 10) 3,299 3,310
Other liabilities 96 114
-------- ------
Total liabilities 14,963 14,105
-------- ------
Minority interests in equity
of consolidated subsidiaries 271 285
Redeemable preferred stocks (note 7) -- 18
Stockholder's(s') equity (note 8):
Preferred stock, $1 par value.
Authorized 10,000,000 shares in 1993,
issued and outstanding 6,201 shares
of redeemable preferred stocks in 1993 -- --
Class A common stock, $1 par value.
Authorized 904,000 shares in 1994 and
1,000,000,000 shares in 1993; issued
811,655 shares in 1994 and
481,837,347 shares in 1993 1 482
Class B common stock, $1 par value.
Authorized 96,000 shares in 1994 and
100,000,000 shares in 1993; issued
94,447 shares in 1994 and 47,258,787
shares in 1993 -- 47
Additional paid-in capital 2,842 2,293
Cumulative foreign currency
translation adjustment, net of taxes -- (29)
Unrealized holding gains for
available-for-sale securities, net of taxes 2 --
Accumulated deficit (256) (348)
-------- ----
2,589 2,445
Treasury stock, at cost (79,335,038 shares
of Class A common stock in 1994 and 1993) -- (333)
Investment in Tele-Communications, Inc.
("TCI") (1,096) --
Due from TCI (847) --
-------- -------
Total stockholder's(s') equity 646 2,112
-------- -------
Commitments and contingencies (note 11)
$15,880 16,520
======= ======
See accompanying notes to consolidated financial statements.
II-77
134
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Consolidated Statements of Operations
Years ended December 31, 1994, 1993 and 1992
1994 1993 1992
---- ---- ----
amounts in millions
Revenue (note 3) $ 4,318 4,153 3,574
Operating costs and expenses:
Operating (note 3) 1,315 1,190 1,028
Selling, general and administrative 1,202 1,105 909
Compensation relating to stock
appreciation rights -- 31 1
Adjustment to compensation relating to
stock appreciation rights (5) -- --
Restructuring charge -- -- 8
Depreciation 685 622 512
Amortization 303 289 252
-------- ----- -----
3,500 3,237 2,710
-------- ----- -----
Operating income 818 916 864
Other income (expense):
Interest expense (777) (731) (718)
Interest and dividend income 35 34 69
Share of earnings of Liberty (note 3) 125 4 22
Share of losses of other affiliates,
net (note 4) (114) (76) (105)
Gain on sale of stock by equity investee
(note 4) 161 -- --
Gain (loss) on disposition of assets (5) 42 9
Premium received on redemption of
preferred stock investment (note 4) -- -- 14
Loss on early extinguishment of debt (9) (17) (67)
Minority interests in losses (earnings) of
consolidated subsidiaries, net 6 (5) (41)
Other, net (17) (6) (2)
-------- ----- -----
(595) (755) (819)
-------- ----- -----
Earnings from continuing
operations before income taxes 223 161 45
Income tax expense (131) (168) (38)
-------- ----- -----
Earnings (loss) from continuing
operations 92 (7) 7
Loss from discontinued operations,
net of income taxes (note 12) -- -- (15)
-------- ----- -----
Net earnings (loss) 92 (7) (8)
Dividend requirements on preferred
stocks -- (2) (15)
-------- ----- -----
Net earnings (loss) attributable to
common stockholder(s) $ 92 (9) (23)
======== ===== =====
See accompanying notes to consolidated financial statements.
II-78
135
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Consolidated Statements of Stockholder's(s') Equity
Years ended December 31, 1994, 1993 and 1992
Unrealized
Cumulative holding
foreign gains for
Common stock Additional currency available-
------------ paid-in translation for-sale Accumulated
Class A Class B capital adjustment securities deficit
------- ------- ------- ---------- ---------- -----------
amounts in millions
Balance at January 1, 1992 $ 449 49 1,738 -- -- (333)
Net loss -- -- -- -- -- (8)
Conversion of public
debentures 7 -- 105 -- -- --
Issuance of common stock
upon exercise of options 1 -- 13 -- -- --
Issuance of Class A common
stock for acquisition and
investment 5 -- 93 -- -- --
Dividends on redeemable
preferred stock -- -- (15) -- -- --
Foreign currency translation
adjustment -- -- -- (19) -- --
Acquisition and retirement of
common stock -- (1) (25) -- -- --
----- ---- ------ ---- ---- -----
Balance at December 31, 1992 462 48 1,909 (19) -- (341)
Net loss -- -- -- -- -- (7)
Issuance of common stock
upon conversion of notes 20 -- 383 -- -- --
Issuance of common stock
upon exercise of options -- -- 7 -- -- --
Dividends on redeemable
preferred stocks -- -- (2) -- -- --
Foreign currency translation
adjustment -- -- -- (10) -- --
Acquisition and retirement of
common stock -- (1) (4) -- -- --
----- ---- ------ ---- ---- -----
Balance at December 31, 1993 $ 482 47 2,293 (29) -- (348)
----- ---- ------ ---- ---- -----
Investment Due Total
Treasury in from stockholder's(s)
stock TCI TCI equity
----- --- ----- ------
amount in millions
Balance at January 1, 1992 (333) -- -- 1,570
Net loss -- -- -- (8)
Conversion of public
debentures -- -- -- 112
Issuance of common stock
upon exercise of options -- -- -- 14
Issuance of Class A common
stock for acquisition and
investment -- -- -- 98
Dividends on redeemable
preferred stock -- -- -- (15)
Foreign currency translation
adjustment -- -- -- (19)
Acquisition and retirement of
common stock -- -- -- (26)
------- ------ ------ -----
Balance at December 31, 1992 (333) -- -- 1,726
Net loss -- -- -- (7)
Issuance of common stock
upon conversion of notes -- -- -- 403
Issuance of common stock
upon exercise of options -- -- -- 7
Dividends on redeemable
preferred stocks -- -- -- (2)
Foreign currency translation
adjustment -- -- -- (10)
Acquisition and retirement of
common stock -- -- -- (5)
------- ------ ------ -----
Balance at December 31, 1993 (333) -- -- 2,112
------- ------ ------ -----
(continued)
II-79
136
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Consolidated Statements of Stockholder's(s') Equity, continued
Years ended December 31, 1994, 1993 and 1992
Unrealized
Cumulative holding
foreign gains for
Common stock Additional currency available-
------------ paid-in translation for-sale
Class A Class B capital adjustment securities
------- ------- ------- ---------- ----------
amounts in millions
Balance at December 31, 1993 $ 482 47 2,293 (29) --
Unrealized holding gains for
available-for-sale
securities as of
January 1, 1994 -- -- -- -- 304
Net earnings -- -- -- -- --
Conversion of redeemable
preferred stock 1 -- 17 -- --
Issuance of common stock upon
conversion of notes 3 -- -- -- --
Exchange of TCIC common
stock and Liberty common
stock and preferred stock
owned by subsidiaries of
TCIC for TCI common stock
and preferred stock in the
TCI/Liberty Combination -- -- -- -- --
Reclassification and change
of common stock (note 8) (485) (47) 532 -- --
Foreign currency translation
adjustment -- -- -- 24 --
Reduction in unrealized
holding gains for
available-for-sale
securities (note 5) -- -- -- -- (141)
Change in due from TCI -- -- -- -- --
Effect of Reorganization -- -- -- 5 (161)
----- ------ ----- ------ -----
Balance at December 31, 1994 $ 1 -- 2,842 -- 2
===== ====== ===== ====== =====
Investment Due Total
Accumulated Treasury in from stockholder's(s)
deficit stock TCI TCI equity
----- --------- ----- ------ -------
amounts in millions
Balance at December 31, 1993 (348) (333) -- -- 2,112
Unrealized holding gains for
available-for-sale
securities as of
January 1, 1994 -- -- -- -- 304
Net earnings 92 -- -- -- 92
Conversion of redeemable
preferred stock -- -- -- -- 18
Issuance of common stock upon
conversion of notes -- -- -- -- 3
Exchange of TCIC common
stock and Liberty common
stock and preferred stock
owned by subsidiaries of
TCIC for TCI common stock
and preferred stock in the
TCI/Liberty Combination -- 333 (651) -- (318)
Reclassification and change
of common stock (note 8) -- -- -- -- --
Foreign currency translation
adjustment -- -- -- -- 24
Reduction in unrealized
holding gains for
available-for-sale
securities (note 5) -- -- -- -- (141)
Change in due from TCI -- -- -- (847) (847)
Effect of Reorganization -- -- (445) -- (601)
------ ------ ------ ------ -----
Balance at December 31, 1994 (256) -- (1,096) (847) 646
====== ====== ====== ====== =====
See accompanying notes to consolidated financial statements.
II-80
137
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Consolidated Statements of Cash Flows
Years ended December 31, 1994, 1993 and 1992
1994 1993 1992
------ ------ ------
amounts in millions,
(see note 2)
Cash flows from operating activities:
Net earnings (loss) $ 92 (7) (8)
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation and amortization 988 911 764
Share of earnings of Liberty (125) (4) (22)
Share of losses of other affiliates 114 76 105
Loss (gain) on disposition of assets 5 (42) (9)
Loss on early extinguishment of debt 9 17 67
Compensation relating
to stock appreciation rights -- 31 1
Adjustment to compensation relating
to stock appreciation rights (5) -- --
Payment for stock appreciation rights -- -- (80)
Minority interests in losses (earnings) (6) 5 41
Deferred income tax expense 44 139 28
Amortization of debt discount 1 27 27
Gain on sale of stock by equity investee (161) -- --
Noncash interest expense 4 -- --
Premium received on preferred stock
investment redemption -- -- (14)
Payment of premium received on preferred
stock investment redemption -- 14 --
Discontinued operations -- -- 15
Restructuring charge -- -- 8
Payment of restructuring charge -- (8) --
Noncash interest and dividend income (8) (7) (40)
Changes in operating assets and liabilities,
net of the effect of acquisitions:
Change in receivables 16 (32) (3)
Change in accrued interest 22 63 --
Change in other accruals and payables 152 68 77
------ ------ ------
Net cash provided by
operating activities 1,142 1,251 957
------ ------ ------
Cash flows from investing activities:
Cash paid for acquisitions (494) (158) (1,256)
Capital expended for property and equipment (1,235) (947) (526)
Cash proceeds from disposition of assets 36 149 66
Cash proceeds from disposition of
discontinued operations -- -- 220
Discontinued operations -- -- 9
Additional investments in and loans to
affiliates and others (384) (361) (205)
Payment received on preferred stock
investment redemption -- 183 --
Return of capital from affiliates 20 1 1
Repayment of loans by affiliates and others 145 62 32
Other investing activities (91) (99) (155)
------ ------ ------
Net cash used in investing activities (2,003) (1,170) (1,814)
------ ------ ------
(continued)
II-81
138
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Consolidated Statements of Cash Flows, continued
Years ended December 31, 1994, 1993 and 1992
1994 1993 1992
------ ------ ------
amounts in millions,
(see note 2)
Cash flows from financing activities:
Borrowings of debt 4,409 6,305 5,354
Repayments of debt (3,348) (6,321) (4,435)
Change in due from TCI (189) -- --
Repayment of short-term notes to affiliate -- -- (22)
Preferred stock dividends of subsidiaries (6) (6) (6)
Preferred stock dividends -- (2) (15)
Repurchase of preferred stock -- (92) (5)
Issuances of common stock -- 6 7
Repurchases of common stock -- (4) (19)
---- ----- -----
Net cash provided (used) by
financing activities 866 (114) 859
---- ----- -----
Net increase (decrease) in cash 5 (33) 2
Cash at beginning of year 1 34 32
---- ----- -----
Cash at end of year $ 6 1 34
==== ===== =====
See accompanying notes to consolidated financial statements.
II-82
139
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
December 31, 1994, 1993 and 1992
(1) Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of TCI Communications, Inc. (formerly Tele-Communications, Inc. or
"Old TCI") and those of all majority-owned subsidiaries ("TCIC"). All
significant intercompany accounts and transactions have been eliminated
in consolidation.
The TCI/Liberty Combination
As of January 27, 1994, TCI Communications, Inc. and Liberty entered
into a definitive merger agreement (the "TCI/Liberty Merger Agreement")
to combine the two companies (the "TCI/Liberty Combination"). The
transaction was consummated on August 4, 1994 and was structured as a
tax free exchange of Class A and Class B shares of both companies and
preferred stock of Liberty for like shares of a newly formed holding
company, TCI/Liberty Holding Company. In connection with the
TCI/Liberty Combination, Old TCI changed its name to TCI
Communications, Inc. and TCI/Liberty Holding Company changed its name
to Tele-Communications, Inc. ("TCI"). Old TCI shareholders received
one share of TCI for each of their shares. Liberty common shareholders
received 0.975 of a share of TCI for each of their common shares (see
note 3). Upon consummation of the TCI/Liberty Combination, certain
subsidiaries of TCIC exchanged the 79,335,038 shares of Old TCI Class A
common stock held by such subsidiaries for 79,335,038 shares of TCI
Class A common stock. Such ownership is reflected as treasury stock at
such subsidiaries' historical cost in the accompanying consolidated
financial statements.
Reorganization
During the fourth quarter of 1994, TCI was reorganized based upon four
lines of business: Domestic Cable and Communications; Programming;
International Cable and Programming; and Technology/Venture Capital
(the "Reorganization"). Upon Reorganization, certain of the assets of
TCIC (the most significant of which were TCIC's investments in TBS,
Discovery Communications, Inc. and TCI/US WEST Cable Communications
Group ("TeleWest UK") were transferred to the other operating units.
As consideration for such transfer of assets, TCIC received 8 shares of
TCI Class A common stock and 169,155 shares of TCI Redeemable
Convertible Preferred Stock, Series E, with a liquidation value of
$22,303 per share. Such investment in TCI has been reflected at TCIC's
historical cost of the transferred assets and is included as a
reduction of stockholder's(s') equity.
Receivables
Receivables are reflected net of an allowance for doubtful accounts.
Such allowance at December 31, 1994 and 1993 was not material.
(continued)
II-83
140
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
Investments
In May 1993, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("Statement No. 115"),
effective for fiscal years beginning after December 15, 1993. Under
Statement No. 115, debt securities that the Company has both the
positive intent and ability to hold to maturity are carried at
amortized cost. Debt securities that the Company does not have the
positive intent and ability to hold to maturity and all marketable
equity securities are classified as available-for-sale or trading and
carried at fair value. Unrealized holding gains and losses on
securities classified as available-for-sale are carried net of taxes as
a separate component of shareholders' equity. Unrealized holding gains
and losses on securities classified as trading are reported in
earnings. Marketable equity securities held by the Company were
reported at the lower of cost or market prior to the adoption of
Statement No. 115, and any declines in the value which were other than
temporary were reflected as a reduction in the Company's carrying value
of such investment.
Other investments in which the ownership interest is less than 20% but
do not fall within the guidelines of Statement No. 115 are generally
carried at cost. For those investments in affiliates in which TCIC's
voting interest is 20% to 50%, the equity method of accounting is
generally used. Under this method, the investment, originally recorded
at cost, is adjusted to recognize TCIC's share of the net earning or
losses of the affiliates as they occur rather than as dividends or
other distributions are received, limited to the extent of TCIC's
investment in, advances to and limited to the extent of TCIC's
investment in, advances to and guarantees for the investee. TCIC's
share of net earnings or losses of affiliates includes the amortization
of purchase adjustments.
Changes in TCIC's proportionate share of the underlying equity of a
subsidiary or equity method investee, which result from the issuance of
addition equity securities by such subsidiary or equity investee, are
recognized as gains or losses in TCIC's consolidated statement of
operations.
Property and Equipment
Property and equipment is stated at cost, including acquisition costs
allocated to tangible assets acquired. Construction costs, including
interest during construction and applicable overhead, are capitalized.
During 1994, 1993 and 1992, interest capitalized was not material.
Depreciation is computed on a straight-line basis using estimated
useful lives of 3 to 15 years for distribution systems and 3 to 40
years for support equipment and buildings.
(continued)
II-84
141
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
Repairs and maintenance are charged to operations, and renewals and
additions are capitalized. At the time of ordinary retirements, sales
or other dispositions of property, the original cost and cost of
removal of such property are charged to accumulated depreciation, and
salvage, if any, is credited thereto. Gains or losses are only
recognized in recognition of gains on sales of properties in their
entirety. However, recognition of gains on sales of properties to
affiliates accounted for under the equity method is deferred in
proportion to TCIC's ownership interest in such affiliates.
Franchise Costs
Franchise costs include the difference between the cost of acquiring
cable television systems and amounts assigned to their tangible assets.
Such amounts are generally amortized on a straight-line basis over 40
years. Costs incurred by TCIC in obtaining franchises are being
amortized on a straight-line basis over the life of the franchise,
generally 10 to 20 years.
Interest Rate Derivatives
Amounts receivable or payable under derivative financial instruments
used to manage interest rate risks arising from TCIC's financial
liabilities are recognized as interest expense. Gains and losses on
early terminations of derivatives are included in the carrying amount
of the related debt and amortized as yield adjustments over the
remaining terms of the debt. TCIC does not use such instruments for
trading purposes.
Minority Interests
Recognition of minority interests' share of losses of consolidated
subsidiaries is limited to the amount of such minority interests'
allocable portion of the common equity of those consolidated
subsidiaries. Further, the minority interests' share of losses is not
recognized if the minority holders of common equity of consolidated
subsidiaries have the right to cause TCIC to repurchase such holders'
common equity.
Included in minority interests in equity of consolidated subsidiaries
is $50 million in each of 1994 and 1993 of preferred stocks (and
accumulated dividends thereon) of certain subsidiaries. The current
dividend requirements on these preferred stocks aggregate $6 million
per annum and such dividend requirements are reflected as minority
interests in the accompanying consolidated statements of operations.
Foreign Currency Translation
All balance sheet accounts of foreign investments are translated at the
current exchange rate as of the end of the accounting period.
Statement of operations items are translated at average currency
exchange rates. The resulting translation adjustment was recorded as a
separate component of stockholder's(s') equity prior to the
Reorganization.
(continued)
II-85
142
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
Reclassification
Certain amounts have been reclassified for comparability with the 1994
presentation.
(2) Supplemental Disclosures to Consolidated Statements of Cash Flows
Cash paid for interest was $754 million, $641 million and $689
million for the years ended December 31, 1994, 1993 and 1992,
respectively. Also, during these periods, cash paid for income taxes
was not material.
Significant noncash investing and financing activities are as follows:
Years ended
December 31,
----------------
1994 1993 1992
------ ------ ------
amounts in millions
Cash paid for acquisitions:
Fair value of assets acquired $ 539 172 1,231
Liabilities assumed, net of
current assets (13) (7) 21
Deferred tax liability recorded
in acquisitions -- (7) 7
Minority interests in equity of
acquired entities (32) -- --
Value of TCIC common stock issued
in acquisitions -- -- (3)
----- --- -----
Cash paid for acquisitions $ 494 158 1,256
===== === =====
Common stock issued upon
conversion of redeemable preferred
stock $ 18 -- --
===== === =====
Reclassification and change of
common stock (note 8) $ 532 -- --
===== === =====
Exchange of TCIC common stock
owned by subsidiaries of TCIC for
common stock of TCI, classified as
investment in TCI $ 333 -- --
===== === =====
Exchange of Liberty common stock
and preferred stock owned by
subsidiaries of TCIC for TCI common
stock and preferred stock in the
TCI/Liberty Combination, classified
as investment in TCI $ 318 -- --
===== === =====
(continued)
II-86
143
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
Years ended
December 31,
----------------
1994 1993 1992
------ ------ ------
amounts in millions
Reversal of deferred tax liability
recorded in TCI/Liberty
Combination $ 38 -- --
======= ======= ========
Unrealized gains, net of deferred
income taxes, on available-for-
sale securities as of
January 1, 1994 $ 304 -- --
======= ======= ========
Reduction in unrealized gains, net of
deferred income taxes, on available-
for-sale securities $ 141 -- --
======= ======= ========
Net assets of TCIC transferred in the
Reorganization in exchange for
TCI common stock and TCI
preferred stock, reflected as
investment in TCI $ 445 -- --
======= ======= ========
Net assets of TCIC transferred in
the Reorganization through due
from TCI $ 544 -- --
======= ======= ========
Effect of foreign currency translation
adjustment on book value of foreign
equity investments $ 24 10 19
======= ======= ========
Common stock issued upon
conversion of notes (with accrued
interest through conversion) $ 3 403 112
======= ======= ========
Value of TCIC Class A common stock
issued as part of purchase price of
equity investment $ -- -- 95
======= ======= ========
Note received upon disposition of
assets $ -- -- 15
======= ======= ========
Receipt of notes receivable upon
disposition of Liberty common
stock and preferred stock (note 3) $ -- 182 --
======= ======= ========
Noncash capital contribution to
Community Cable Television ("CCT")
(note 3) $ -- 22 --
======= ======= ========
Noncash exchange of equity
investment for consolidated
subsidiary and equity investments $ -- 22 --
======= ======= ========
Common stock surrendered in lieu of
cash upon exercise of stock options $ -- 1 7
======= ======= ========
(continued)
II-87
144
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
(3) Investment in Liberty Media Corporation
TCIC owned 3,477,778 shares of Liberty Class A common stock and 55,070
shares of Liberty Class E, 6% Cumulative Redeemable Exchangeable Junior
Preferred Stock. Upon consummation of the TCI/Liberty Combination,
TCIC received 3,390,883 shares of TCI Class A common stock and 55,070
shares of Class B 6% Cumulative Redeemable Exchangeable Junior
Preferred Stock ("Class B Preferred Stock"). The holders of the Class
B Preferred Stock will be entitled to one vote per share in any general
election of directors of TCI. Upon consummation of the TCI/Liberty
Combination, the remaining classes of preferred stock of Liberty held
by TCIC were converted into shares of TCI Class A Preferred Stock which
has a substantially equivalent fair market value to that which was
given up. TCIC's ownership in TCI's common stock, Class B Preferred
Stock and TCI Class A Preferred Stock have been recorded as investment
in TCI in stockholder's(s') equity at TCIC's historical cost.
Due to the significant economic interest held by TCIC through its
ownership of Liberty preferred stock and Liberty common stock and other
related party considerations, TCIC had accounted for its investment in
Liberty under the equity method. Accordingly, TCIC had not recognized
any income relating to dividends, including preferred stock dividends,
and TCIC recorded the earnings or losses generated by Liberty (by
recognizing 100% of Liberty's earnings or losses before deducting
preferred stock dividends) through the date the TCI/Liberty Combination
was consummated.
During 1992, TCIC and Liberty formed CCT, a general partnership created
for the purpose of acquiring and operating cable television systems
with TCIC owning a 49.999% interest and Liberty owning a 50.001%
interest. Pursuant to a cable television management agreement, a
subsidiary of TCIC provides management services for cable television
systems owned by CCT. The subsidiary receives a fee equal to 3% of the
gross cable television revenue of the Partnership.
TCIC and Liberty entered into an Option-Put Agreement (the "Option-Put
Agreement"), as amended. Under the Option-Put Agreement, between
January 1, 1996 and January 31, 1996, TCIC will have the option to
purchase all of Liberty's interest in CCT and a loan receivable (the
"Mile Hi Note") for an amount equal to $77 million plus interest
accruing at the rate of 11.6% per annum on such amount from June 3,
1993. Between April 1, 1995 and June 29, 1995, and between January 1,
1997 and January 31, 1997, Liberty will have the right to require TCIC
to purchase Liberty's interest in CCT and the Mile Hi Note for an
amount equal to $77 million plus interest on such amount accruing at
the rate of 11.6% per annum from June 3, 1993.
(continued)
II-88
145
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
TCIC purchases sports and other programming from certain subsidiaries
of Liberty. Charges to TCIC (which are based upon customary rates
charged to others) for such programming were $59 million, $44 million
and $44 million for the years ended December 31, 1994 and 1993 and
1992, respectively. Such amounts are included in operating expenses in
the accompanying consolidated statements of operations. Certain
subsidiaries of Liberty purchased from TCIC, at TCIC's cost plus an
administrative fee, certain pay television and other programming
through the consummation of the TCI/Liberty Combination. In addition,
a consolidated subsidiary of Liberty pays a commission to TCIC for
merchandise sales to customers who are subscribers of TCIC's cable
systems. Aggregate commission and charges for such programming were
$16 million, $11 million and $3 million for the years ended December
31, 1994, 1993 and 1992 , respectively. Such amounts are recorded in
revenue in the accompanying consolidated statements of operations.
On July 11, 1994, Rainbow Program Enterprise ("Rainbow") purchased
49.9% of Liberty's 50% general partnership interest in American Movie
Classics Company ("AMC"). The gain recognized by Liberty in connection
with the disposition of AMC was $183 million and is included in TCIC's
share of Liberty's earnings prior to the TCI/Liberty Combination.
(continued)
II-89
146
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
Summarized unaudited financial information of Liberty as of December
31, 1993 and for the period from January 1, 1994 through August 4, 1994
and for the years ended December 31, 1993 and 1992 is as follows:
December 31,
------------
1993
----
Consolidated Financial Position amounts in millions
-------------------------------
Cash and cash equivalents $ 91
Investment in TCI common stock 104
Other investments and
related receivables 372
Other assets, net 870
------
Total assets $1,437
======
Debt $ 446
Deferred income taxes 2
Other liabilities 307
Minority interests 175
Redeemable preferred stocks 155
Stockholders' equity 352
------
Total liabilities and
stockholders' equity $1,437
======
Consolidated Operations 1994 1993 1992
----------------------- ---- ---- ----
amounts in millions
Revenue $ 790 1,153 157
Operating expenses (726) (1,105) (144)
Depreciation and amortization (32) (49) (16)
----- ------ ----
Operating income (loss) 32 (1) (3)
Interest expense (22) (31) (7)
Other, net 115 36 32
----- ------ ----
Net earnings $ 125 4 22
===== ====== ====
(4) Investments in Other Affiliates
TCIC has various investments accounted for under the equity method.
Some of the more significant investments held by TCIC at December 31,
1994 are Teleport Communications Group, Inc. ("TCG") (carrying value of
$126 million) and CCT (carrying value of $30 million).
(continued)
II-90
147
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
TCIC had an investment in TeleWest UK, a company that is currently
operating and constructing cable television and telephone systems in
the UK. TeleWest UK, which was accounted for under the equity method
comprised $40 million, $28 million and $26 million of TCIC's share of
its affiliates' losses in 1994, 1993 and 1992, respectively. In
February 1994, TCIC acquired a consolidated investment in Flextech
p.l.c. ("Flextech"). Flextech accounted for net losses in 1994 of $21
million (before deducting the minority interests' 40% share of such
losses) in 1994. In addition, TCIC had other less significant
investments in video distribution and programming businesses located in
the UK, other parts of Europe, Asia, Latin America and certain other
foreign countries. In the aggregate, such other investments accounted
for $44 million of TCIC's share of its affiliates' losses in 1994. In
connection with the Reorganization, TCIC's ownership in the
aforementioned entities was transferred to another operating unit
effective December 1, 1994, and TCIC is no longer exposed to the risk
associated with unfavorable fluctuations in foreign currency exchange
rates nor will it continue to incur the aforementioned losses
associated with such investments.
On November 22, 1994, TCI and US WEST, Inc. each exchanged their
respective 50% ownership interest in TeleWest UK for 302,250,000
ordinary shares and 76,500,000 convertible preference shares of
TeleWest Communications (the "TeleWest Exchange"). Following the
completion of the TeleWest Exchange, TeleWest Communications conducted
an initial public offering on November 23, 1994 in which it sold
243,740,000 ordinary shares for aggregate net proceeds of 401 million
pounds (the "TeleWest IPO"). Upon completion of the TeleWest Exchange
and the TeleWest IPO, TCI and US West, Inc. each became the owners of
36% of the ordinary shares and 38% of the total outstanding ordinary
and convertible preference shares of TeleWest Communications. As a
result of the TeleWest IPO and the associated dilution of TCI's
ownership interest of TeleWest Communications, Inc., TCIC has
recognized a nonrecurring pre-tax gain amount to $161 million.
Effective December 1, 1994, such ownership of TeleWest Communications
was transferred to the International Cable and Programming unit in
the Reorganization.
On December 2, 1992, SCI Holdings, Inc. ("SCI") consummated a
transaction (the "Split-Off") that resulted in the ownership of its
cable systems being split between its two stockholders, which
stockholders were Comcast Corporation ("Comcast") and TCIC. Prior to
the Split-Off, TCIC had an investment in the common stock of SCI and
the preferred stock of its wholly-owned subsidiary, Storer
Communications, Inc. ("Storer").
The Split-Off, which permitted refinancing of substantially all of the
publicly held debt of SCI and the preferred stock of Storer, was
effected by the distribution of approximately 50% of the net assets of
SCI to three holding companies formed by TCIC (the "Holding
Companies").
(continued)
II-91
148
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
Prior to the Split-Off, TCIC contributed its SCI common stock to the
Holding Companies in exchange for 100% of such Holding Companies'
common stock. The amount of SCI common stock contributed to each of
the Holding Companies was based upon the proportionate value of net
assets to be received by each of the Holding Companies in the
Split-Off. SCI then merged into Storer and the SCI common stock held
by the Holding Companies was converted into Storer common stock.
Also prior to the Split-Off, (i) the Holding Companies incurred
long-term debt aggregating approximately $1.1 billion and contributed
substantially all of the resulting proceeds to Storer and (ii) a
consolidated subsidiary of TCIC redeemed approximately $476 million of
its debt securities held by Storer with proceeds of its separate
financing, and an affiliate of Comcast redeemed approximately $274
million of its debt securities held by Storer. In turn, Storer
utilized substantially all of the proceeds of such contributions and
redemptions to repurchase its preferred stock and extinguish all of its
debt. TCIC's share of Storer's loss on early extinguishment of debt
was $52 million and such amount is included in loss on early
extinguishment of debt in the accompanying consolidated statements of
operations. Additionally, TCIC received a premium, amounting to $14
million, on the repurchase of the Storer preferred stock. Such amount
is reflected separately in the accompanying consolidated financial
statements.
In the Split-Off, Storer redeemed its common stock held by the Holding
Companies in exchange for 100% of the capital stock of certain
operating subsidiaries of Storer.
Immediately following the Split-Off, TCIC owned a majority of the
common stock of the Holding Companies and Comcast owned 100% of the
common stock of Storer. As such, TCIC, which previously accounted for
its investment in SCI using the equity method, now consolidates its
investment in the Holding Companies. The assets of the Holding
Companies were recorded at predecessor cost.
In connection with TCIC's 1988 acquisition of an equity interest in
SCI, a subsidiary of TCIC issued certain debt and equity securities to
Storer for $650 million. Such debt securities were redeemed and the
equity securities were received by one of the Holding Companies in the
Split-Off. Interest charges and preferred stock dividend requirements
on these debt and equity securities, prior to the Split-Off, aggregated
$81 million for the period ended December 2, 1992. TCIC's share of
losses of SCI, prior to the Split-Off for the period ended December 2,
1992 amounted to $51 million, as adjusted for the effect of interest
and dividends accounted for by Storer as capital transactions due to
their related party nature.
(continued)
II-92
149
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
Summarized unaudited financial information for affiliates other than
Liberty is as follows:
December 31,
------------
1994 1993
---- ----
Combined Financial Position amounts in millions
---------------------------
Property and equipment, net $ 777 1,059
Franchise costs, net 100 266
Other assets, net 313 727
-------- -----
Total assets $ 1,190 2,052
======== =====
Debt $ 635 593
Due to TCIC 2 78
Other liabilities 180 338
Owners' equity 373 1,043
-------- -----
Total liabilities and equity $ 1,190 2,052
======== =====
Years ended December 31,
------------------------
1994 1993 1992
---- ---- ----
Combined Operations amounts in millions
-------------------
Revenue $ 332 713 1,224
Operating expenses (283) (648) (786)
Depreciation and amortization (66) (127) (303)
------ ---- ----
Operating income (loss) (17) (62) 135
Interest expense (16) (37) (295)
Other, net 128 98 (234)
------ ---- ----
Net earnings (loss) $ 95 (1) (394)
====== ==== ====
Certain of TCIC's affiliates are general partnerships and any
subsidiary of TCIC that is a general partner in a general partnership
is, as such, liable as a matter of partnership law for all debts (other
than non-recourse debts) of that partnership in the event liabilities
of that partnership were to exceed its assets.
(continued)
II-93
150
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
(5) Investment in Turner Broadcasting System, Inc.
TCIC owned shares of a class of preferred stock of TBS which has voting
rights and are convertible into shares of TBS common stock. The
holders of those preferred shares, as a group, are entitled to elect
seven of fifteen members of the board of directors of TBS, and TCI
appoints three such representatives. However, voting control over TBS
continues to be held by its chairman of the Board and chief executive
officer. Additionally, TCIC owned common stock of TBS. Substantially
all of such ownership of TBS common stock and preferred stock was
transferred to the Programming unit in the Reorganization.
TCIC's investment in TBS common stock had an aggregate market value of
$803 million (which exceeded cost by $485 million) at December 31,
1993. In addition, TCIC's investment in TBS preferred stock, carried
at cost, had an aggregate market value of $954 million, based upon the
market value of the common stock into which it is convertible, (which
exceeded cost by $781 million) at December 31, 1993.
TCIC applied Statement No. 115 beginning in the first quarter of 1994.
Application of Statement No. 115 resulted in a net increase of $304
million to stockholders' equity on January 1, 1994, representing the
recognition of unrealized appreciation, net of taxes, for TCIC's
investment in equity securities determined to be available-for-sale
(primarily its investment in TBS common stock). Such amount was
subsequently adjusted by $139 million immediately prior to the
Reorganization. In conjunction with the Reorganization, TCIC reduced
its unrealized gain on available-for-sale securities by $163 million,
including the transfer of TBS common stock.
(6) Debt
Debt is summarized as follows:
Weighted average December 31,
interest rate at ------------
December 31, 1994 1994 1993
----------------- ---- ----
amounts in millions
Parent company debt:
Senior notes 8.5% $ 5,412 5,052
Bank credit facilities 6.9% 869 80
Commercial paper 6.6% 445 44
Other debt 2 2
-------- -----
6,728 5,178
-------- -----
Debt of subsidiaries:
Bank credit facilities 7.3% 2,828 3,264
Notes payable 10.2% 1,024 1,321
Convertible notes (a) 9.5% 45 47
Other debt -- 87 90
-------- -----
$ 10,712 9,900
======== =====
(continued)
II-94
151
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
(a) These convertible notes, which are stated net of unamortized
discount of $186 million and $197 million on December 31, 1994
and 1993, respectively, mature on December 18, 2021. The notes
require (so long as conversion of the notes has not occurred)
an annual interest payment through 2003 equal to 1.85% of the
face amount of the notes. During the year ended December 31,
1993, certain of these notes were converted into 819,000 shares
of TCIC Class A common stock. During the year ended December
31, 1994, certain of these notes were converted into 2,350,000
shares of TCIC Class A common stock. In conjunction with the
TCI/Liberty Combination, these notes became convertible into
TCI Class A common stock. At December 31, 1994, the notes were
convertible at the option of the holders, into an aggregate of
38,710,990 shares of TCI Class A common stock.
On October 28, 1993, TCIC called for redemption all of its remaining
Liquid Yield Option(TM) Notes. In connection with such call for
redemption, Notes aggregating $405 million were converted into
18,694,377 shares of TCIC Class A common stock and Notes aggregating
less than $1 million were redeemed together with accrued interest to
the redemption date. Prior to the aforementioned redemption, Notes
aggregating $6 million were converted into 259,537 shares of TCIC Class
A common stock during 1993.
During the year ended December 31, 1992, TCIC called for redemption all
of its 7% convertible subordinated debentures. Debentures aggregating
$114 million were converted into 6,636,881 shares of TCIC Class A
common stock and the remaining debentures were redeemed at 104.2% of
the principal amount together with accrued interest to the redemption
date.
TCIC's bank credit facilities and various other debt instruments
generally contain restrictive covenants which require, among other
things, the maintenance of certain earnings, specified cash flow and
financial ratios (primarily the ratios of cash flow to total debt and
cash flow to debt service, as defined), and include certain limitations
on indebtedness, investments, guarantees, dispositions, stock
repurchases and dividend payments.
In order to achieve the desired balance between variable and fixed rate
indebtedness, TCIC has entered into various interest rate exchange
agreements pursuant to which it pays (i) fixed interest rates (the
"Fixed Rate Agreements") ranging from 7.2% to 9.9% on notional amounts
of $550 million at December 31, 1994 and (ii) variable interest rates
(the "Variable Rate Agreements") on notional amounts of $2,605 million
at December 31, 1994. During the years ended December 31, 1994, 1993
and 1992, TCIC's net payments pursuant to the Fixed Rate Agreements
were $26 million, $38 million and $46 million, respectively; and TCIC's
net receipts pursuant to the Variable Rate Agreements were $36 million,
$31 million and $7 million, respectively. After giving effect to
TCIC's interest rate exchange agreements, approximately 45% of TCIC's
indebtedness bears interest at fixed rates.
(continued)
II-95
152
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
TCIC's Fixed Rate Agreements and Variable Rate Agreements expire as
follows:
Fixed Rate Agreements Variable Rate Agreements
--------------------- ------------------------
Expiration Interest Rate Notional Expiration Interest Rate Notional
Date To Be Paid Amount Date To Be Received Amount
-------------- ------------- ------ -------------- -------------- ------
August 1995 7.2% $ 10 April 1995 6.4% $ 75
April 1996 9.9% 30 August 1995 7.7% 10
May 1996 8.3% 50 April 1996 6.8% 50
July 1996 8.2% 10 July 1996 8.2% 10
August 1996 8.2% 10 August 1996 8.2% 10
November 1996 8.9% 150 September 1996 4.6% 150
October 1997 7.2%-9.3% 60 April 1997 7.0% 200
December 1997 8.7% 230 September 1998 4.8%-5.2% 300
----
April 1999 7.4% 100
$550 September 1999 7.2%-7.4% 300
====
February 2000 5.8%-6.6% 650
March 2000 5.8%-6.0% 675
September 2000 5.1% 75
-------
$ 2,605
=======
TCIC is exposed to credit losses for the periodic settlements of
amounts due under these interest rate exchange agreements in the event
of nonperformance by the other parties to the agreements. However,
TCIC does not anticipate that it will incur any material credit losses
because it does not anticipate nonperformance by the counterparties.
The fair value of the interest rate exchange agreements is the
estimated amount that TCIC would pay or receive to terminate the
agreements at December 31, 1994, taking into consideration current
interest rates and assuming the current creditworthiness of the
counterparties. TCIC would pay an estimated $195 million at
December 31, 1994 to terminate the agreements.
In order to diminish its exposure to extreme increases in variable
interest rates, TCIC has also entered into various interest rate hedge
agreements on notional amounts of $325 million which fix the maximum
variable interest rates at 11%. Such agreements expire during the
third and fourth quarters of 1995.
The fair value of TCIC's debt is estimated based on the quoted market
prices for the same or similar issues or on the current rates offered
to TCIC for debt of the same remaining maturities. The fair value of
debt, which has a carrying value of $10,712 million, was $10,614
million at December 31, 1994.
TCIC is required to maintain unused availability under bank credit
facilities to the extent of outstanding commercial paper. Also, TCIC
pays fees, ranging from 1/4% to 1/2% per annum, on the average
unborrowed portion of the total amount available for borrowings under
bank credit facilities.
(continued)
II-96
153
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
TCIC remains the sole obligor with respect to all indebtedness and
other obligations of Old TCI outstanding at the time the TCI/Liberty
Combination were consummated and TCI has not assumed any such
indebtedness or other obligations.
Annual maturities of debt for each of the next five years are as
follows:
Parent Total
------ -----
amounts in millions
1995 $ 688* $ 1,155*
1996 240 870
1997 173 557
1998 480 773
1999 403 774
* Includes $445 million of commercial paper.
(7) Redeemable Preferred Stocks
The 4-1/2% Convertible Preferred Stock was stated at its redemption
value of $3,000 per share, and each share was convertible into 204
shares of TCIC Class A common stock. In February of 1994, all of the
shares of such convertible preferred stock were tendered to TCIC for
conversion and, on March 3, 1994, 1,265,004 shares of TCIC Class A
common stock were issued to the holders of such preferred stock.
(8) Stockholders' Equity
Common Stock
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.
Upon a Restated Certificate of Incorporation becoming effective in
accordance with the General Corporation Law of the State of Delaware
(the "Effective Time"), each 500.3735 shares of Class A common stock
and Class B common stock issued and outstanding immediately prior to
the Effective Time was reclassified and changed into one share of Class
A common stock and one share of Class B common stock.
(continued)
II-97
154
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
Employee Benefit Plans
TCIC had an Employee Stock Purchase Plan ("ESPP") to provide employees
an opportunity for ownership in the Company and to create a retirement
fund. Terms of the ESPP provided for employees to contribute up to 10%
of their compensation to a trust for investment in TCIC common stock.
TCIC, by annual resolution of the Board of Directors, contributed up to
100% of the amount contributed by employees. Certain of TCIC's
subsidiaries have their own employee benefit plans. Contributions to
all plans aggregated $19 million, $16 million and $13 million for 1994,
1993 and 1992, respectively.
Stock Options
TCIC had granted or assumed certain options and/or stock appreciation
rights. All such options and/or stock appreciation rights previously
granted by TCIC were assumed by TCI in conjunction with the TCI/Liberty
Combination. Estimates of the compensation relating to the stock
appreciation rights granted to employees of TCIC have been recorded
through December 31, 1994, but are subject to future adjustment based
upon market value and, ultimately, on the final determination of market
value when the rights are exercised.
An officer of TCIC received payments of $512,500 and $569,000 from TCIC
(based on the then market value of TCIC Class A common stock of $20.25
and $21.375 per share) in July and December of 1992, respectively, in
cancellation of the remainder of his option covering 100,000 shares of
TCIC Class A common stock. Another officer received payment of
$2,276,000 from TCIC in December of 1992 upon cancellation of his
option covering 200,000 shares of TCIC Class A common stock. The
amount paid was based on the then market value of TCIC Class A common
stock of $21.375 per share.
(9) Transactions with Officers and Directors
On December 10, 1992, pursuant to a restricted stock award agreement,
an officer, who is also a director, of TCIC was transferred the right,
title and interest in and to 124.03 shares (having a liquidation value
of $4 million) of the 12% Series B cumulative compounding preferred
stock of WestMarc Communications, Inc. (a wholly-owned subsidiary of
TCIC) owned by TCIC. Such preferred stock is subject to forfeiture in
the event of certain circumstances from the date of grant through
February 1, 2002, decreasing by 10% on February 1 of each year.
On December 14, 1992, an officer, who is also a director, sold 100,000
shares of TCIC Class B common stock to TCIC for $2,138,000.
(continued)
II-98
155
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
(10) Income Taxes
TCI files a consolidated Federal income tax return with all of its 80%
or more owned subsidiaries. Consolidated subsidiaries in which TCI
owns less than 80% each file a separate income tax return. TCIC,
subsequent to the TCI/Liberty Combination, is included in the
consolidated Federal income tax return of TCI. Income tax expense for
TCIC is based on those items in the consolidated calculation applicable
to TCIC. Intercompany tax allocation represents an apportionment of
tax expense or benefit (other than deferred taxes) among subsidiaries
of TCI in relation to their respective amounts of taxable earnings or
losses. The payable or receivable arising from the intercompany tax
allocation is recorded as an increase or decrease in amounts due from
affiliated companies included as a reduction of stockholders' equity.
The Financial Accounting Standards Board Statement No. 109 "Accounting
for Income Taxes" (Statement No. 109") requires the use of 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.
Income tax expense attributable to income or loss from continuing
operations for the years ended December 31, 1994, 1993 and 1992
consists of:
Current Deferred Total
------- -------- -------
amounts in millions
Year ended December 31, 1994:
Intercompany allocation $(73) (34) (107)
State and local (14) (10) (24)
---- ---- ----
$(87) (44) (131)
==== ==== ====
Year ended December 31, 1993:
Federal $(14) (119) (133)
State and local (15) (20) (35)
---- ---- ----
$(29) (139) (168)
==== ==== ====
Year ended December 31, 1992:
Federal $ -- (24) (24)
State and local (10) (4) (14)
---- ----
$(10) (28) (38)
==== ==== ====
(continued)
II-99
156
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
The significant components of deferred income tax expense for the years
ended December 31, 1994, 1993 and 1992 are as follows:
Years ended
December 31,
-------------------------------------
1994 1993 1992
------ ------ ------
amounts in millions
Deferred tax expense
(exclusive of effects of other
components listed below) $ (44) (63) (28)
Adjustment to deferred tax assets
and liabilities for enacted change
in tax rates -- (76) --
-------- ------ ------
$ (44) (139) (28)
======== ======= ======
Income tax expense attributable to income or loss from continuing
operations differs from the amounts computed by applying the Federal
income tax rate of 35% in 1994 and 1993 and 34% in 1992 as a result of
the following:
Years ended
December 31,
------------------------
1994 1993 1992
------ ------ ------
amounts in millions
Computed "expected" tax
expense $ (78) (56) (15)
Adjustment to deferred tax assets
and liabilities for enacted change
in Federal income tax rate -- (76) --
Dividends excluded for income
tax purposes 1 4 10
Amortization not deductible for
tax purposes (12) (12) (8)
Minority interest in earnings of
consolidated subsidiaries (1) (1) (14)
Recognition of losses of
consolidated partnership (10) (8) --
State and local income taxes,
net of Federal income
tax benefit (21) (23) (9)
Valuation allowance for foreign
corporations (9) -- --
Other (1) 4 (2)
-------- ------ ------
$ (131) (168) (38)
======== ====== ======
(continued)
II-100
157
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1994 and 1993 are presented below:
December 31,
----------------------
1994 1993
------ ------
amounts in millions
Deferred tax assets:
Net operating loss carryforwards $ 489 590
Less - valuation allowance (99) (90)
Investment tax credit carryforwards 122 140
Less - valuation allowance (36) (36)
Alternative minimum tax credit
carryforwards 89 19
Investments in affiliates, due
principally to losses of affiliates
recognized for financial statement
purposes in excess of losses
recognized for income tax purposes 171 266
Future deductible amounts principally
due to non-deductible accruals 13 27
Other 5 13
------- -----
Net deferred tax assets 754 929
------- -----
Deferred tax liabilities:
Property and equipment, principally
due to differences in depreciation 1,160 1,193
Franchise costs, principally due to
differences in amortization 2,598 2,784
Investment in affiliates, due
principally to undistributed
earnings of affiliates 210 256
Other 85 6
------- -----
Total gross deferred tax liabilities 4,053 4,239
------- -----
Net deferred tax liability $ 3,299 3,310
======= =====
The valuation allowance for deferred tax assets as of December 31, 1994
was $135 million. Such balance increased by $9 million from December
31, 1993 resulting from a valuation allowance established against net
operating losses of foreign corporations. Subsequently recognized tax
benefits relating to $126 million of the valuation allowance for
deferred tax assets as of December 31, 1994 will be recorded as reduc-
tions of franchise costs.
(continued)
II-101
158
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
At December 31, 1994, TCIC had net operating loss carryforwards for
income tax purposes aggregating approximately $926 million of which, if
not utilized to reduce taxable income in future periods, $11 million
expires through 2002, $151 million in 2003, $121 million in 2004, $364
million in 2005, $269 million in 2006, $8 million in 2008 and $2
million in 2009. Certain subsidiaries of TCIC had additional net
operating loss carryforwards for income tax purposes aggregating
approximately $247 million and these net operating losses are subject
to certain rules limiting their usage.
At December 31, 1994, TCIC had remaining available investment tax
credits of approximately $67 million which, if not utilized to offset
future Federal income taxes payable, expire at various dates through
2005. Certain subsidiaries of TCIC had additional investment tax
credit carryforwards aggregating approximately $55 million and these
investment tax credit carryforwards are subject to certain rules
limiting their usage.
Certain of the Federal income tax returns of TCIC and its subsidiaries
which filed separate income tax returns are presently under examination
by the Internal Revenue Service ("IRS") for the years 1979 through
1992. In the opinion of management, any additional tax liability, not
previously provided for, resulting from these examinations, ultimately
determined to be payable, should not have a material adverse effect on
the consolidated financial position of TCIC. TCIC pursued a course of
action on certain issues (primarily the deductibility of franchise cost
amortization) the IRS had raised and such issues were argued before the
United States Tax Court. During 1990, TCIC received a favorable
decision regarding these issues. The IRS appealed this decision but
TCIC prevailed in the appeal. The IRS elected not to further appeal
the decision to the Supreme Court. TCIC has entered into a closing
agreement with the IRS which settles these matters for all open tax
years. A subsidiary of TCIC has filed a petition in United States Tax
Court protesting the disallowance of certain Transitional Investment
Tax Credits and such issue should be litigated by early 1996.
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%. TCIC has reflected the tax rate change in its
consolidated statements of operations in accordance with the treatment
prescribed by Statement No. 109. Such tax rate change resulted in an
increase of $76 million to income tax expense and deferred income tax
liability.
(continued)
II-102
159
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
(11) Commitments and Contingencies
During 1994, subsidiaries of TCI, Comcast, Cox Communications,
Inc. ("Cox") and Sprint Corporation ("Sprint") formed a partnership
("WirelessCo") to engage in the business of providing wireless
communications services on a nationwide basis. Through WirelessCo, the
partner have been participating in auctions ("PCS Auctions") of
broadband personal communications services ("PCS") licenses being
conducted by the Federal Communications Commission ("FCC"). In the
first round auction, which concluded during the first quarter of 1995,
WirelessCo was the winning bidder for PSC licenses for 29 markets,
including New York, San Francisco-Oakland-San Jose, Detroit, Dallas-Fort
Worth, Boston-Providence, Minneapolis-St. Paul and Miami-Fort
Lauderdale. The aggregate license cost for these licenses is
approximately $2.1 billion.
WirelessCo has also invested in American PSC, L.P. ("APC"), which holds
a PCS license granted under the FCC's pioneer preference program for
the Washington-Baltimore market. WirelessCo acquired its 49% limited
partnership interest in APC for $23 million and has agreed to make
capital contributions to APC equal to 49/51 of the cost of APC's PCS
license. Additional capital contributions may be required in the event
APC is unable to finance the full cost of its PCS license. WirelessCo
may also be required to finance the build-out expenditures for APC's
PCS system. Cox, which holds a pioneer preference PCS license for the
Los Angeles-San Diego market, and WirelessCo have also agreed on the
general terms and conditions upon which Cox (with a 60% interest) and
WirelessCo (with a 40% interest) would form a partnership to hold and
develop a PCS system using the Los Angeles-San Diego license. APC and
the Cox partnership would affiliate their PCS systems with WirelessCo
and be part of WirelessCo's nationwide integrated network, offering
wireless communications services under the "Sprint" brand. TCIC owns
a 30% interest in WirelessCo.
During 1994, subsidiaries of Cox, Sprint and TCIC also formed a
separate partnership ("PhillieCo"), in which TCIC owns a 35.3%
interest. PhillieCo was the winning bidder in the first round auction
for a PCS license for the Philadelphia market at a license cost of $85
million. To the extent permitted by law, the PCS system to be
constructed by PhillieCo would also be affiliated with WirelessCo's
nationwide network.
WirelessCo may bid in subsequent rounds of the PCS Auctions and may
invest in, affiliate with or acquire licenses from other successful
bidders. The capital that WirelessCo will require to fund the
construction of the PCS systems, in addition to the license costs and
investments described above, will be substantial.
(continued)
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TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
At the end of the first quarter of 1995, subsidiaries of TCIC,
Comcast, Cox and Sprint formed two new partnerships, of which the
principal partnership is MajorCo, L.P. ("MajorCo"), to which they
contributed their respective interests in WirelessCo and through which
they formed another partnership, NewTelco, L.P. ("NewTelco") to engage
in the business of providing local wireline communications services to
residences and businesses on a nationwide basis. NewTelco will serve
its customers primarily through the cable television facilities of
cable television operators that affiliate with NewTelco in exchange for
agreed-upon compensation. The modification of existing regulations and
laws governing the local telephony market will be necessary in order
for NewTelco to provide its proposed services on a competitive basis
in most states. Subject to agreement upon a schedule for upgrading
its cable television facilities in selected markets and certain other
matters, TCIC has agreed to affiliate certain of its cable
systems with NewTelco. The capital required for the upgrade
of TCIC's cable facilities for the provision of telephony
services is expected to be substantial.
Subsidiaries of TCIC, Cox and Comcast, together with Continental
Cablevision, Inc. ("Continental"), own Teleport Communications Group,
Inc. and TCG Partners (collectively, "TCG"), which is one of the
largest competitive access providers in the United States in terms of
route miles. TCIC, Cox and Comcast have entered into an agreement
with MajorCo and NewTelco to contribute their interests in TCG and its
affiliated entities to NewTelco. TCIC currently owns an approximate
29.9% interest in TCG. The closing of this contribution is subject to
the satisfaction of certain conditions, including the receipt of
necessary regulatory and other consents and approvals. In addition,
TCIC, Comcast and Cox intend to negotiate with Continental, which owns
a 20% interest in TCG, regarding their acquisition of Continental's
TCG interest. If such agreement cannot be reached, they will need to
obtain Continental's consent to certain aspects of their agreement
with Sprint.
Subject to agreement upon an initial business plan, the MajorCo
partners have committed to make cash capital contributions to MajorCo
of $4.0 to $4.4 billion in the aggregate over a three- to five-year
period, which amount includes the approximately $500 million already
contributed by the partners to WirelessCo. The partners intend for
MajorCo and its subsidiary partnerships to be the exclusive vehicles
through which they engage in the wireless and wireline telephony
service businesses, subject to certain exceptions.
(continued)
II-104
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TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
On January 20, 1995, Tele-Vue Systems, Inc. ("Tele-Vue"), Viacom
International, Inc. ("Viacom"), InterMedia Partners IV, L.P. ("IP-IV")
and RCS Pacific, L.P. ("RCS Pacific") entered into an Asset Purchase
Agreement (the "Tele-Vue Agreement") pursuant to which RCS Pacific
agreed to acquire from Tele-Vue the assets of certain cable television
systems for total consideration of approximately $1,983 million,
subject to adjustment in accordance with the terms of the Tele-Vue
Agreement. A subsidiary of TCI has agreed to loan $600 million in cash
to IP-IV. IP-IV will, in turn, loan such $600 million to RCS Pacific.
RCS Pacific could use the proceeds of the aforementioned loan as a
portion of the total cash consideration to be paid to Tele-Vue, or at
the option of TCI, to purchase $600 million of TCI Class A common
stock. Should TCI elect to sell such common stock, RCS Pacific has the
option to pay the consideration to Tele-Vue by delivery of RCS
Pacific's short-term note of up to $600 million of the total
consideration with the balance to be paid in cash. Such note, if it is
delivered, will be secured by RCS Pacific's pledge of shares of stock
of TCI having an aggregate market value equal to the principal amount
of, and accrued interest on, the note delivered to Tele-Vue. The
consummation of the transactions contemplated by the Tele-Vue Agreement
is conditioned, among other things, on receipt of approvals of various
franchise and other governmental authorities and receipt of "minority
tax certificates" from the FCC. Both Houses of Congress have passed
legislation to repeal previous legislation which provided for minority
tax certificates. The bills are currently in conference. There can be
no assurance that the conditions precedent to closing the asset
purchase will be satisfied, or that the parties will be able to agree
on different terms, if necessary.
TCIC, through an indirect wholly-owned subsidiary, would hold a 25%
limited partnership interest in IP-IV, and IP-IV would in turn hold a
79% limited partnership interest in RCS Pacific. TCIC would account for
its investment in IP-IV under the equity method of accounting.
On October 5, 1992, Congress enacted the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act"). In 1993
and 1994, the FCC adopted certain rate regulations required by the 1992
Cable Act and imposed a moratorium on certain rate increases. As a
result of such actions, TCIC's basic and tier service rates and its
equipment and installation charges (the "Regulated Services") are
subject to the jurisdiction of local franchising authorities and the
FCC. Basic and tier service rates are evaluated against competitive
benchmark rates as published by the FCC, and equipment and installation
charges are based on actual costs. Any rates for Regulated Services
that exceeded the benchmarks were reduced as required by the 1993 and
1994 rate regulations. The rate regulations do not apply to the
relatively few systems which are subject to "effective competition" or
to services offered on an individual service basis, such as premium
movie and pay-per-view services.
(continued)
II-105
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TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
TCIC believes that it has complied in all material respects with the
provisions of the 1992 Cable Act, including its rate setting
provisions. However, TCIC's rates for Regulated Services are subject
to review by the FCC, if a complaint has been filed, or the appropriate
franchise authority, if such authority has been certified. If, as a
result of the review process, a system cannot substantiate its rates,
it could be required to retroactively reduce its rates to the
appropriate benchmark and refund the excess portion of rates received.
Any refunds of the excess portion of tier service rates would be
retroactive to the date of complaint. Any refunds of the excess
portion of all other Regulated Service rates would be retroactive to
the later of September 1, 1993 or one year prior to the certification
date of the applicable franchise authority. The amount of refunds, if
any, which could be payable by TCIC in the event that systems' rates
are successfully challenged by franchising authorities is not
considered to be material.
TCIC has guaranteed notes payable and other obligations of affiliated
and other companies with outstanding balances of approximately $173
million at December 31, 1994.
TCIC leases business offices, has entered into pole rental agreements
and uses certain equipment under lease arrangements. Minimum rental
expense under such arrangements, net of sublease rentals, amounted to
$69 million, $59 million and $57 million in 1994, 1993 and 1992,
respectively.
Future minimum lease payments under noncancellable operating leases for
each of the next five years are summarized as follows (amounts in
millions):
Years ending
December 31,
------------
1995 $ 19
1996 15
1997 13
1998 11
1999 9
It is expected that, in the normal course of business, expiring leases
will be renewed or replaced by leases on other properties; thus, it is
anticipated that future minimum lease commitments will not be less than
the amount shown for 1995.
(continued)
II-106
163
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
(12) Discontinued Operations
TCIC sold its motion picture theatre business and certain
theatre-related real estate assets on May 12, 1992. The selling price
(including liabilities assumed) was approximately $680 million. In
connection with the disposition, TCIC paid $92.5 million for certain
preferred stock of the buyer. No gain or loss was recognized in
connection with this transaction as the net assets of discontinued
operations were reflected at their net realizable value.
Operating results for the theatre operations for the period from
January 1, 1992 through May 12, 1992 are reported separately in the
consolidated statements of operations under the caption "Loss from
discontinued operations" and include:
1992
------
amounts in millions
Revenue $ 211
Loss before income taxes $ (16)
Income tax benefit $ 1
Net loss $ (15)
(continued)
II-107
164
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
(13) Subsequent Events (Unaudited)
As of January 26, 1995, TCI, TCIC and TeleCable Corporation
("TeleCable") consummated a transaction, whereby TeleCable was merged
into TCIC. The aggregate $1.6 billion purchase price was satisfied by
TCIC's assumption of approximately $300 million of TeleCable's net
liabilities and the issuance to TeleCable's shareholders of
approximately 42 million shares of TCI Class A common stock and 1
million shares of TCI Convertible Preferred Stock, Series D with an
aggregate initial liquidation value of $300 million. The amount of net
liabilities assumed by TCIC and the number of shares of TCI Class A
common stock issued to TeleCable's shareholders are subject to
post-closing adjustments.
Comcast had the right, through December 31, 1994, to require TCI to
purchase or cause to be purchased from Comcast all shares of Heritage
Communications, Inc. ("Heritage") directly or indirectly owned by
Comcast for either cash or assets or, at TCI's election shares of TCI
common stock. On October 24, 1994, TCI and Comcast entered into a
purchase agreement whereby TCI would repurchase the entire 19.9%
minority interest in Heritage owned by Comcast for an aggregate
consideration of approximately $290 million, the majority of which is
payable in shares of TCI Class A common stock. Such acquisition was
consummated subsequent to December 31, 1994.
II-108
165
PART III.
Item 10. Directors and Executive Officers of the Registrant.
The following lists the directors and executive officers of
Tele-Communications, Inc. ("TCI" or the "Company") and TCI Communications, Inc.
("TCIC"), their birth dates, a description of their business experience and
positions held with the Company as of February 10, 1995. Directors of TCI are
elected to staggered three-year terms with one-third elected annually. The date
the present term of office expires for each director is the date of the Annual
Meeting of the Company's stockholders held during the year footnoted opposite
their names. All officers are appointed for an indefinite term, serving at
the pleasure of the Board of Directors.
Name Positions
---------------------------- ------------------------------------------------------------------
Bob Magness(1) Chairman of the Board of TCI since June of 1994 and of TCIC since 1973;
Born June 3, 1924 TCIC director since 1968.
John C. Malone(2) TCI director since June of 1994; Chief Executive Officer and President
Born March 7, 1941 of TCI since January of 1994; Chief Executive Officer of TCIC from
March of 1992 to October of 1994 and President of TCIC from 1973 to
October of 1994; is President and a director of many of the Company's
subsidiaries; also a director of Turner Broadcasting System, Inc., BET
Holdings, Inc., and The Bank of New York; TCIC director since 1973.
Donne F. Fisher(3) Executive Vice President and Treasurer of TCI since January of 1994;
Born May 24, 1938 Executive Vice President of TCIC from December of 1991 to October of
1994; was previously Senior Vice President of TCIC since 1982 and
Treasurer since 1970; also a director of General Communication, Inc.;
TCIC director since 1980.
John W. Gallivan(1) Chairman of the Board of Kearns-Tribune Corporation, a newspaper
Born June 28, 1915 publishing concern; also a director of Silver King Mining Company; TCI
director since June of 1994; TCIC director from 1980 to August of 1994.
Kim Magness(3) TCI director since June of 1994; TCIC director from 1985 to August of
Born May 17, 1952 1994; manages numerous personal and business investments, and is
Chairman and President of a company developing liners for irrigation
canals.
Robert A. Naify(2) TCI director since June of 1994; TCIC director from 1987 to August of
Born February 17, 1922 1994; also Co-Chairman, Co-Chief Executive Officer and a director of The
Todd-AO Corporation.
(continued)
III-1
166
Name Positions
---------------------------- ------------------------------------------------------------------
Jerome H. Kern(1) TCI director since June of 1994; TCIC director from December of 1993 to
Born June 1, 1937 August of 1994; also is a senior partner with the law firm of Baker &
Botts, L.L.P., since September of 1992. Prior to joining Baker &
Botts, L.L.P., was senior partner with the Law Offices of Jerome H.
Kern from January 1, 1992 to September 1, 1992 and, prior to that, was
a senior partner with the law firm of Shea & Gould from 1986 through
December 31, 1991.
R.E. Turner(3) TCI director since June of 1994; Appointed TCIC director from June of
Born November 19, 1938 1994 to August of 1994; also Chairman of the Board and President of
Turner Broadcasting System, Inc. since 1970.
Tony Coelho(2) Appointed TCIC director from March of 1994 to August of 1994; also
Born June 14, 1942 President and Chief Executive Officer of Wertheim Schroder Investment
Services; Managing Director of Wertheim Schroder & Co., Incorporated;
was formerly U.S. Representative from California from January 1979
through June 1989 and the Majority Whip of the U.S. House of Repre-
sentatives from December 1986 through June 1989; also a director of
Circus Circus Enterprises, Inc., ICF Kaiser International, Inc.,
Service Corporation International, Specialty Retail Group, Inc.,
and Tanknology Environmental, Inc.
Stephen M. Brett Executive Vice President and Secretary of TCI since January of 1994.
Born September 20, 1940 Appointed TCI Senior Vice President and General Counsel of TCIC as of
December of 1991. Vice President and Secretary and a director of most
of TCI's subsidiaries. From August of 1988 through December of 1991,
was Executive Vice President-Legal and Secretary of United Artists
Entertainment Company ("UAE") and its predecessor, United Artists
Communications, Inc. ("UACI").
Fred A. Vierra Executive Vice President of TCI since January of 1994. Chairman
Born November 9, 1931 of the Board and Chief Executive Officer of TCI International Holdings,
Inc., a wholly-owned subsidiary of TCI, in September of 1994. Executive
Vice President of TCIC from December of 1991 to October of 1994. Was
President, Chief Operating Officer and a director of UAE from May of
1989 through December of 1991.
Peter R. Barton Executive Vice President of TCI since January of 1994; President and
Born April 6, 1951 Chief Executive Officer of Liberty Media Corporation ("Liberty"), a
wholly-owned subsidiary of TCI subsequent to August 4, 1994, since June
of 1990; was Senior Vice President of TCIC from 1988 to March of 1991.
(continued)
III-2
167
Name Positions
---------------------------- ------------------------------------------------------------------
Brendan R. Clouston Executive Vice President of TCI since January of 1994; President and
Born April 28, 1953 Chief Executive Officer of TCIC since October of 1994; Executive Vice
President and Chief Operating Officer of TCIC from March of 1992
to October of 1994; previously Senior Vice President of TCIC since
December of 1991; from January of 1987 through December of 1991, held
various executive positions with UAE and its predecessor, UACI, most
recently Executive Vice President and Chief Financial Officer.
Larry E. Romrell Executive Vice President of TCI since January of 1994. President of TCI
Born December 30, 1939 Technology Ventures, Inc., a wholly-owned subsidiary of TCI, since
September of 1994 and a director of same since December of 1994; Senior
Vice President of TCIC from 1991 to October of 1994; previously held
various executive positions with WestMarc Communications, Inc.
("WestMarc"), a wholly-owned subsidiary of TCI.
Barry P. Marshall Executive Vice President and Chief Operating Officer of TCIC since
Born March 4, 1946 October of 1994. Executive Vice President and Chief Operating Officer
of TCI Cable Management Corporation, TCIC's primary operating
subsidiary, from March of 1992 through January 1, 1994, where he
directly oversaw all of TCIC's regional operating divisions. From
1986 to March of 1992, was Vice President and Chief Operating Officer
of TCIC's largest regional operating division.
Gary K. Bracken Controller of TCIC since 1969. Appointed Senior Vice President of TCIC
Born July 29, 1939 in December of 1991. Was named Vice President and Principal Accounting
Officer of TCIC in 1982.
Bernard W. Schotters Appointed Senior Vice President-Finance and Treasurer of TCIC in
Born November 25, 1944 December of 1991. Was appointed Vice President-Finance of TCIC in
1984. Vice President and Treasurer of most of TCI's subsidiaries.
Robert N. Thomson Appointed Senior Vice President of TCIC in February of 1995. Senior
Born December 19, 1943 Vice President of Communications and Policy Planning for TCIC from 1991
to October of 1994. Previously, Vice President of Government Affairs
for TCIC from January of 1987 to 1991.
J. C. Sparkman Executive Vice President of TCI from January of 1994 through March 10,
Born September 12, 1932 1995. Mr. Sparkman retired in March of 1995. TCIC Executive Vice
President from 1987 to October of 1994.
_______________________________
(1) Director's term expires in 1995.
(2) Director's term expires in 1996.
(3) Director's term expires in 1997.
(continued)
III-3
168
There are no family relations, of first cousin or closer, among the
above named individuals, by blood, marriage or adoption, except that Bob
Magness and Kim Magness are father and son, respectively.
During the past five years, none of the above persons have had any
involvement in such legal proceedings as would be material to an evaluation of
his ability or integrity.
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires TCI's officers and directors, and persons who own more than ten
percent of a registered class of TCI's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
("SEC"). Officers, directors and greater than ten-percent shareholders are
required by SEC regulation to furnish TCI with copies of all Section 16(a)
forms they file.
Based solely on review of the copies of such forms furnished to TCI,
or written representations that no Forms 5 were required, TCI believes that,
during the year ended December 31, 1994, all Section 16(a) filing requirements
applicable to its officers, directors and greater than ten-percent beneficial
owners were complied with except that one report each, covering the initial
reporting of shareholdings, was filed late by Mr. Romrell and Mr. Barton.
Item 11. Executive Compensation.
(a) Summary Compensation Table of Tele-Communications, Inc. The
following table shows, for the years ended December 31, 1994, 1993 and 1992 all
forms of compensation for the Chief Executive Officer and each of the four most
highly compensated executive officers of TCI, whose total annual salary and
bonus exceeded $100,000 for the year ended December 31, 1994:
Long-Term Compensation
-----------------------------------
Annual Compensation Awards Payouts
--------------------------------------------- ----------------------- -------
Other
Annual Restricted
Compen- Stock Options/ LTIP All Other
sation Award(s) SARs Payouts Compensation
Position Year Salary ($) Bonus ($) ($)(4) ($) (#) ($) ($)
-------- ---- ------------ --------- --------- ----------- ------------ --------- ---------------
Bob Magness 1994 $830,769 --- $ --- --- --- --- $ 2,500 (9)
Chairman of the 1993 $800,000 --- $ --- --- --- --- $ 2,500 (9)
Board 1992 $488,250 --- $ 2,355 --- 1,000,000(7) --- $ 2,000 (9)
John C. Malone 1994 $821,731 (1) --- $ 2,610 --- --- --- $17,500 (8)(9)
President and Chief 1993 $800,000 (1) --- $ 2,726 --- --- --- $17,500 (8)(9)
Executive Officer 1992 $490,385 (1) --- $ 2,595 --- 1,000,000(7) --- $17,999 (8)(9)
Fred A. Vierra 1994 $669,613 (2) --- $ 1,024 --- 200,000(5) --- $15,000 (8)
Executive Vice 1993 $623,617 (2) --- $ 263 --- 100,000(6) --- $15,000 (8)
President 1992 $422,300 (2) --- --- --- 100,000(7) --- $ 8,728 (8)
Brendan R. Clouston 1994 $525,000 --- $ 1,000 --- 200,000(5) --- $15,000 (8)
Executive Vice 1993 $519,231 --- $ 263 --- 500,000(6) --- $15,000 (8)
President 1992 $279,476 --- --- --- 500,000(7) --- $ 8,728 (8)
J. C. Sparkman 1994 $756,750 (3) --- $ 2,745 --- --- --- $15,000 (8)
Executive Vice 1993 $738,000 (3) --- $ 2,823 --- --- --- $15,000 (8)
President 1992 $431,622 (3) --- $ 2,595 --- 100,000(7) --- $15,286 (8)
____________________
(1) Includes deferred compensation of $320,000 in 1994 and $150,000 in
each of 1993 and 1992.
(continued)
III-4
169
(2) Includes deferred compensation of $250,000, $250,000 and $41,667 in
1994, 1993 and 1992, respectively.
(3) Includes deferred compensation of $188,000, $188,000 and $31,333 in
1994, 1993 and 1992, respectively.
(4) Includes amounts reimbursed during the year for the payment of taxes.
(5) For additional information regarding this award, see Option/SAR Grants
Table below.
(6) The Company has a stock incentive plan, the Tele-Communications, Inc.
1994 Stock Incentive Plan (the "Plan"). Pursuant to the Agreement and
Plan of Merger, dated as of January 26, 1994, as amended, by and among
the Company, Liberty Media Corporation, TCI Communications, Inc.
(formerly Tele-Communications, Inc.), TCI Mergerco, Inc. and Liberty
Mergerco, Inc. (the "Merger Agreement") and certain Assumption and
Amended and Restated Stock Option Agreements, holders of stock options
and/or stock appreciation rights granted (or assumed) by TCIC and
holders of stock options and/or stock appreciation rights granted by
Liberty (collectively, the "Assumed Options and SARs") surrendered the
Assumed Options and SARs to TCI following the transactions whereby
TCIC and Liberty became wholly-owned subsidiaries of TCI (the
"TCI/Liberty Combination"). The Company assumed the Assumed Options
and SARs and in place thereof substituted new stock options and stock
appreciation rights under the Plan having substantially similar
terms. On October 12, 1993 certain executive officers and
other key employees were granted 1,355,000 options in tandem with
stock appreciation rights to acquire shares of TCI Class A common
stock at a purchase price of $16.75 per share. On November 12, 1993,
an additional grant of stock options in tandem with stock appreciation
rights to purchase an aggregate of 600,000 shares of TCI Class A
common stock was made to Messrs. Clouston and Vierra at a purchase
price of $16.75 per share. Such options represent a portion of the
Assumed Options and SARs. Such options vest evenly over four years,
first became exercisable on October 12, 1994 and expire on October 12,
2003. Notwithstanding the vesting schedule as set forth in the option
agreement, the option shares shall become available for purchase if
grantee's employment with the Company (a) shall terminate by reason of
(i) termination by the Company without cause (ii) termination by the
grantee for good reason (as defined in the agreement) or (iii)
disability, (b) shall terminate pursuant to provisions of a written
employment agreement, if any, between the grantee and the Company
which expressly permits the grantee to terminate such employment upon
occurrence of specified events (other than the giving of notice and
passage of time), or (c) if grantee dies while employed by the
Company. Further, the option shares will become available for
purchase in the event of an Approved Transaction, Board Change, or
Control Purchase (each as defined in the Plan), unless in the case of
an Approved Transaction, the Compensation Committee under the
circumstances specified in the Plan determines otherwise.
(continued)
III-5
170
(7) On November 11, 1992, certain executive officers and other key
employees were granted 4,020,000 options in tandem with stock
appreciation rights to acquire shares of TCI Class A common stock at a
purchase price of $16.75 per share. Such options represent a portion
of the aforementioned Assumed Options and SARs. Such options vest and
become exercisable evenly over 5 years, first became exercisable
beginning on November 11, 1993 and expire on November 11, 2002.
Notwithstanding the vesting schedule as set forth in the option
agreement, the option shares shall become available for purchase if
grantee's employment with the Company (a) shall terminate by reason of
(i) termination by the Company without cause (ii) termination by
grantee for good reason (as defined in the agreement) or (iii)
disability, (b) shall terminate pursuant to provisions of a written
employment agreement, if any, between the grantee and the Company
which expressly permits the grantee to terminate such employment upon
occurrence of specified events (other than the giving of notice and
passage of time), or (c) if grantee dies while employed by the
Company. Further, the option shares will become available for
purchase in the event of an Approved Transaction, Board Change, or
Control Purchase (each as defined in the Plan), unless in the case of
an Approved Transaction, the Compensation Committee under the
circumstances specified in the Plan determines otherwise.
(8) Includes dollar value of annual TCI contributions to the TCI Employee
Stock Purchase Plan ("ESPP") in which all named executive officers are
fully vested. Directors who are not employees of TCI are ineligible
to participate in the ESPP. The ESPP, a defined contribution plan,
enables participating employees to acquire a proprietary interest in
TCI and benefits upon retirement. Under the terms of the ESPP,
employees are eligible for participation after one year of service.
The ESPP's normal retirement age is 65 years. Participants may
contribute up to 10% of their compensation and TCI (by annual
resolution of the Board of Directors) may contribute up to 100% of the
participants' contributions. The ESPP includes a salary deferral
feature in respect of employee contributions. Forfeitures (due to
participants' withdrawal prior to full vesting) are used to reduce
TCI's otherwise determined contributions. Generally, participants
acquire a vested right in TCI contributions as follows:
Years of service Vesting Percentage
---------------- ------------------
Less than 1 0
1-2 20
2-3 30
3-4 45
4-5 60
5-6 80
6 or more 100
Participant contributions are fully vested. Although TCI has not
expressed an intent to terminate the ESPP, it may do so at any time.
The ESPP provides for full and immediate vesting of all participants
rights upon termination. During 1994, 1993 and 1992, TCI contributed
$15,000, $15,000 and $14,999, respectively, to the ESPP for Dr. Malone.
(9) Includes fees paid to directors for attendance at each meeting of the
Board of Directors ($500 per meeting). During 1994, 1993 and 1992, a
total of $2,500, $2,500 and $3,000 of such fees, respectively,
were paid to Dr. Malone.
III-6
171
(b) Option/SAR Grants Table of Tele-Communications, Inc. The
following table shows all individual grants of stock options and stock
appreciation rights ("SARs") granted to each of the named executive officers of
TCI during the year ended December 31, 1994:
Number of
Securities
Underlying % of Total
Options/ Options/SARs Market
SARs Granted Exercise or Price on Grant Date
Granted to Employees Base Price Grant Date Expiration Present Value
Name (#)(1) in Fiscal Year(1) ($/Sh) ($/Sh)(2) Date ($)(3)
---- --------- ----------------- ----------- ---------- ------------- -------------
Bob Magness --- --- --- --- --- ---
John C. Malone --- --- --- --- --- ---
Fred A. Vierra 200,000 6.2% $22.00 $24.125 November 17, 2004 $ 2,828,000
Brendan R. Clouston 200,000 6.2% $22.00 $24.125 November 17, 2004 $ 2,828,000
J.C. Sparkman --- --- --- --- --- ---
_________________________
(1) On November 17, 1994, pursuant to the Plan, certain executive officers
and other key employees were granted 3,214,000 options in tandem with
stock appreciation rights to acquire shares of TCI Class A common
stock at a purchase price of $22.00 per share. Such options vest
evenly over five years, become exercisable beginning on November 17,
1995 and expire on November 17, 2004. Notwithstanding the vesting
schedule as set forth in the option agreement, the option shares shall
become available for purchase if grantee's employment with the Company
(a) shall terminate by reason of (i) termination by the Company
without cause (ii) termination by the grantee for good reason (as
defined in the agreement) or (iii) disability, (b) shall terminate
pursuant to provisions of a written employment agreement, if any,
between the grantee and the Company which expressly permits the
grantee to terminate such employment upon occurrence of specified
events (other than the giving of notice and passage of time), or (c)
if grantee dies while employed by the Company. Further, the option
shares will become available for purchase in the event of an Approved
Transaction, Board Change, or Control Purchase (each as defined in the
Plan), unless in the case of an Approved Transaction, the Compensation
Committee under the circumstances specified in the Plan determines
otherwise.
(2) Represents the closing market price per share of TCI Class A common
stock on November 17, 1994.
(3) The values shown are based on the Black-Scholes model and are stated
in current annualized dollars on a present value basis. The key
assumptions used in the model for purposes of this calculation include
the following: (a) a 7.25% discount rate; (b) a volatility factor
based upon TCI's historical trading pattern; (c) the 10-year option
term; and (d) the closing price of TCI's common stock on March 1,
1995. The actual value an executive may realize will depend upon the
extent to which the stock price exceeds the exercise price on the date
the option is exercised. Accordingly, the value, if any, realized by
an executive will not necessarily be the value determined by the
model.
III-7
172
(c) Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR
Value Table of Tele-Communications, Inc. The following table shows each
exercise of stock options and SARs during the year ended December 31, 1994 by
each of the named executive officers of TCI and the December 31, 1994 year-end
value of unexercised options and SARs on an aggregated basis:
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at at
December 31, December 31,
1994 (#) 1994 ($)
Shares Acquired Value Realized Exercisable/ Exercisable/
Name on Exercise (#) ($) Unexercisable Unexercisable
----- ------------------ ----------------- ------------- -------------
Bob Magness
Exercisable --- --- 400,000 $ 2,000,000
Unexercisable --- --- 600,000 $ 3,000,000
John C. Malone
Exercisable --- --- 400,000 $ 2,000,000
Unexercisable --- --- 600,000 $ 3,000,000
Fred A. Vierra
Exercisable --- --- 9,714 $ 111,225
Exercisable --- --- 65,000 $ 325,000
Unexercisable --- --- 335,000 $ 675,000
Brendan R. Clouston
Exercisable --- --- 325,000 $ 1,625,000
Unexercisable --- --- 875,000 $ 3,375,000
J.C. Sparkman
Exercisable --- --- 40,000 $ 200,000
Unexercisable --- --- 60,000 $ 300,000
(d) Compensation of directors. The standard arrangement by which
TCI's directors are compensated for all services (including any amounts payable
for committee participation or special assignments) as a director is as
follows: each director receives a fee of $500 plus travel expenses for
attendance at each meeting of the Board of Directors and each director who is
not a full-time employee of TCI receives additional compensation of $30,000 per
year.
Effective on November 1, 1992, the Company created a deferred
compensation plan for all non-employee directors. Each director may elect to
defer receipt of all, but not less than all, of the annual compensation
(excluding meeting fees and reimbursable expenses) payable to the director for
serving on the Company's Board of Directors for each calendar year for which
such deferral is elected. An election to defer may be made as to the
compensation payable for a single calendar year or period of years. Any
compensation deferred shall be credited to the director's account on the last
day of the quarter for which compensation has accrued. Such deferred
compensation will bear interest from the date credited to the date of payment
at a rate of 8% per annum in 1993 and 120% of the applicable federal long-term
rate thereafter, compounded annually.
III-8
173
A director may elect payment of deferred compensation to be made at a
specified year in the future or upon termination of the director's service as
director of the Company. Each director may elect payment in a lump sum, three
substantially equal consecutive annual installments or five substantially equal
consecutive annual installments. In the event that a director dies prior to
payment of all the amounts payable pursuant to the plan, any amounts remaining
in the director's deferred compensation account, together with accrued interest
thereon, shall be paid to the director's designated beneficiary.
There are no other arrangements whereby any of TCI's directors
received compensation for services as a director during 1994 in addition to or
in lieu of that specified by the aforedescribed standard arrangement.
(e) Employment Contracts and Termination of Employment and Change
of Control Arrangements. Effective November 1, 1992 the employment agreements
between the Company and Mr. Magness and Dr. Malone, as amended, were further
amended and restated. Pursuant to an Assignment and Assumption Agreement,
dated August 4, 1994, the payment, performance and other obligations of such
employment agreements were assumed by TCI. The term of each agreement is
extended daily so that the remainder of the employment term shall at all times
on and prior to the effective date of the termination of employment as provided
by each agreement be five years. Dr. Malone's and Mr. Magness' employment
agreements provide for annual salaries of $800,000. Additionally, these
employment agreements provide for personal use of the Company's aircraft and
flight crew, limited to an aggregate value of $35,000 per year.
Dr. Malone's employment agreement provides, among other things, for
deferral of a portion (40% in 1993 and not in excess of 40% thereafter) of the
monthly compensation payable to him. Pursuant to a letter agreement entered
into between Dr. Malone and the Company subsequent to the date of his
employment agreement, Dr. Malone deferred $150,000 in 1993 in lieu of 40% of
his compensation for such year. The deferred amounts will be payable in
monthly installments over a 20-year period commencing on the termination of Dr.
Malone's employment, together with interest thereon at the rate of 8% per annum
compounded annually from the date of deferral to the date of payment. The
amendment also provides for the payment of certain benefits, discussed below.
Dr. Malone's employment agreement provides that he will devote 80% of his
business time to the Company.
Mr. Magness' and Dr. Malone's agreements described above also provide
that upon termination of such executive's employment by the Company (other than
for cause, as defined in the agreement), or if Mr. Magness or Dr. Malone elects
to terminate the agreement because of a change in control of the Company, all
remaining compensation due under the agreement for the balance of the
employment term shall be immediately due and payable.
Dr. Malone's and Mr. Magness' agreements provide that during their
employment with the Company and for a period of two years following the
effective date of their termination of employment with the Company, unless
termination results from a change in control of the Company, they will not be
connected with any entity in any manner, as defined in the agreement, which
competes in a material respect with the business of the Company. However, the
agreements provide that both executives may own securities of any corporation
listed on a national securities exchange or quoted in the Nasdaq System to the
extent of an aggregate of 5% of the amount of such securities outstanding.
III-9
174
Dr. Malone's agreement also provides that in the event of termination
of his employment with the Company, he will be entitled to receive 240
consecutive monthly payments of $15,000 (increased at the rate of 12% per annum
compounded annually from January 1, 1988 to the date payment commences), the
first of which will be payable on the first day of the month succeeding the
termination of Dr. Malone's employment. In the event of Dr. Malone's death,
his beneficiaries will be entitled to receive the foregoing monthly payments.
The Company currently owns a whole-life insurance policy on Dr. Malone, the
face value of which is sufficient to meet its obligation under the salary
continuation arrangement. The premiums payable by the Company on such
insurance policy are currently being funded through earnings on the policy.
Dr. Malone has no interest in this policy.
The Company pays a portion of the annual premiums (equal to the
"PS-58" costs) on three whole-life insurance policies of which Dr. Malone is
the insured and trusts for the benefit of members of his family are the owners.
The Company is the designated beneficiary of the proceeds of such policies less
an amount equal to the greater of the cash surrender value thereof at the time
of Dr. Malone's death and the amount of the premiums paid by the policy owners.
Effective November 1, 1992, the Company entered into an employment
agreement with Mr. Vierra which will expire on December 31, 1997. Pursuant to
an Assignment and Assumption Agreement, dated August 4, 1994, the payment,
performance and other obligations of such employment agreement were assumed by
TCI. Mr. Vierra's employment agreement provides for a salary of $650,000 per
year, of which approximately 38.46% of each monthly payment shall be deferred
so as to result in the deferral of payment of Mr. Vierra's salary at the rate
of $250,000 per annum. The deferred amounts will be paid in monthly
installments over a 240-month period commencing on the later of January 1, 1998
and the termination of Mr. Vierra's full-time employment with the Company,
together with interest thereon at the rate of 8% per annum compounded annually
from the date of deferral to the payment date. Additionally, Mr. Vierra's
employment agreement provides for personal use of the Company's aircraft and
flight crew, limited to an aggregate value of $35,000 per year.
Mr. Vierra's employment agreement provides that upon termination by
the Company without cause, all remaining compensation due under such agreement
for the balance of the employment term would become immediately due and payable
to such executive. Upon the death of such executive during the employment
term, the Company will pay to such executive's beneficiaries a lump sum in an
amount equal to the lesser of (i) the compensation due under such executive's
employment agreement for the balance of the employment term or (ii) one year's
compensation. In the event of such executive's disability, the Company will
continue to pay such executive his annual salary as and when it would have
otherwise become due until the first to occur of the end of the employment term
or the date of such executive's death.
(continued)
III-10
175
Mr. Vierra's agreement provides that during his employment with the
Company and for a period of two years following the effective date of his
termination of employment with the Company, he will not be connected with any
entity in any manner, as defined in the agreement, which competes in a material
respect with the business of the Company. However, the agreement provides that
such executive may own securities of any corporation listed on a national
securities exchange or quoted in the NASDAQ System to the extent of an
aggregate of 5% of the amount of such securities outstanding. If such
executive terminates employment with the Company prior to the expiration of his
employment term or if the Company terminates such executive's employment for
cause, as defined in the agreement, then the noncompetition clause of the
agreement shall apply to the longer of the previously described two year period
or the period beginning on the effective date of termination of employment
through December 31, 1997.
Effective November 1, 1992, the Company entered into an employment
agreement with Mr. Sparkman which would have expired on December 31, 1997.
Pursuant to an Assignment and Assumption Agreement, dated August 4, 1994 the
payment, performance and other obligations of such employment agreement were
assumed by TCI. Mr. Sparkman's employment agreement provided for a salary of
$738,000 per year, of which approximately 25.47% of each monthly payment was
deferred resulting in the deferral of payment of Mr. Sparkman's salary at the
rate of $188,000 per annum. The deferred amounts will be payable in monthly
installments over a 120-month period commencing on January 1, 1998, together
with interest thereon at the rate of 8% per annum compounded annually from the
date of deferral to the payment date. Additionally, Mr. Sparkman's employment
agreement provided for personal use of the Company's aircraft and flight crew,
limited to an aggregate value of $35,000 per year.
The Company will pay Mr. Sparkman 240 consecutive monthly payments of
$6,250 (increased at the rate of 12% per annum compounded annually from January
1, 1988) commencing upon the termination of his employment. In the event Mr.
Sparkman dies prior to the payment of all monthly payments, the remainder of
such payments shall be made to Mr. Sparkman's designated beneficiaries. The
Company owns a whole-life insurance policy on Mr. Sparkman, the face value of
which is sufficient to meet its obligations under this salary continuation
arrangement. The premiums payable by the Company on such insurance policy are
currently being funded through earnings on the policies. Mr. Sparkman has no
interest in this policy.
Dr. Malone and Mr. Sparkman each deferred a portion of their monthly
compensation under their previous employment agreements. Such deferred
compensation (together with interest thereon at the rate of 13% per annum
compounded annually from the date of deferral to the date of payment) will
continue to be payable under the terms of the previous agreements. The rate at
which interest accrues on such previously deferred compensation was established
in 1983 pursuant to such earlier agreements.
(f) Additional information with respect to Compensation Committee
Interlocks and Insider Participation in Compensation Decisions.
The members of the Company's compensation committee are Messrs. Robert
A. Naify and John W. Gallivan, both directors of the Company. Neither Mr.
Naify nor Mr. Gallivan are or were officers of the Company or any of its
subsidiaries.
Mr. R.E. Turner, a director of the Company, is the Chairman of the
Board and President of Turner Broadcasting System, Inc. ("TBS") and the
beneficial owner of 65.2% of the total voting power of all outstanding TBS
stock as of December 31, 1994. Mr. Fred A. Vierra, an Executive Vice President
of the Company, serves on the compensation committee of the Board of Directors
of TBS. During the year ended December 31, 1994, the Company and its affiliates
paid approximately $108 million to purchase certain cable television
programming from TBS.
During the year ended December 31, 1994, the Company paid
approximately $1.8 million to TBS relating to the lease of a satellite
transponder. The Company is committed to pay approximately $10.8 million
through the year 2000 pursuant to such lease.
During the year ended December 31, 1994, the Company and its
affiliates paid license fees of approximately $8 million to TBS for the rights
to exhibit certain motion pictures.
The Company owns indirect interests in various cable programming
services that compete with the programming services offered by TBS.
The TBS SuperStation signal is retransmitted by a common carrier,
Southern Satellite Systems, Inc. ("Southern"), which is controlled by an
indirect wholly-owned subsidiary of the Company. Southern is compensated by the
local cable systems receiving the retransmission of the TBS SuperStation and
does not have a contract with, or receive compensation from, TBS with respect
to such retransmission.
TBS and the Company each own a 44% indirect interest in SportSouth
Network Ltd. ("SportSouth"), a limited partnership that operates a regional
sports network serving the Southeast United States. SportSouth's revenue is
primarily derived from the sale of advertising and the subscription sale of its
service to cable television operators.
(continued)
III-11
176
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
(a) Security ownership of certain beneficial owners. The
following table sets forth, as of February 10, 1995, information with respect
to the ownership of TCI Class A and Class B common stock, TCI Class B 6%
Cumulative Redeemable Exchangeable Junior Preferred Stock ("Class B Preferred
Stock" ) and Convertible Preferred Stock, Series C ("Series C Preferred
Stock"), by each person known to the Company to own beneficially more than 5%
of any such class outstanding on that date. Shares issuable upon exercise or
conversion of convertible securities are deemed to be outstanding for the
purpose of computing the percentage of ownership and overall voting power of
persons beneficially owning such convertible securities, but have not been
deemed to be outstanding for the purpose of computing the percentage ownership
or overall voting power of any other person. Voting power in the table is
computed with respect to a general election of directors and, therefore, the
TCI Class B Preferred Stock is included in the calculation. The number of
shares of Dr. Malone includes interests of such individual in shares held by
the trustee of TCI's ESPP. So far as is known to TCI, the persons indicated
below have sole voting and investment power with respect to the shares
indicated as owned by them except as otherwise stated in the notes to the table
and except for the shares held by the trustee of the ESPP for the benefit of
such persons, which shares are voted at the discretion of the trustee.
Amount and
Title Nature of
of Name and Address Beneficial Percent Voting
Class of Beneficial Owner Ownership of Class(1) Power
----- ------------------- ---------- ----------- ------
Class A Bob Magness, Chairman of 4,626,938 (2)(3)(4) * 26.25%
Class B the Board and a Director 37,132,076 (2)(4)(7) 43.63%
Class B Pref. 5619 DTC Parkway 125,000 7.72%
Series C Pref. Englewood, Colorado -- --
Class A John C. Malone, President 1,169,983 (5) * 18.04%
Class B and a Director 25,697,083 (6)(7)(8) 30.19%
Class B Pref. 5619 DTC Parkway 306,000 (6)(8) 18.89%
Series C Pref. Englewood, Colorado -- --
Class A Kearns-Tribune Corporation 8,792,514 (4) 1.54% 6.98%
Class B 400 Tribune Building 9,112,500 (4)(7) 10.71%
Class B Pref Salt Lake City, Utah 67,536 4.17%
Series C. Pref -- --
Class A The Associated Group, Inc. 12,479,976 2.18% 5.81%
Class B 200 Gateway Towers 7,071,852 8.31%
Class B Pref. Pittsburgh, Pennsylvania 41,598 2.57%
Series C Pref. -- --
Class A The Equitable Life Assurance 30,733,246 (9) 5.38% 2.15%
Class B Society of the United States -- --
Class B Pref 787 Seventh Avenue -- --
Series C Pref. New York, New York -- --
Class A The Capital Group Companies, 42,352,180 (10) 7.41% 2.96%
Class B Inc. -- --
Class B Pref. 333 South Hope Street -- --
Series C Pref. Los Angeles, California -- --
--------------------
* Less than one percent.
(continued)
III-12
177
(1) Based on 571,690,775 shares of TCI Class A common stock, 85,114,800
shares of TCI Class B common stock, 1,620,026 shares of TCI Class B Preferred
Stock and 70,559 shares of Series C Preferred Stock outstanding on February 10,
1995 (after elimination of shares of TCI held by subsidiaries of TCI).
(2) Mr. Magness, as executor of the Estate of Betsy Magness, is the
beneficial owner of all shares of TCI Class A and Class B common stock held of
record by the Estate of Betsy Magness. The number of shares in the table
includes 2,105,332 shares of Class A and 6,346,212 shares of Class B common
stock of which Mr. Magness is beneficial owner as executor.
(3) Assumes the exercise in full of stock options granted in tandem with
stock appreciation rights in November of 1992 to acquire 1,000,000 shares of
TCI Class A common stock. Options to acquire 400,000 shares of TCI Class A
common stock are currently exercisable. See note 7 to the table in Item 11(a)
for additional information.
(4) Mr. Magness and Kearns-Tribune Corporation ("Kearns") are parties to a
buy-sell agreement, entered into in October of 1968, as amended, under which
neither party may dispose of their shares without notification of the proposed
sale to the other, who may then buy such shares at the offered price, sell all
of their shares to the other at the offered price or exchange one of their
Class A shares for each Class B share held by the other and purchase any
remaining Class B shares at the offered price. There are certain exceptions,
including transfers to specified persons or entities, certain public sales of
Class A shares and exchanges of Class A shares for Class B shares.
(5) Assumes the exercise in full of stock options granted in tandem with
stock appreciation rights in November of 1992 to acquire 1,000,000 shares of
TCI Class A common stock. Options to acquire 400,000 shares of TCI Class A
common stock are currently exercisable. See note 7 to the table in Item 11(a)
for additional information.
(6) Includes 1,173,000 shares of TCI Class B common stock and 6,900 shares
of Class B Preferred Stock held by Dr. Malone's wife, Mrs. Leslie Malone, but
Dr. Malone has disclaimed any beneficial ownership of such shares.
(7) Pursuant to a letter agreement, dated June 17, 1988, Mr. Magness and
Kearns-Tribune each agreed with Dr. Malone that prior to making a disposition
of a significant portion of their respective holdings of TCI Class B common
stock, he or it would first offer Dr. Malone the opportunity to purchase such
shares.
(8) The number of shares of TCI Class B common stock and TCI Class B
Preferred Stock in the table includes 6,240,000 and 80,000 TCI Restricted
Voting Shares, respectively, that are subject to repurchase by TCI under
certain circumstances. Until they cease to be subject to TCI's repurchase
right, such shares may not be transferred and, with respect to any matter
submitted to a vote of the stockholders of TCI, the votes represented thereby
will be cast in the same proportion as all other votes are cast with respect to
such matter. The number of shares of TCI common stock and Class B Preferred
Stock in the table which are not subject to such repurchase rights and voting
requirements represent 13.68% of the total voting power of the shares of TCI
common stock and TCI Class B Preferred Stock outstanding (excluding 6,240,000
and 80,000 TCI Restricted Voting Shares from such total voting power).
(continued)
III-13
178
(9) The number of shares in the table is based upon a Schedule 13G, dated
February 10, 1995, filed by The Equitable Life Assurance Society of the United
States which Schedule 13G reflects that said corporation has sole voting power
over 21,927,390 shares and shared voting power over 619,318 shares of Class A
common stock of the Company. No information is given in respect to voting
power over the remaining shares.
(10) The number of shares in the table is based upon a Schedule 13G, dated
February 8 1995, filed by The Capital Group Companies, Inc. Certain operating
subsidiaries of The Capital Group Companies, Inc. exercised investment
discretion over various institutional accounts which held as of December 31,
1994, 42,352,180 shares of TCI Class A common stock. Capital Guardian Trust
Company, a bank, and one of such operating companies, exercised investment
discretion over 6,471,333 of said shares. Capital Research and Management
Company, registered investment advisor, and Capital International, Ltd. and
Capital International, S.A., other operating subsidiaries, had investment
discretion with respect to 35,655,750, 137,770 and 87,310 shares, respectively,
of the above shares.
(b) Security ownership of management. The following table sets
forth, as of February 10, 1995, information with respect to the ownership of
TCI Class A and Class B common stock (other than directors' qualifying shares),
Class B Preferred Stock and Series C Preferred Stock by all directors and each
of the named executive officers of TCI, other than those listed in the table in
Item 12(a), and by all executive officers and directors of TCI as a group.
Shares issuable upon exercise or conversion of convertible securities are
deemed to be outstanding for the purpose of computing the percentage ownership
and overall voting power of persons beneficially owning such convertible
securities, but have not been deemed to be outstanding for the purpose of
computing the percentage ownership or overall voting power of any other person.
Voting power in the table is computed with respect to a general election of
directors and therefore the TCI Class B Preferred Stock is included in the
calculation. The number of Class A and Class B shares in the table include
interests of the named directors or executive officers or of members of the
group of directors and executive officers in shares held by the trustee of
TCI's ESPP and shares held by the trustee of UAE's Employee Stock Ownership
Plan for their respective accounts. So far as is known to TCI, the persons
indicated below have sole voting and investment power with respect to the
shares indicated as owned by them except as otherwise stated in the notes to
the table and except for the shares held by the trustee of TCI's ESPP for the
benefit of such person, which shares are voted at the discretion of the
trustee.
(continued)
III-14
179
Name of Amount and Nature Percent Voting
Title of Class Beneficial Owner of Beneficial Ownership of Class Power
-------------- ---------------- ----------------------- -------- ------
Class A Donne F. Fisher 543,934 (2) * *
Class B 249,072 *
Class B Pref. 3,464 *
Series C Pref. -- --
Class A John W. Gallivan 2,124 (3) * *
Class B -- --
Class B Pref. 14 *
Series C Pref. -- --
Class A Kim Magness -- -- *
Class B 518,000 *
Class B Pref. -- --
Series C Pref. -- --
Class A Jerome H. Kern 2,000,000 (4) * *
Class B -- --
Class B Pref. -- --
Series C Pref. -- --
Class A R.E. Turner 60,000 (5) * *
Class B -- --
Class B Pref. -- --
Series C Pref. -- --
Class A Tony Coehlo 800 * *
Class B -- --
Class B Pref. -- --
Series C Pref. -- --
Class A Robert A. Naify 23,638,860 (9) 3.98% 1.63%
Class B -- --
Class B Pref. 1,000 *
Series C. Pref -- --
Class A Fred A. Vierra 762,551 (6) * *
Class B -- --
Class B Pref. 200 *
Series C Pref. -- --
Class A Brendan R. Clouston 1,208,969 (8) * *
Class B 230 *
Class B Pref. -- --
Series C Pref. -- --
Class A J.C. Sparkman 247,359 (7) * *
Class B -- --
Class B Pref. -- --
Series C Pref. -- --
Class A All directors and 36,967,784 (1)(2)(3)(4)(5)(6) 6.14% 46.05%
executive officers (7)(8)(9)(10)(11)
Class B as a group 63,601,807 (1)(11) 74.72%
Class B Pref. (19 persons) 438,884 27.09%
Series C Pref. -- --
_________________________
* Less than one percent.
(continued)
III-15
180
(1) See notes 1 through 8 to the table in Item 12(a).
(2) Assumes the exercise in full of stock options granted in tandem with
stock appreciation rights in November of 1994 to acquire 200,000 shares of TCI
Class A common stock. None of the options are exercisable until November 17,
1995. See note 1 to the table in Item 11(b) for additional information.
(3) Includes 1,524 shares of TCI Class A common stock held by Mr.
Gallivan's wife.
(4) Assumes the exercise in full of stock options granted in tandem with
stock appreciation rights to acquire 2,000,000 shares of TCI Class A common
stock. Options to acquire 800,000 shares are currently exercisable. See note
6 to the table in Item 11(a) for additional discussion.
(5) Includes 50,000 shares of TCI Class A common stock held in trust of
which Mr. Turner is the trustee and beneficiary. Includes 10,000 shares of TCI
Class A common stock held in trust of which Mr. Turner's wife is trustee.
(6) Assumes the exercise in full of stock options, granted in August of
1990, to purchase an aggregate of 9,714 shares of TCI Class A common stock at
an adjusted price of $10.30 per share. All such options are fully exercisable.
Also assumes the exercise in full of stock options granted in tandem with stock
appreciation rights in November of 1992 to acquire 100,000 shares of TCI Class
A common stock. Options to acquire 40,000 shares of TCI Class A common stock
are currently exercisable. See note 7 to the table in Item 11(a) for
additional information. Also assumes the exercise in full of stock options
granted in tandem with stock appreciation rights in November of 1993 to acquire
100,000 shares of TCI Class A common stock. Options to acquire 25,000 shares
of TCI Class A common stock are currently exercisable. See note 6 to the table
in Item 11(a) for additional information. Additionally assumes the exercise in
full of stock options granted in tandem with stock appreciation rights in
November of 1994 to acquire 200,000 shares of TCI Class A common stock. None
of these options are exercisable until November 17, 1995. See note 1 to the
table in Item 11(b) for additional information.
(7) Assumes the exercise in full of stock options granted in tandem with
stock appreciation rights in November of 1992 to acquire 100,000 shares of TCI
Class A common stock. All such options became fully exercisable upon
retirement by Mr. Sparkman. See note 7 to the table in Item 11(a) for
additional information.
(8) Assumes the exercise in full of stock options granted in tandem with
stock appreciation rights in November of 1992 to acquire 500,000 shares of TCI
Class A common stock. Options to acquire 200,000 shares of TCI Class A common
stock are currently exercisable. See note 7 to the table in Item 11(a) for
additional information. Additionally, assumes the exercise in full of stock
options granted in tandem with stock appreciation rights in November of 1993 to
acquire 500,000 shares of TCI Class A common stock. Options to acquire 125,000
shares of TCI Class A common stock are currently exercisable. See note 6 to
the table in Item 11(a) for additional information. Also assumes the exercise
in full of stock options granted in tandem with stock appreciation rights in
November of 1994 to acquire 200,000 shares of TCI Class A common stock. None
of the options are exercisable until November 17, 1995. See note 1 to the
table in Item 11(b) for additional information.
(continued)
III-16
181
(9) Mr. Robert Naify received notes, which are currently convertible into
22,446,926 shares of TCI Class A common stock, as partial consideration for the
sale to TCI of the stock owned by him in UACI. Mr. Naify is also a co-trustee,
along with Mr. Naify's brother, Marshall, and their sister, of a trust for the
benefit of Marshall which holds additional notes convertible into 341,606
shares of TCI Class A common stock. The number of shares in the table assumes
the conversion of these notes.
(10) Certain executive officers and directors of TCI (11 persons, including
Messrs. Magness, Malone, Sparkman, Vierra and Clouston) hold options which were
granted in tandem with stock appreciation rights in November of 1992, to
acquire 3,325,000 shares of TCI Class A common stock at a purchase price of
$16.75 per share. Options to acquire 1,390,000 of such shares are currently
exercisable. Additionally certain executive officers (8 persons including
Messrs. Vierra and Clouston) hold stock options which were granted in tandem
with stock appreciation rights in October and November of 1993, to acquire
1,225,000 shares of TCI Class A common stock at a purchase price of $16.75 per
share. Options to acquire 306,250 of such shares are currently exercisable.
Additionally, Mr. Vierra holds an option to acquire 9,714 shares of Class A
common stock as described in note 5 above and Mr. Kern holds an option to
acquire 2,000,000 shares of Class A common stock as described in note 4 above.
Also certain executive officers and directors (9 persons including Messrs.
Fisher, Vierra and Clouston) hold stock options which were granted in tandem
with stock appreciation rights in November of 1994, and become exercisable (as
to 20% of the shares covered thereby) in November of 1994 to acquire 3,214,000
shares of TCI Class A common stock at a purchase price of $22.00 per share.
The number of TCI Class A shares in the table assumes the exercise of these
options.
(11) The number of shares in the table does not include any shares held by
Kearns, of which Mr. Gallivan is an officer.
No equity securities in any subsidiary of the Company, other than
directors' qualifying shares, are owned by any of the Company's executive
officers or directors, except that Mr. Bob Magness, a director and an executive
officer of the Company, owns 944 shares of WestMarc Series B Cumulative
Compounding Redeemable Preferred Stock; Mr. Kim Magness, a director of the
Company, owns 31 shares of WestMarc Series B Cumulative Compounding Redeemable
Preferred Stock; Dr. Malone, a director and an executive officer of the
Company, owns, as trustee for his children, 68 shares of WestMarc Series B
Cumulative Compounding Redeemable Preferred Stock; Mr. Larry Romrell, an
officer of the Company, owns 103 shares of WestMarc Series B Cumulative
Compounding Redeemable Preferred Stock and Mr. Jerome Kern, a director of the
Company, owns 116 shares of WestMarc Series B Cumulative Compounding Redeemable
Preferred Stock, including 58 shares owned by his wife, Diane D. Kern, over
which Mr. Kern is deemed to have beneficial ownership. Mr. Kern has disclaimed
any beneficial ownership of such shares owned by Mrs. Kern. Mr. Donne Fisher,
a director and executive officer of the Company, pursuant to a Restricted Stock
Award Agreement dated December 10, 1992, was transferred the right, title and
interest in and to 124.03 shares (having a liquidation value of $4 million) of
WestMarc Series B Cumulative Compounding Redeemable Preferred Stock owned by
the Company. Such preferred stock held by Mr. Fisher is subject to forfeiture
in the event of certain circumstances from the date of grant through February
1, 2002, decreasing by 10% on February 1 of each year.
(c) Change of control. The Company knows of no arrangements,
including any pledge by any person of securities of the Company, the operation
of which may at a subsequent date result in a change in control of the Company.
(continued)
III-17
182
Item 13. Certain Relationships and Related Transactions.
(a) Transactions with management and others.
As of January 27, 1994, TCIC (formerly Tele-Communications, Inc. or
"Old TCI") and Liberty entered into a definitive agreement to combine the two
companies. The TCI/Liberty Combination was consummated on August 4, 1994 and
was structured as a tax free exchange of Class A and Class B shares of both
companies and preferred stock of Liberty for like shares of a newly formed
holding company, Tele-Communications, Inc. (formerly TCI/Liberty Holding
Company). In connection with the TCI/Liberty Combination, Old TCI changed its
name to TCI Communications, Inc. and TCI/Liberty Holding Company changed its
name to Tele-Communications, Inc. Old TCI common shareholders received one
share of TCI for each of their shares. Liberty common shareholders received
0.975 of a share of TCI for each of their shares. Holders of Liberty Class E,
6% Cumulative Redeemable Exchangeable Junior Preferred Stock ("Liberty Class E
Preferred Stock") received shares of Class B Preferred Stock, a new preferred
stock of TCI having designations, preferences, rights and qualifications,
limitations and restrictions that are substantially identical to those of the
Liberty Class E Preferred Stock, except that the holders of the new preferred
stock are entitled to one vote per share in any general election of directors
of TCI. The other classes of preferred stock of Liberty held by Old TCI were
converted into Class A Preferred Stock, a new series of preferred stock of TCI
having a substantially equivalent fair market value to that which was given up.
During 1992, the Company and Liberty formed Community Cable Television
("CCT"), a general partnership created for the purpose of acquiring and
operating cable television systems with Tele-Communications of Colorado, Inc.,
an indirect wholly-owned subsidiary of TCI, owning a 49.999% interest and
Liberty Cable Partner, Inc., an indirect wholly-owned subsidiary of Liberty,
owning a 50.001% interest. Pursuant to a cable management agreement, a
subsidiary of TCI provided management services for cable systems owned by CCT.
The subsidiary received a fee equal to 3% of the gross cable television revenue
of CCT through the date of the TCI/Liberty Combination. From January 1, 1994
through August 4, 1994, CCT paid $2,044,099 under the agreement.
Satellite Services, Inc. ("SSI"), a wholly-owned subsidiary of TCI,
purchased sports and other programming from certain subsidiaries and affiliates
of Liberty through the date of the TCI/Liberty Combination. Charges to SSI
(which were based upon customary rates charged to others) for such programming
were $27,284,419 from January 1, 1994 through August 4, 1994. Certain
subsidiaries and affiliates of Liberty purchased, at TCI's cost plus in some
cases an administrative fee of up to 10% of the rates actually charged, certain
pay television and other programming through SSI through the date of the
TCI/Liberty Combination. In addition, a consolidated subsidiary of Liberty
paid a commission to TCI for merchandise sales to customers who are subscribers
of TCI's cable systems. Aggregate commissions and charges for such
programming were $9,798,431 from January 1, 1994 through August 4, 1994.
TCI and Liberty were parties to a services agreement pursuant to which
TCI agreed to provide certain financial reporting, tax and other
administrative services to Liberty. A subsidiary of Liberty also leased office
space and satellite transponder facilities from TCI. Charges by TCI for such
services and leases amounted to 124,859 for the period from January 1, 1994
through August 4, 1994.
(continued)
III-18
183
Encore QE Programming Corp. ("QEPC"), a wholly-owned subsidiary of
Encore Media Corporation ("EMC"), a 90% owned subsidiary of Liberty, entered
into a limited partnership agreement with TCI Starz, Inc. ("TCIS"), a
wholly-owned subsidiary of TCI, for the purpose of developing, operating and
distributing STARZ!, a first-run movie premium programming service launched in
1994. QEPC is the general partner and TCIS is the limited partner. Losses are
allocated 1% to QEPC and 99% to TCIS. Profits are allocated 1% to QEPC and 99%
to TCIS until certain defined criteria are met. Subsequently, profits are
allocated 20% to QEPC and 80% to TCIS. TCIS has the option, exercisable at any
time and without payment of additional consideration, to convert its limited
partner interest to an 80% general partner interest with QEPC's partnership
interest simultaneously converting to a 20% limited partnership interest. In
addition, during specific periods commencing April 1999 and April 2001,
respectively, QEPC may require TCIS to purchase, or TCIS may require QEPC to
sell, the partnership interest of QEPC in the partnership for a formula-based
price. EMC is paid a management fee equal to 20% of "managed costs" as defined,
in order to manage the service. From January 1, 1994 through the TCI/Liberty
Combination, EMC earned approximately $2,145,000 in management fees. EMC has
agreed to provide the limited partnership with certain programming under a
programming agreement whereby the partnership will pay its pro rata share of
the total costs incurred by EMC for such programming.
During 1994, Peachtree Cable TV, Inc. ("Peachtree"), a Nevada
corporation wholly owned by certain employees of TCIC, including Messrs.
Thomson, Schotters, Marshall and Bracken (executive officers of TCIC), paid
$76,859 in management fees to TCIC for the operation and management of
Peachtree's cable television systems.
The Company believes that the foregoing business dealings with
management during 1994 were based upon terms no less advantageous to the
Company than those which would be available in dealing with unaffiliated
persons.
(b) Certain business relationships
Mr. Jerome H. Kern, a director of TCI, is a partner with the law firm
of Baker & Botts, L.L.P., the principal outside counsel for TCI. Fees paid to
Baker & Botts, L.L.P. by TCI were $10,069,871 for the last full fiscal year.
See also Item 13(a) above.
(c) Indebtedness of management
On February 3, 1994, Dr. Malone, an executive officer and director of
the Company, borrowed $310,000 from the Company. Such indebtedness bore
interest at the Bank of New York prime rate. Dr. Malone repaid such
indebtedness, including accrued interest amounting to $1,733, on March 10,
1994.
On October 24, 1991, Dr. Malone exercised certain options granted to
him by Liberty Media Corporation through the delivery of $100,000 in cash and a
promissory note in the amount of $25,500,000. The promissory note Dr. Malone
delivered to Liberty bore interest at the rate of 7.54% per annum, and was
secured by 16,000,000 shares of Liberty Class B common stock and 200,000 shares
of Liberty Class E Preferred Stock. On October 24, 1991, Dr. Malone tendered
to Liberty in partial payment of such note 800,000 shares of TCI's Class B
common stock, resulting in a net reduction of $12,194,877 in the amount payable
under the note.
On October 24, 1992, Dr. Malone and Liberty 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. The letter agreement provided that
the $12,194,877 payment on the promissory note would be applied as follows: (1)
$10,999,436 to the principal balance; (2) $192,195 as a prepayment of interest
on the reduced principal balance accrued during calendar 1991 (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 (the "Discount Rate"));
and (3) $1,003,246 as a prepayment of interest on the reduced principal balance
accrued during calendar 1992 (after giving effect to the Discount Rate). Dr.
Malone also agreed to make a payment in March 1993 in the amount of $983,823
from the proceeds of dividends received on his shares of Class E Preferred
Stock, which amount would be applied to payment of all interest accruing during
calendar 1993 (after giving effect to the Discount Rate) and not to tender
shares of the Class E Preferred Stock to the Company to pay any of his
obligations under the promissory note without the Company's consent.
TCI assumed such note receivable from Dr. Malone in the TCI/Liberty
Combination. On October 27, 1994, Dr. Malone tendered to the Company 634,917
shares of TCI Class B common stock as payment in full of principal amounting to
$14,500,564 and accrued interest amounting to $896,182. The market value of
the tendered shares was based on the last sales price of $24.25 for the shares
of TCI's Class A common stock on October 26, 1994.
III-19
184
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
------- ----------------------------------------------------------------
(a) (1) Financial Statements
Included in Part II of this Report: Page No.
--------
Tele-Communications, Inc.:
Independent Auditors' Report II-26
Consolidated Balance Sheets,
December 31, 1994 and 1993 II-27 to II-28
Consolidated Statements of Operations,
Years ended December 31, 1994, 1993 and 1992 II-29
Consolidated Statements of Stockholders' Equity,
Years ended December 31, 1994, 1993 and 1992 II-30 to II-31
Consolidated Statements of Cash Flows,
Years ended December 31, 1994, 1993 and 1992 II-32 to II-33
Notes to Consolidated Financial Statements,
December 31, 1994, 1993 and 1992 II-34 to II-74
TCI Communications, Inc.:
Independent Auditors' Report II-75
Consolidated Balance Sheets,
December 31, 1994 and 1993 II-76 to II-77
Consolidated Statements of Operations,
Years ended December 31, 1994, 1993 and 1992 II-78
Consolidated Statements of Stockholder's(s') Equity,
Years ended December 31, 1994, 1993 and 1992 II-79 to II-80
Consolidated Statements of Cash Flows,
Years ended December 31, 1994, 1993 and 1992 II-81 to II-82
Notes to Consolidated Financial Statements,
December 31, 1994, 1993 and 1992 II-83 to II-108
IV-1
185
(a) (2) Financial Statement Schedules
Included in Part IV of this Report:
(i) Financial Statement Schedules required to be filed: Page No.
--------
Tele-Communications, Inc.:
Independent Auditors' Report IV-12
Schedule I - Condensed Information as to the
Financial Position of the Registrant, December 31, 1994;
Condensed Information as to the Operations and Cash Flows
of the Registrant, Year ended December 31, 1994 IV-13 to IV-15
Schedule II - Valuation and Qualifying Accounts,
Years ended December 31, 1994, 1993 and 1992 IV-16
TCI Communications, Inc.:
Independent Auditors' Report IV-17
Schedule I - Condensed Information as to the
Financial Position of the Registrant, December 31, 1994
and 1993; Condensed Information as to the Operations
and Cash Flows of the Registrant, Years ended December 31, 1994,
1993 and 1992 IV-18 to IV-20
Schedule II - Valuation and Qualifying Accounts,
Years ended December 31, 1994, 1993 and 1992 IV-21
All other schedules have been omitted because they are not required or
are not applicable, or the required information is set forth in the
applicable financial statements or notes thereto.
IV-2
186
(ii) Separate financial statements for TeleWest Communications plc:
Consolidated Financial Statements Page No.
--------------------------------- --------
Independent Auditors' Report IV-22
Consolidated Statement of Operations IV-23 to IV-24
Consolidated Balance Sheet IV-25
Consolidated Statement of Cash Flows IV-26 to IV-27
Consolidated Statement of Shareholders' Equity IV-28
Notes to Consolidated Financial Statements IV-29 to IV-39
IV-3
187
(a) (3) Exhibits
Listed below are the exhibits which are filed as a part of this Report
(according to the number assigned to them in Item 601 of Regulation S-K):
3 - Articles of Incorporation and Bylaws:
The Restated Certificate of Incorporation, dated August 4, 1994, as
amended on August 4, 1994, August 16, 1994, October 11, 1994,
October 21, 1994 and January 26, 1995.
The Bylaws as adopted June 16, 1994.
Restated Certificate of Incorporation, dated as of August 4, 1994.
Bylaws as adopted August 4, 1994.
10 - Material Contracts:
Tele-Communications, Inc. 1994 Stock Incentive Plan
Incorporated herein by reference to the Company's Form S-4
Registration Statement. (Commission File No. 33-54263)
Restated and Amended Employment Agreement, dated as of November 1,
1992, between the Company and Bob Magness.*
Incorporated herein by reference to the Company's Annual Report
on Form 10-K for the year ended December 31, 1992, as amended
by Form 10-K (amendment #1) for the year ended December 31,
1992. (Commission File No. 0-5550)
Assignment and Assumption Agreement, dated as of August 4, 1994, among
TCI/Liberty Holding Company, Tele-Communications, Inc. and Bob
Magness.*
Restated and Amended Employment Agreement, dated as of November 1,
1992, between the Company and John C. Malone.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992,
as amended by Form 10-K/A (amendment #1) for the year ended
December 31, 1992. (Commission File No. 0-5550)
Assignment and Assumption Agreement, dated as of August 4, 1994, among
TCI/Liberty Holding Company, Tele-Communications, Inc. and John C.
Malone.*
Employment Agreement, dated as of November 1, 1992, between
Tele-Communications, Inc. and J. C. Sparkman.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992,
as amended by Form 10-K/A (amendment #1) for the year
ended December 31, 1992. (Commission File No. 0-5550)
Assignment and Assumption Agreement, dated as of August 4, 1994, among
TCI/Liberty Holding Company, Tele-Communications, Inc. and J. C.
Sparkman.*
Employment Agreement, dated as of January 1, 1992, between
Tele-Communications, Inc. and Donne F. Fisher.*
Incorporated herein by reference to the Company's Annual Report
on Form 10-K for the year ended December 31, 1992, as amended
by Form 10-K/A (amendment #1) for the year ended December 31,
1992. (Commission File No. 0-5550)
(continued)
IV-4
188
10 - Material contracts, continued:
Assignment and Assumption Agreement, dated as of August 4, 1994, among
TCI/Liberty Holding Company, Tele-Communications, Inc. and Donne F.
Fisher.*
Restricted Stock Award Agreement, made as of December 10, 1992, among
Tele-Communications, Inc., Donne F. Fisher and WestMarc
Communications, Inc.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992,
as amended by Form 10-K/A (amendment #1) for the year ended
December 31, 1992. (Commission File No. 0-5550)
Deferred Compensation Plan for Non-Employee Directors, effective on
November 1, 1992.*
Incorporated herein by reference to the Company's Annual Report
on Form 10-K for the year ended December 31, 1992, as
amended by Form 10-K/A (amendment #1) for the year ended
December 31, 1992.
(Commission File No. 0-5550)
Employment Agreement, dated as of November 1, 1992, between
Tele-Communications, Inc. and Fred A. Vierra.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992,
as amended by Form 10-K/A (amendment #1) for the year
ended December 31, 1992. (Commission File No. 0-5550)
Assignment and Assumption Agreement, dated as of August 4, 1994, among
TCI/Liberty Holding Company, Tele-Communications, Inc. and Fred A.
Vierra.*
Employment Agreement, dated as of January 1, 1993, between
Tele-Communications, Inc. and Larry E. Romrell.*
Assignment and Assumption Agreement, dated as of August 4, 1994, among
TCI/Liberty Holding Company, Tele-Communications, Inc. and Larry E.
Romrell.*
Form of 1992 Non-Qualified Stock Option and Stock Appreciation Rights
Agreement.*
Incorporated herein by reference to the Company's
Annual Report on Form 10-K for the year ended December 31,
1993, as amended by Form 10-K/A (amendment #1) for the year
ended December 31, 1993. (Commission File No. 0-5550)
Form of 1993 Non-Qualified Stock Option and Stock Appreciation Rights
Agreement.*
Incorporated herein by reference to the Company's
Annual Report on Form 10-K for the year ended December 31,
1993, as amended by Form 10-K/A (amendment #1) for the year
ended December 31, 1993. (Commission File No. 0-5550)
(continued)
IV-5
189
10 - Material contracts, continued:
Non-Qualified Stock Option and Stock Appreciation Rights Agreement,
dated as of November 12, 1993, by and between Tele-Communications,
Inc. and Jerome H. Kern.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993,
as amended by Form 10-K/A (amendment #1) for the year ended
December 31, 1993. (Commission File No. 0-5550)
Form of Assumption and Amended and Restated Stock Option Agreement
between the Company, Liberty Media Corporation and grantee relating
to stock appreciation rights granted pursuant to letter dated
September 17, 1991.
Incorporated herein by reference to the Company's Post
Effective Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement. (Commission
File No. 33-54263)
Form of Assumption and Amended and Restated Stock Option Agreement
between the Company, Liberty Media Corporation and grantee relating
to the assumption of options and related stock appreciation rights
granted under the Liberty Media Corporation 1991 Stock Incentive
Plan pursuant to letter dated July 26, 1993.
Incorporated herein by reference to the Company's Post
Effective Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement. (Commission
File No. 33-54263)
Assumption and Amended and Restated Stock Option Agreement between the
Company, TCI/Liberty Holding Company and a director of
Tele-Communications, Inc. relating to assumption of options and
related stock appreciation rights granted outside of an employee
benefit plan pursuant to Tele-Communications, Inc.'s 1993
Non-Qualified Stock Option and Stock Appreciation Rights Agreement.
Incorporated herein by reference to the Company's Post
Effective Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement. (Commission
File No. 33-54263)
Form of Assumption and Amended and Restated Stock Option Agreement
between the Company, TCI/Liberty Holding Company and grantee
relating to assumption of options and related stock appreciation
rights granted under Tele-Communications, Inc.'s 1992 Stock
Incentive Plan pursuant to Tele-Communications, Inc.'s 1993
Non-Qualified Stock Option and Stock Appreciation Rights Agreement.
Incorporated herein by reference to the Company's Post
Effective Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement. (Commission
File No. 33-54263)
Form of Assumption and Amended and Restated Stock Option Agreement
between the Company, TCI/Liberty Holding Company and grantee
relating to assumption of grants pursuant to the Agreement and Plan
of Merger dated June 6, 1991 between United Artists Entertainment
Company and Tele-Communications, Inc.
Incorporated herein by reference to the Company's Post
Effective Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement. (Commission
File No. 33-54263)
(continued)
IV-6
190
10 - Material contracts, continued:
Form of letter dated September 17, 1991 from Liberty Media Corporation
to grantee relating to grant of stock appreciation rights.
Incorporated herein by reference to the Company's Post
Effective Amendment No. 1 to Form S-4 Registration Statement
on Form S-8 Registration Statement. (Commission File
No. 33-54263)
Form of letter dated July 26, 1993 from Liberty Media Corporation to
grantee relating to grant of options and stock appreciation rights.
Incorporated by reference to Tele-Communications, Inc.'s Post
Effective Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement. (Commission
File No. 33-54263)
Form of Assumption and Amended and Restated Stock Option Agreement
between the Company, TCI/Liberty Holding Company and grantee
relating to assumption of options and related stock appreciation
rights under Tele-Communications, Inc.'s 1992 Stock Incentive Plan
pursuant to Tele-Communications, Inc.'s 1992 Non-Qualified Stock
Option and Stock Appreciation Rights Agreement.
Incorporated herein by reference to the Company's Post
Effective Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement. (Commission
File No. 33-54263)
Forms of Assumption and Amended and Restated Stock Option Agreements
relating to options granted under the United Artists Entertainment
Company 1988 Incentive and Non-Qualified Stock Option Plan and
executed by employees who did not have employment agreements with
United Artists Entertainment Company.
Incorporated herein by reference to Tele-Communications,
Inc.'s Post-Effective Amendment No 1 to Form S-4
Registration Statement on Form S-8 Registration Statement.
(Commission File No. 33-43009)
Forms of Assumption and Amended and Restated Stock Option Agreements
relating to options granted under the United Artists Entertainment
Company 1988 Incentive and Non-Qualified Stock Option Plan and
executed by employees who had employment agreements with United
Artists Entertainment.
Incorporated herein by reference to Tele-Communications,
Inc.'s Post-Effective Amendment No. 1 to Form S-4
Registration Statement on Form S-8 Registration Statement.
(Commission File No. 33-43009)
Forms of Second Assumption and Amended and Restated Stock Option
Agreements relating to options granted under the Amended and
Restated United Artists Communications, Inc. 1983 Stock Option Plan
and executed by employees who did not have employment agreements
with United Artists Entertainment Company.
Incorporated herein by reference to Tele-Communications Inc.'s
Post-Effective Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement. (Commission
File No. 33-43009)
(continued)
IV-7
191
10 - Material contracts, continued:
Forms of Second Assumption and Amended and Restated Stock Option
Agreements relating to options granted under the Amended and
Restated United Artists Communications, Inc. 1983 Stock Option Plan
and executed by employees who had employment agreements with United
Artists Entertainment Company.
Incorporated herein by reference to Tele-Communications,
Inc.'s Post-Effective Amendment No. 1 to Form S-4
Registration Statement on Form S-8 Registration Statement.
(Commission File No. 33-43009)
Form of Indemnification Agreement.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993,
as amended by Form 10-K/A (amendment #1) for the year ended
December 31, 1993. (Commission File No. 0-5550)
Form of 1994 Non-Qualified Stock Option and Stock Appreciation Rights
Agreement.*
Qualified Employee Stock Purchase Plan of Tele-Communications, Inc.,
as amended.*
Incorporated herein by reference to the Tele-Communications,
Inc. Registration Statement on Form S-8.
(Commission File No. No. 33-59058)
Second Amendment to Community Cable Television General Partnership
Agreement, dated March 12, 1993, between Tele-Communications of
Colorado, Inc. and Liberty Cable Partner, Inc.
Incorporated herein by reference to Liberty Media
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1992. (Commission File No. 0-19036)
Agreement to Purchase and Sell Partnership Interests, dated as of
January 29, 1993, among Mile Hi Cable Partners, L.P., Mile Hi
Cablevision, Inc., Time Warner Entertainment Company, L.P.,
Daniels & Associates Partners Limited, Daniels Communications,
Inc., Cablevision Associates, Ltd., and John Yelenick and Maria
Garcia-Berry, as agents for the limited partners.
Incorporated herein by reference to Liberty Media
Corporation's Current Report on Form 8-K, dated March 24,
1993. (Commission File No. 0-19036)
Loan and Security Agreement, dated January 28, 1993, among Community
Cable Television and Robert L. Johnson, the Paige Johnson Trust and
the Brett Johnson Trust.
Incorporated herein by reference to Liberty Media
Corporation's Current Report on Form 8-K, dated
March 24, 1993. (Commission File No. 0-19036)
Agreement of Limited Partnership, dated as of January 28, 1993 among
P & B Johnson Corp., Community Cable Television and Daniels
Communications, Inc.
Incorporated herein by reference to Liberty Media
Corporation's Current Report on Form 8-K, dated March 24,
1993. (Commission File No. 0-19036)
(continued)
IV-8
192
10- Material contracts, continued:
Recapitalization Agreement, dated March 26, 1993, among Liberty Media
Corporation, TCI Liberty, Inc. and Tele-Communications of Colorado,
Inc.
Incorporated herein by reference to Liberty Media
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1992. (Commission File No. 0-19036)
Amendment to Recapitalization Agreement, dated June 3, 1993, between
Liberty Media Corporation, TCI Liberty and Tele-Communications of
Colorado, Inc.
$18,539,442 Promissory Note, dated June 3, 1993, from Liberty Media
Corporation to Tele-Communications of Colorado, Inc.
$66,900,000 Promissory Note, dated June 3, 1993, from Liberty Media
Corporation to Tele-Communications of Colorado, Inc.
$10,052,000 Promissory Note, dated June 3, 1993, from Liberty Media
Corporation to Tele-Communications of Colorado, Inc.
$86,105,000 Promissory Note, dated June 3, 1993, from Liberty Media
Corporation to Tele-Communications of Colorado, Inc.
Pledge and Security Agreement, dated June 3, 1993, between Liberty
Cable Partner, Inc. and Tele-Communications of Colorado, Inc.
Stock Pledge and Security Agreement, dated June 3, 1993, between
Liberty Capital Corp. and Liberty Cable, Inc., and
Tele-Communications of Colorado, Inc.
Option-Put Agreement, dated June 3, 1993, between Tele-Communications
of Colorado, Inc. and Liberty Cable Partner, Inc.
Assignment and Assumption Agreement, dated June 3, 1993, between
Liberty Cable Partner, Inc. and TCI Holdings, Inc.
Option Agreement dated June 3, 1993, between TCI Holdings, Inc. and
Liberty Cable Partner, Inc.
Incorporated herein by reference to Liberty Media
Corporation's Current Report on Form 8-K, dated June 24,
1993. (Commission File No. 0-19036)
Modification of Promissory Note, dated November 30, 1993, between
Liberty Media Corporation and Tele-Communications of Colorado, Inc.
Modification of Promissory Note, dated November 30, 1993, between
Liberty Media Corporation and TCI Liberty, Inc.
Amendment to Option-Put Agreement, dated November 30, 1993, between
Tele-Communications of Colorado, Inc. and Liberty Cable Partner,
Inc.
Incorporated herein by reference to Liberty Media
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1993. (Commission File No. 0-19036)
Agreement Regarding Purchase and Sales of Partnership Interest, dated
as of March 26, 1993, between Liberty Cable Partners, Inc. and TCI
Holdings, Inc.
Incorporated herein by reference to Liberty Media
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1992. (Commission File No. 0-19036)
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.
Incorporated herein by reference to the Company's Current
Report on Form 8-K, dated February 15, 1994. (Commission
File No. 0-5550)
(continued)
IV-9
193
10- Material contracts, continued:
Amendment No. 1, dated as of March 30, 1994, to Agreement and Plan of
Merger, dated as of January 27, 1994, by and among
Tele-Communications, Inc., Liberty Media Corporation, TCI/Liberty
Holding Company, TCI Mergeco, Inc. and Liberty Mergeco, Inc.
Incorporated herein by reference to the Company's Current
Report on Form 8-K, dated April 6, 1994. (Commission File
No. 0-5550)
Amendment No. 2, dated as of August 4, 1994, to Agreement and Plan of
Merger, dated as of January 27, 1994, by and among
Tele-Communications, Inc., Liberty Media Corporation, TCI/Liberty
Holding Company, TCI Mergeco, Inc. and Liberty Mergeco, Inc.
Incorporated herein by reference to the Company's Current
Report on Form 8-K, dated August 18, 1994. (Commission
File No. 0-20421)
Agreement and Plan of Merger, dated as of August 8, 1994, among
Tele-Communications, Inc., TCI Communications, Inc. and TeleCable
Corporation
Incorporated herein by reference to Tele-Communications,
Inc.'s Current Report on Form 8-K, dated August 18, 1994.
(Commission File No. 0-20421)
21- Subsidiaries of Tele-Communications, Inc.
23- Consents of experts and counsel
Consent of KPMG Peat Marwick LLP.
Consent of KPMG Peat Marwick LLP.
Consent of KPMG.
27- Financial data schedule
Tele-Communications, Inc.
TCI Communications, Inc.
*Constitutes management contract or compensatory arrangement.
IV-10
194
(b) Reports on Form 8-K filed during the quarter ended December 31, 1994:
Item
Date of Report Reported Financial Statements Filed
-------------- --------- ---------------------------
Tele-Communications, Inc.
October 27, 1994 Item 5 None
December 2, 1994, Item 2 TeleCable Corporation,
as amended by and Nine months ended
Form 8-K/A Item 5 September 30, 1994
(Amendment No. 1)
TCI Communications, Inc.
October 6, 1994 Item 5 None
October 27, 1994 Item 5 None
December 2, 1994, Item 2 TeleCable Corporation,
as amended by and Nine months ended
Form 8-K/A Item 5 September 30, 1994
(Amendment No. 1)
IV-11
195
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Tele-Communications, Inc.:
Under date of March 27, 1995, we reported on the consolidated balance sheets of
Tele-Communications, Inc. and subsidiaries as of December 31, 1994 and 1993,
and the related consolidated statements of operations, stockholders' equity,
and cash flows for each of the years in the three-year period ended December
31, 1994, which are included in the December 31, 1994 annual report on
Form 10-K. In connection with our audits of the aforementioned consolidated
financial statements, we have also audited the related financial statement
schedules as listed in the accompanying index. These financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement schedules
based on our audits.
In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
As discussed in notes 1 and 5 to the consolidated financial statements, the
Company adopted the provisions of Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities" in
1994.
KPMG Peat Marwick LLP
Denver, Colorado
March 27, 1995
IV-12
196
Schedule I
Page 1 of 3
TELE-COMMUNICATIONS, INC.
AND SUBSIDIARIES
Condensed Information as to the
Financial Position of the Registrant
December 31, 1994
Assets amounts in millions
------
Investments in and advances to consolidated
subsidiaries - eliminated upon consolidation $ 4,530
Other assets, at cost, net of amortization 3
-------
$ 4,533
=======
Liabilities and Stockholders' Equity
Accrued liabilities $ 23
Stockholders' equity:
Class A Preferred Stock, $.01 par value --
Class B 6% Cumulative Redeemable Exchangeable Junior
Preferred Stock, $.01 par value --
Convertible Preferred Stock,
Series C, $.01 par value --
Redeemable Convertible Preferred
Stock, Series E, $.01 par value --
Class A common stock, $1 par value 577
Class B common stock, $1 par value 89
Additional paid-in capital 4,498
Cumulative foreign currency translation
adjustment, net of taxes (4)
Unrealized holding gains for available-for-sale
securities, net of taxes 253
Accumulated deficit (293)
------
Treasury stock, at cost (610)
------
4,533
======
IV-13
197
Schedule I
Page 2 of 3
TELE-COMMUNICATIONS, INC.
AND SUBSIDIARIES
Condensed Information as to the
Operations of the Registrant
Year ended December 31, 1994
amounts in millions
Operating expenses (income):
Selling, general and administrative $ 10
Adjustment to compensation
relating to stock appreciation rights (1)
----
Losses from operations before
share of earnings of consolidated
subsidiaries 9
Share of earnings of consolidated subsidiaries (64)
----
Net earnings (55)
Preferred stock dividend requirements 8
----
Net earnings attributable to common stockholders $(47)
====
IV-14
198
Schedule I
Page 3 of 3
TELE-COMMUNICATIONS, INC.
AND SUBSIDIARIES
Condensed Information as to
Cash Flows of the Registrant
Year ended December 31, 1994
amounts in millions
Cash flows from operating activities:
Losses before share of earnings of
consolidated subsidiaries $ (9)
Adjustments to reconcile loss to net
cash provided by operating activities:
Adjustment to compensation
relating to stock appreciation rights (1)
Change in accrued liabilities 24
---------
Net cash provided by
operating activities 14
---------
Cash flows from investing activities:
Reduction in or additional
investments in and advances to
consolidated subsidiaries, net (8)
Capital expended for other assets, net (3)
---------
Net cash used by
investing activities (11)
---------
Cash flows from financing activities:
Preferred stock dividends (4)
Issuances of common stock 1
---------
Net cash provided by
financing activities (3)
---------
Increase in cash --
Cash at beginning of year --
---------
Cash at end of year $ --
=========
See also note 2 to the consolidated financial statements.
IV-15
199
Schedule II
TELE-COMMUNICATIONS, INC.
AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 1994, 1993 and 1992
Additions Deductions
--------- ----------
Balance at Charged to Write-offs Balance
beginning profit net of at end
Description of year and loss recoveries of year
----------- ------- -------- ---------- -------
amounts in millions
Year ended
December 31, 1994:
Allowance for doubtful
receivables - trade $ 19 58 (54) 23
==== === === ===
Year ended
December 31, 1993:
Allowance for doubtful
receivables - trade $ 15 58 (54) 19
==== === === ===
Year ended
December 31, 1992:
Allowance for doubtful
receivables - trade $ 16 45 (46) 15
==== === === ==
IV-16
200
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder
TCI Communications, Inc.:
Under date of March 27, 1995, we reported on the consolidated balance sheets of
TCI Communications, Inc. and subsidiaries as of December 31, 1994 and 1993, and
the related consolidated statements of operations, stockholder's(s') equity,
and cash flows for each of the years in the three-year period ended December
31, 1994, which are included in the December 31, 1994 annual report on
Form 10-K. In connection with our audits of the aforementioned consolidated
financial statements, we have also audited the related financial statement
schedules as listed in the accompanying index. These financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement schedules
based on our audits.
In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
As discussed in notes 1 and 5 to the consolidated financial statements, the
Company adopted the provisions of Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities" in
1994.
KPMG Peat Marwick LLP
Denver, Colorado
March 27, 1995
IV-17
201
Schedule I
Page 1 of 3
TCI COMMUNICATIONS, INC.
AND SUBSIDIARIES
Condensed Information as to the
Financial Position of the Registrant
December 31, 1994 and 1993
Assets 1994 1993
------ ---- ----
amounts in millions
Cash $ -- 4
Investments in and advances to consolidated
subsidiaries - eliminated upon consolidation 7,645 7,560
Property and equipment, at cost 63 40
Less accumulated depreciation 16 16
------ ------
47 24
------ ------
Other assets, at cost, net of amortization 44 44
------ ------
$7,736 7,632
====== =====
Liabilities and Stockholder's(s') Equity
----------------------------------------
Accrued liabilities $ 362 324
Debt 6,728 5,178
------ -----
Total liabilities 7,090 5,502
Redeemable preferred stocks -- 18
Stockholder's(s') equity (see detail on page II-77) 646 2,112
------ -----
$7,736 7,632
====== =====
Guarantees $ 23
======
IV-18
202
Schedule I
Page 2 of 3
TCI COMMUNICATIONS, INC.
AND SUBSIDIARIES
Condensed Information as to the
Operations of the Registrant
Years ended December 31, 1994, 1993 and 1992
1994 1993 1992
---- ---- ----
amounts in millions
Management costs reimbursed by
subsidiaries $ 115 98 106
------ ------ ------
Operating expenses (income):
Selling, general and administrative 103 103 98
Compensation relating to stock
appreciation rights -- 31 1
Adjustment to compensation relating
to stock appreciation rights (5) -- --
Interest expense 471 369 226
Interest income, principally from
consolidated subsidiaries (472) (370) (232)
Depreciation and amortization 13 8 5
Loss (gain) on disposition of assets 5 (43) (2)
Loss on early extinguishment of debt -- -- 10
------ ------ ------
115 98 106
------ ------ ------
Earnings from operations before
share of losses (earnings) of
consolidated subsidiaries -- -- --
Share of losses (earnings) of consolidated
subsidiaries, including loss from
discontinued operations (92) 7 8
------ ------ ------
Net loss (earnings) $ (92) 7 8
====== ====== ======
IV-19
203
Schedule I
Page 3 of 3
TCI COMMUNICATIONS, INC.
AND SUBSIDIARIES
Condensed Information as to
Cash Flows of the Registrant
Years ended December 31, 1994, 1993 and 1992
1994 1993 1992
---- ---- ----
amounts in millions
Cash flows from operating activities:
Earnings before share of losses of
consolidated subsidiaries, including
loss from discontinued operations $ -- -- --
Adjustments to reconcile loss to net
cash provided by operating activities:
Depreciation and amortization 13 8 5
Compensation relating to stock
appreciation rights -- 31 1
Adjustment to compensation relating
stock appreciation rights (5) -- --
Loss on early extinguishment of debt -- -- 10
Loss (gain) on disposition of assets 5 (43) (2)
Amortization of debt discount 1 27 26
Change in accrued liabilities 43 15 89
--------- ------- -------
Net cash provided by
operating activities 57 128 129
--------- ------- -------
Cash flows from investing activities:
Reduction in or additional
investments in and advances to
consolidated subsidiaries, net (1,565) (2,723) (1,036)
Proceeds on disposition of assets -- 111 12
Capital expended for property and
equipment and other assets, net (45) (38) (25)
--------- ------- -------
Net cash used by
investing activities (1,610) (2,650) (1,049)
--------- ------- -------
Cash flows from financing activities:
Borrowings of debt 2,227 3,274 2,327
Repayment of debt (678) (735) (1,332)
Preferred stock dividends -- (2) (15)
Repurchase of preferred stock -- (92) (5)
Issuances of common stock 6 7
Repurchases of common stock -- (4) (19)
--------- ------- -------
Net cash provided by
financing activities 1,549 2,447 963
--------- ------- -------
Increase (decrease) in cash (4) (75) 43
Cash at beginning of year 4 79 36
--------- -------- -------
Cash at end of year $ -- 4 79
========= ======= =======
Supplemental disclosure of cash flow
information -
Cash paid during the year for interest $ 448 257 177
========= ======= =======
See also note 2 to the consolidated financial statements.
IV-20
204
Schedule II
TCI COMMUNICATIONS, INC.
AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 1994, 1993 and 1992
Additions Deductions
--------- ----------
Balance at Charged to Write-offs Balance
beginning profit net of at end
Description of year and loss recoveries of year
----------- ---------- -------- ---------- -------
amounts in millions
Year ended
December 31, 1994:
Allowance for doubtful
receivables - trade $ 19 57 (61) 15
==== === === ===
Year ended
December 31, 1993:
Allowance for doubtful
receivables - trade $ 15 58 (54) 19
==== === === ===
Year ended
December 31, 1992:
Allowance for doubtful
receivables - trade $ 16 45 (46) 15
==== === === ===
IV-21
205
58 TeleWest Annual Report 1994
US GAAP
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
TELEWEST COMMUNICATIONS PLC
We have audited the consolidated balance sheet of TeleWest Communications plc
and subsidiaries as of 31 December 1994 and 1993, and the related consolidated
statements of operations and cash flows for each of the years in the three year
period ended 31 December 1994. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
in the United Kingdom and the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of TeleWest
Communications plc and subsidiaries as of 31 December 1994 and 1993, and the
results of their operations and their cash flows for each of the years in the
three year period ended 31 December 1994, in conformity with generally accepted
accounting principles in the United States of America.
London, England
21 March 1995
IV-22
206
TeleWest Annual Report 1994 59
US GAAP
CONSOLIDATED STATEMENT OF OPERATIONS
Year ended 31 December
----------------------------------------------------------------------------
1994 1994 1993 1992
$'000 L.'000 L.'000 L.'000
-------------------------------------------------------------------------------------------------------------
(note 1)
REVENUE
Cable television 56,198 35,875 20,729 12,600
Cable telephony - residential 36,767 23,471 11,261 3,462
Cable telephony - business 13,804 8,812 4,908 2,043
Other (L.1,481 and L.2,371 in 1994
and 1993 from related parties) 6,061 3,869 3,440 602
-------------------------------------------------------------------------------------------------------------
112,830 72,027 40,338 18,707
-------------------------------------------------------------------------------------------------------------
OPERATING COSTS AND EXPENSES
Programming (24,281) (15,500) (8,403) (5,286)
Telephony (23,049) (14,714) (10,203) (3,916)
Selling, general, and administrative
(including L.2,128, L.4,451 and
L.3,597 in 1994, 1993 and 1992,
respectively, from related parties) (94,639) (60,414) (32,505) (17,411)
Depreciation (47,496) (30,320) (17,635) (9,942)
Amortisation of goodwill (2,862) (1,827) (840) (326)
--------------------------------------------------------------------------------------------------------------
(192,327) (122,775) (69,586) (36,881)
--------------------------------------------------------------------------------------------------------------
OPERATING LOSS (79,497) (50,748) (29,248) (18,174)
OTHER INCOME/(EXPENSE)
Interest income (including L.465,
L.1,504, and L.1,299 in 1994,
1993, and 1992, respectively,
from related parties) 3,589 2,291 1,974 1,632
Interest expense (including L.1,083
in 1994 from related parties) (15,773) (10,069) (2,537) (2,209)
Unrealised gain on interest rate swap 2,561 1,636 - -
Foreign exchange losses, net (33) (21) (72) (536)
Share of net losses of affiliates (13,262) (8,466) (7,540) (6,905)
Gain/(loss) on disposal of assets 41 26 (16) 56
Minority interest in losses of
consolidated subsidiaries 61 39 - -
Other, net (39) (25) - -
-------------------------------------------------------------------------------------------------------------
LOSS BEFORE INCOME TAXES (102,352) (65,337) (37,439) (26,136)
Income tax expense (note 12) - - - -
-------------------------------------------------------------------------------------------------------------
LOSS BEFORE EXTRAORDINARY GAIN (102,352) (65,337) (37,439) (26,136)
Extraordinary gain (note 2) 11,415 7,287 - -
-------------------------------------------------------------------------------------------------------------
NET LOSS (90,937) (58,050) (37,439) (26,136)
--------------------------------------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
IV-23
207
60 TeleWest Annual Report 1994
US GAAP
CONSOLIDATED STATEMENT OF OPERATIONS continued
Year ended 31 December
--------------------------------------------
1994 1994
$ L.
(except number (except number
of shares) of shares)
-------------------------------------------------------------------------------------------------------
(note 1)
PRO FORMA LOSS PER ORDINARY SHARE
Weighted average number of ordinary shares
outstanding 630,756,392 630,756,392
Pro forma loss per ordinary share before
extraordinary gain (0.16) (0.10)
Extraordinary gain 0.02 0.01
--------------------------------------------------------------------------------------------------------
PRO FORMA LOSS PER ORDINARY SHARE (0.14) (0.09)
---------------------------------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
IV-24
208
TeleWest Annual Report 1994 61
US GAAP
CONSOLIDATED BALANCE SHEET
At 31 December
-----------------------------------------------------
1994 1994 1993
$'000 L.'000 L.'000
--------------------------------------------------------------------------------------------------------------
(note 1)
ASSETS
Cash and cash equivalents 388,495 248,002 6,514
Trade receivables (net of allowance
for doubtful accounts of L.1,736 and L.577) 9,684 6,182 4,371
Other receivables (note 6) 40,922 26,124 11,219
Prepaid expenses and other assets 2,458 1,569 2,554
Investments in affiliates, accounted for under the equity
method, and related receivables (note 7) 128,307 81,907 68,838
Other investments, at cost 32,373 20,666 15,165
Property and equipment (less accumulated depreciation
of L.67,290 and L.38,280) (note 8) 712,512 454,843 269,974
Goodwill (less accumulated amortisation of L.3,904
and L.2,077) 60,879 38,863 35,230
--------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 1,375,630 878,156 413,865
--------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable 58,528 37,362 19,740
Other liabilities (note 10) 70,915 45,270 24,892
Debt (note 11) 6,087 3,886 49,386
Capital lease obligations (note 14) 22,797 14,553 7,943
--------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 158,327 101,071 101,961
--------------------------------------------------------------------------------------------------------------
MINORITY INTERESTS 237 151 209
--------------------------------------------------------------------------------------------------------------
Shareholders' equity (note 13):
Convertible preference shares, 10 pence par value;
authorised 204,000,000 shares; issued and
outstanding 153,000,000 shares 23,967 15,300 -
Ordinary shares, 10 pence par value;
authorised 1,293,835,000 shares;
issued and outstanding 848,244,940 shares 132,876 84,824 -
Additional paid-in capital 1,075,051 686,276 -
Joint Venturers' capital accounts - - 311,695
Accumulated deficit (3,424) (2,186) -
--------------------------------------------------------------------------------------------------------------
1,228,470 784,214 311,695
Ordinary shares held in trust for
restricted share scheme; 4,000,000 shares (11,404) (7,280) -
--------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 1,217,066 776,934 311,695
--------------------------------------------------------------------------------------------------------------
Commitments and contingencies (note 14)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 1,375,630 878,156 413,865
--------------------------------------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
IV-25
209
62 TeleWest Annual Report 1994
US GAAP
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended 31 December
-------------------------------------------------------------------------
1994 1994 1993 1992
$'000 L.'000 L.'000 L.'000
-------------------------------------------------------------------------------------------------------------
(note 1)
CASH FLOWS FROM OPERATING ACTIVITIES
Loss before extraordinary gain (102,352) (65,337) (37,439) (26,136)
Adjustments to reconcile loss
before extraordinary gain to net
cash used in operating activities:
Depreciation 47,496 30,320 17,635 9,942
Amortisation of goodwill 2,862 1,827 840 326
Unrealised gain on interest rate swap (2,561) (1,636) - -
Share of losses of affiliates 13,262 8,466 7,540 6,905
(Gain)/loss of disposal of assets (41) (26) 16 (56)
Minority interests in losses (61) (39) - -
Changes in operating assets and
liabilities, net of effect of
acquisition of subsidiaries:
Change in receivables (12,692) (8,102) (4,981) 1,583
Change in prepaid expenses
and other assets 1,573 1,004 (1,484) (590)
Change in accounts payable 23,956 15,293 6,503 4,108
Change in liability relating
to the restricted share scheme 2,426 1,549 - -
Change in other liabilities 11,777 7,518 1,530 (7,304)
--------------------------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (14,355) (9,163) (9,840) (11,222)
--------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for property and
equipment (317,503) (202,683) (102,962) (56,937)
Cash paid for acquisition of
subsidiaries (415) (236) (45,465) (1,187)
Additional investments in and loans
to affiliates (37,222) (23,761) (24,250) (32,763)
Proceeds from disposal of assets 461 294 166 215
Proceeds from disposal of
interest in affiliates - - 2,552 -
Other investing activities (8,578) (5,505) (908) (5,092)
--------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (363,257) (231,891) (170,867) (95,764)
--------------------------------------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
IV-26
210
TeleWest Annual Report 1994 63
US GAAP
CONSOLIDATED STATEMENT OF CASH FLOWS CONTINUED
Year ended 31 December
-------------------------------------------------------------------------
1994 1994 1993 1992
$'000 L.'000 L.'000 L.'000
-------------------------------------------------------------------------------------------------------------
(note 1)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from shares issued under
the global offering 683,072 436,050 - -
Proceeds from other share issues 118,663 75,750 - -
Cash paid for costs of share issues (44,713) (28,543) - -
Proceeds from borrowings 272,884 174,200 46,000 20,564
Repayment of borrowings (344,160) (219,700) (20,000) (12,000)
Capital element of finance lease
repayments (329) (210) 170 107
Net contributions from Joint
Venturers and minorities 70,485 44,995 160,313 97,377
-------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 755,902 482,542 186,483 106,048
-------------------------------------------------------------------------------------------------------------
NET INCREASE/(DECREASE) IN CASH
AND CASH EQUIVALENTS 378,290 241,488 5,776 (938)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 10,204 6,514 738 1,676
-------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT
END OF YEAR 388,494 248,002 6,514 738
-------------------------------------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
IV-27
211
64 TeleWest Annual Report 1994
US GAAP
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Net assets of
the Joint Venture
L.'000
--------------------------------------------------------------------------------------------------------
(note 1)
JOINT VENTURE:
YEAR ENDED 31 DECEMBER 1992
Balance at 1 January 1992 117,774
Capital contributions 97,377
Net loss (26,136)
--------------------------------------------------------------------------------------------------------
BALANCE AT 31 DECEMBER 1992 189,015
--------------------------------------------------------------------------------------------------------
YEAR ENDED 31 DECEMBER 1993
Balance at 1 January 1993 189,015
Capital contributions 160,119
Net loss (37,439)
--------------------------------------------------------------------------------------------------------
BALANCE AT 31 DECEMBER 1993 311,695
--------------------------------------------------------------------------------------------------------
PERIOD FROM 1 JANUARY 1994 TO 22 NOVEMBER 1994
Balance at 1 January 1994 311,695
Capital contributions 121,873
Repayment of the Joint Venturers' capital accounts (75,700)
Net loss (55,864)
--------------------------------------------------------------------------------------------------------
BALANCE AT 22 NOVEMBER 1994 302,004
--------------------------------------------------------------------------------------------------------
On 22 November 1994 the net assets of the Joint Venture were contributed to the
Company, as described in note 1 to the consolidated financial statements. The
contribution appears as an increase in additional paid-in capital in the table
below. The table also details the other movements in the shareholders' equity
of the Company for the year ended 31 December 1994.
CONVERTIBLE ADDITIONAL
PREFERENCE ORDINARY SHARES HELD PAID-IN ACCUMULATED
SHARES SHARES IN TRUST CAPITAL DEFICIT TOTAL
L.'000 L.'000 L.'000 L.'000 L.'000 L.'000
------------------------------------------------------------------------------------------------------------------------
COMPANY:
Convertible preference shares issued
during the year 15,300 - - - - 15,300
Ordinary shares issued during
the year - 84,824 - 384,272 - 469,096
Ordinary shares held in trust for
restricted share scheme - - (7,280) - - (7,280)
Contribution of Joint Venture to the
Company on 22 November 1994 - - - 302,004 - 302,004
Net loss - - - - (2,186) (2,186)
-------------------------------------------------------------------------------------------------------------------------
BALANCE AT 31 DECEMBER 1994 15,300 84,824 (7,280) 686,276 (2,186) 776,934
-------------------------------------------------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
IV-28
212
TeleWest Annual Report 1994 65
US GAAP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
TeleWest Communications plc ("the Company") was incorporated on 1 January 1994,
under the laws of England and Wales. On 22 November 1994, affiliates of
Tele-Communications, Inc. ("the TCI affiliates") and affiliates of U S WEST,
Inc. ("the U S WEST affiliates") contributed their United Kingdom ("UK") cable
interest to the Company. These interests were previously held by the TCI
affiliates and the U S WEST affiliates through TCI/U S WEST Cable
Communications Group, a general partnership which was formed on 18 December
1991. The partnership and its subsidiaries collectively are referred to herein
as the "Joint Venture". The TCI affiliates and the U S WEST affiliates are
collectively referred to herein as the "Joint Venturers".
The UK cable interests held through the Joint Venture were contributed to the
Joint Venture on 30 April 1992, after the Joint Venturers received the required
regulatory approvals to make the contribution (see note 5).
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in the United States of America ("US
GAAP") and as if the Company had been organised in its present form for all
years presented. The Company's historical shareholders' equity is the excess of
the Joint Venture's assets over the Joint Venture's liabilities and represents
the historical cost of the capital contributions made by the Joint Venturers
less the accumulated deficit arising from the Joint Venture's operations.
The economic environment and currency in which the Company operates is the
United Kingdom and hence its reporting currency is the UK pound sterling (L.).
Certain financial information for the year ended 31 December 1994, have also
been translated into US dollars, with such US dollar amounts being unaudited
and presented solely for the convenience of the reader, at the rate of
$1.5665=L.1.00, the Noon Buying Rate of the Federal Reserve Bank of New York on
30 December 1994.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
those of all majority-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.
All acquisitions have been accounted for under the purchase method of
accounting. Under this method, the results of subsidiaries and affiliates
acquired in the year are included in the consolidated statement of operations
from the date of acquisition.
Goodwill arising on consolidation (representing the excess of the fair value of
the consideration given over the fair value of the identifiable net assets
acquired) is amortised over the acquisition's useful life up to a maximum of 40
years. The Company assesses the recoverability of this intangible asset by
determining whether the amortisation of the goodwill balance over its remaining
life can be recovered. The amount of goodwill impairment, if any, is measured
based on the expected undiscounted cash flows of the acquired operations.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly-liquid investments with original
maturities of three months or less that are readily convertible into cash.
FINANCIAL INSTRUMENTS
The differential to be paid or received on interest rate swap agreements that
hedge the interest rate on an existing liability is accrued as interest rates
change and is recognised over the lives of the respective agreements. Interest
rate swaps which are held as trading assets are recorded on the balance sheet
at their fair value at the reporting date with gains and losses recorded in the
statement of operations.
INVESTMENTS
Investments in partnerships, joint ventures, and subsidiaries in which the
Company's voting interest is 20% to 50% and others where the Company has
significant influence are accounted for using the equity method.
Investments which do not have a readily determinable fair value, in which the
Company's voting interest is less than 20%, and in which the Company does not
have significant influence, are carried at cost and written down to the extent
that there has been an other-than-temporary diminution in value.
IV-29
213
66 TeleWest Annual Report 1994
US GAAP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
continued
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, including the historical carryover
basis cost from the contribution of assets by the Joint Venturers. Depreciation
is computed on a straight-line basis using estimated useful lives of 5 to 30
years for systems and 4 to 50 years for support equipment and buildings.
The Company accounts for costs, expenses and revenues applicable to the
construction and operation of its cable systems under Statement of Financial
Accounting Standards ("SFAS") No. 51, "Financial Reporting by Cable Television
Companies".
FRANCHISE COSTS
Expenditure incurred on successful applications for franchise licences is
included in property and equipment and is amortised over the remaining life of
the original franchise term, generally 15 years. Costs relating to unsuccessful
applications are charged to the statement of operations.
MINORITY INTERESTS
Recognition of the minority interests' share of losses of consolidated
subsidiaries is limited to the amount of such minority interests' allocable
portion of the equity of those consolidated subsidiaries.
FOREIGN CURRENCIES
Transactions in foreign currencies are recorded using the rate of exchange in
effect at the date of the transaction. Monetary assets and liabilities
denominated in foreign curencies are translated using the rate of exchange
ruling at the balance sheet date and the gains or losses on translation are
included in the statement of operations.
REVENUE RECOGNITION
Revenue is recognised as services are delivered. Other revenues include
connection fees which are recognised in the period of connection to the extent
that the fee is offset by direct selling costs. The remainder is recognised
over the estimated average period that subscribers are expected to remain
connected to the system.
PENSION COSTS
The Company does not have a defined benefit pension plan but contributes up to
specified limits to the third-party plan of the employee's choice. The amount
charged against losses in 1994, 1993 and 1992 of L.839,000, L.482,000, and
L.274,000 respectively, represents the contributions payable to the selected
plans in respect of the accounting periods.
INCOME TAXES
Prior to 22 November 1994, no provision has been made for income tax expense or
benefit in the accompanying financial statements as the earnings or losses of
the Joint Venture are reported in the respective income tax returns of the
individual Joint Venturers.
Following the reorganisation effective on 22 November 1994, the Company became
subject to UKtaxation and adopted SFAS No. 109, "Accounting for Income Taxes".
The adoption of SFAS No. 109 does not give rise to any cumulative adjustment to
be made in the 1994 consolidated statement of operations. Under the asset and
liability method of SFAS No. 109, deferred tax assets and liabilities are
recognised for the 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 expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered.
RESTRICTED SHARE SCHEME
The Company has established a restricted share scheme to fund a portion of the
future payments to employees under the Company's existing compensation
programmes. Shares purchased by the trustee who holds the shares for future
awards under the restricted share scheme are valued at the market price on the
date on which they are purchased and are reflected as a reduction of
shareholders' equity in the balance sheet. This equity account will be reduced
based on the original cost of the shares to the trust when the shares are used
to fund compensation obligations; the satisfaction of the compensation
liabilities will be based on the fair value of shares at the date they are
transferred to employees.
IV-30
214
TeleWest Annual Report 1994 67
US GAAP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
continued
The difference between the fair value of the shares and the original cost of
shares to the trust is charged or credited to additional paid-in capital.
PRO FORMA EARNINGS PER SHARE
Pro forma earnings per share is based on the weighted average number of
ordinary shares deemed to be outstanding during the year. Ordinary shares
issued to the Joint Venturers in return for the contribution of their UK cable
interests to the Company on 22 November 1994 have been treated as outstanding
for the entire year. Shares issued for cash in the global offering have been
treated as outstanding from that date.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1993 notes to the consolidated
financial statements to conform with the 1994 presentation.
2. EXTRAORDINARY GAIN
The Company had entered into interest rate swap agreements in order to manage
the interest rate risk on its bank credit facilities by swapping the interest
rate on part of its variable-rate debt for a fixed interest rate. Following the
global offering of the ordinary share capital of the Company in November 1994,
the Company used a portion of the proceeds from the offering to repay all
amounts outstanding under these credit facilities and the interest rate swap
agreements ceased to be a hedge of the interest rate liability. The interest
rate swaps are retained pending their use as hedges of interest rates on future
drawdowns of the credit facilities. They have been placed on the balance sheet
in other receivables and other liabilities at their fair value at the date upon
which the debt was repaid and an extraordinary gain equal to the aggregate fair
value of the interest rate swaps at this date was recognised in the
consolidated statement of operations. Any change in the aggregate fair value of
the swap agreements since this date has been recognised in the consolidated
statement of operations.
3. FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
The following table summarises the fair value of the interest rate swap
agreements as described in note 2, at 31 December 1994. SFAS No. 107
"Disclosures about Fair Value of Financial Instruments" defines the fair value
of a financial instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties, other than in a
forced or liquidation sale.
Fair Value
Year end
L.'000
-----------------------------------------------------------------
Interest rate swap - assets 9,568
Interest rate swap - liabilities (645)
The aggregate fair value of the swaps at 15 March 1995 was L.7,008,000.
The swap agreements mature in July 1997 and the aggregate notional principal
amount adjusts upwards to a maximum of L.233,000,000. The aggregate notional
principal amount at 31 December 1994 was L.117,000,000.
The Company is exposed to a market risk in that the fixed interest rates of the
swaps, which vary from 6.91% to 9.16%, may exceed three month LIBOR.
The Company is also exposed to credit risk in the event of non-performance by
the other parties to the agreement. However, the Company does not anticipate
non-performance by the counterparties.
The carrying value of the interest rate swap agreements in the balance sheet is
equal to their fair value. The carrying value reported in the balance sheet for
all other financial instruments approximates their respective fair values.
Trade receivables and temporary cash investments also potentially expose the
Company to concentrations of credit risk, as defined by SFAS No. 105
"Disclosure of Information about Financial Instruments with Off-Balance-Sheet
Risk and Financial Instruments with Concentrations of Credit Risk".
IV-31
215
68 TeleWest Annual Report 1994
US GAAP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
3. FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
continued
The Company places its temporary cash investments with high credit quality
financial institutions and limits the amount of credit exposure to any one
financial institution. Concentrations of credit risk with respect to trade
receivables are limited due to the large number of customers comprising the
Company's customer base. At 31 December 1994 the Company had no significant
concentrations of credit risk.
4. BUSINESS COMBINATIONS
On 8 September 1993, the Joint Venture acquired for cash consideration of
L.48,302,000 the entire issued share capital of certain companies, which build
and operate cable television and telephony networks in Scotland. This
acquisition has been accounted for under the purchase method of accounting. The
amount of goodwill arising as a result of the acquisition is L.25,022,000 and
is being amortised on a straight-line basis over 20 years.
The operating results of this acquisition are included in the Company's
consolidated results of operations from the date of acquisition. The following
unaudited pro-forma summary presents the consolidated results of operations as
if the acquisition had occurred at the beginning of 1992, after giving effect
to amortisation of goodwill incurred as a result of the acquisition:
1994 1993
L.'000 L.'000
----------------------------------------------------------------------------------------------------------------
Revenue 42,955 20,861
Net loss 45,558 29,268
The unaudited pro-forma financial information is presented for information
purposes only and is not necessarily indicative of the operating results that
would have occurred had the acquisition been consummated as of the dates
indicated above, nor is it indicative of future results.
5. SUPPLEMENTAL DISCLOSURES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS
Cash paid for interest was L.8,013, L.2,417 and L.2,187 for the years ended 31
December 1994, 1993 and 1992, respectively.
Significant non-cash investing activities which represent the contribution of
UK cable interests to the Company by the Joint Venturers are as follows:
1994 1993 1992
L.'000 L.'000 L.'000
----------------------------------------------------------------------------------------------------------
Contribution of cable interests:
Assets 3,967 - 157,552
Liabilities assumed (2,744) - (24,940)
Debt assumed - - (14,823)
Minority interest in subsidiaries (44) - (15)
----------------------------------------------------------------------------------------------------------
NET ASSETS CONTRIBUTED 1,179 - 117,774
----------------------------------------------------------------------------------------------------------
6. OTHER RECEIVABLES
1994 1993
L.'000 L.'000
----------------------------------------------------------------------------------------------------------
Value added tax refund 7,709 3,992
Interconnection receivables 2,624 1,421
Interest rate swaps 9,568 -
Other 6,223 5,806
----------------------------------------------------------------------------------------------------------
Total 26,124 11,219
----------------------------------------------------------------------------------------------------------
IV-32
216
TeleWest Annual Report 1994 69
US GAAP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
7. INVESTMENTS
The Company has investments in affiliates accounted for under the equity method
at 31 December 1994 and 1993 as follows:
Percentage of ownership
1994 1993
----------------------------------------------------------------------------------------------------------
Cable London plc 48.90% 48.59%
Birmingham Cable Corporation Limited 27.50% 31.78%
London Interconnect Limited 16.67% -
Summarised financial information for such affiliates which operate principally
in the cable television and telephony industries is as follows:
COMBINED FINANCIAL POSITION
At 31 December
-------------------------------------
1994 1993
L.'000 L.'000
----------------------------------------------------------------------------------------------------------
Property and equipment, net 224,899 164,597
Intangible assets, net 16,201 15,217
Other assets, net 28,909 24,852
----------------------------------------------------------------------------------------------------------
Total assets 270,009 204,666
----------------------------------------------------------------------------------------------------------
Debt 25,500 17,955
Other liabilities 43,673 34,078
Owners' equity 200,836 152,633
----------------------------------------------------------------------------------------------------------
Total liabilities and equity 270,009 204,666
----------------------------------------------------------------------------------------------------------
COMBINED OPERATIONS
Year ended 31 December
-----------------------------------------------------------
1994 1993 1992
L.'000 L.'000 L.'000
----------------------------------------------------------------------------------------------------------
Revenue 38,669 32,748 14,125
Operating expenses (58,869) (50,475) (27,002)
----------------------------------------------------------------------------------------------------------
Operating loss (20,200) (17,727) (12,877)
Interest expense (488) (2,544) (2,469)
----------------------------------------------------------------------------------------------------------
Net loss (20,688) (20,271) (15,346)
----------------------------------------------------------------------------------------------------------
The Company's investments in affiliates are comprised as follows:
At 31 December
-------------------------------------
1994 1993
L.'000 L.'000
----------------------------------------------------------------------------------------------------------
Loans 13,163 9,393
Share of net assets 68,744 59,445
----------------------------------------------------------------------------------------------------------
81,907 68,838
----------------------------------------------------------------------------------------------------------
Any excess of the purchase cost over the value of the net assets acquired is
included in goodwill and amortised over 20 years.
IV-33
217
70 TeleWest Annual Report 1994
US GAAP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
8. FIXED ASSETS
Cable and Electronic Other
Land Buildings ducting equipment equipment Total
L.'000 L.'000 L.'000 L.'000 L.'000 L.'000
-----------------------------------------------------------------------------------------------------------------------------
ACQUISITION COSTS
Balance at 1 January 1994 2,950 6,591 208,812 71,095 18,806 308,254
Additions 1,105 10,052 113,182 78,898 12,220 215,457
Disposals - - (786) (341) (451) (1,578)
-----------------------------------------------------------------------------------------------------------------------------
BALANCE AT 31 DECEMBER 1994 4,055 16,643 321,208 149,652 30,575 522,133
-----------------------------------------------------------------------------------------------------------------------------
ACCUMULATED DEPRECIATION
Balance at 1 January 1994 - 1,077 16,945 13,959 6,299 38,280
Charge for year - 1,029 9,767 14,386 5,138 30,320
DISPOSALS - - (786) (305) (219) (1,310)
-----------------------------------------------------------------------------------------------------------------------------
BALANCE AT 31 DECEMBER 1994 - 2,106 25,926 28,040 11,218 67,290
-----------------------------------------------------------------------------------------------------------------------------
1994 NET BOOK VALUE 4,055 14,537 295,282 121,612 19,357 454,843
-----------------------------------------------------------------------------------------------------------------------------
ACQUISITION COSTS
Balance at 1 January 1993 2,950 5,410 119,355 31,992 11,311 171,018
Additions - 1,181 90,096 39,103 7,841 138,221
Disposals - - (639) - (346) (985)
-----------------------------------------------------------------------------------------------------------------------------
BALANCE AT 31 DECEMBER 1993 2,950 6,591 208,812 71,095 18,806 308,254
-----------------------------------------------------------------------------------------------------------------------------
ACCUMULATED DEPRECIATION
Balance at 1 January 1993 - 658 9,839 7,532 3,418 21,447
Charge for year - 419 7,739 6,427 3,050 17,635
Disposals - - (633) - (169) (802)
-----------------------------------------------------------------------------------------------------------------------------
BALANCE AT 31 DECEMBER 1993 - 1,077 16,945 13,959 6,299 38,280
-----------------------------------------------------------------------------------------------------------------------------
1993 NET BOOK VALUE 2,950 5,514 191,867 57,136 12,507 269,974
-----------------------------------------------------------------------------------------------------------------------------
Cable and ducting consists principally of the civil engineering and fibre optic
cable costs. In addition, cable and ducting includes net book value of
preconstruction and franchise costs of L.21,317,000, L.14,429,000 and
L.11,204,000 as of 31 December 1994, 1993 and 1992, respectively. Electronic
equipment includes the Company's switching, headend and converter equipment.
Other equipment consists principally of motor vehicles, office furniture and
fixtures, leasehold improvements.
9. VALUATION AND QUALIFYING ACCOUNTS
Additions charged to
Balance at Costs and Other Balance at
1 January expenses Accounts Deductions 31 December
L.'000 L.'000 L.'000 L.'000 L.'000
-----------------------------------------------------------------------------------------------------------------------------
1994
Allowance for doubtful accounts 577 3,392 26 (2,259) 1,736
-----------------------------------------------------------------------------------------------------------------------------
1993
Allowance for doubtful accounts 107 515 70 (115) 577
-----------------------------------------------------------------------------------------------------------------------------
1992
Allowance for doubtful accounts 59 308 144 (404) 107
-----------------------------------------------------------------------------------------------------------------------------
IV-34
218
TeleWest Annual Report 1994 71
US GAAP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
10. OTHER LIABILITIES
Other liabilities are summarised as follows:
1994 1993
L.'000 L.'000
---------------------------------------------------------------------------------------------------
Amount due to affiliated or other related parties 395 381
Accrued interest 1,507 617
Accrued construction costs 5,492 5,831
Accrued expenses and deferred income 25,976 13,529
Bank overdraft - 71
Other liabilities 11,900 4,463
---------------------------------------------------------------------------------------------------
Total 45,270 24,892
---------------------------------------------------------------------------------------------------
11. DEBT
Debt is summarised as follows at 31 December 1994, and 1993:
Weighted average
interest rate
at 31 December 1994 1993
1994 1993 L.'000 L.'000
-----------------------------------------------------------------------------------------------------------------
Bank credit facilities -% 7.5% - 46,000
Other debt 6.6% 7.1% 3,886 3,386
-----------------------------------------------------------------------------------------------------------------
TOTAL 3,886 49,386
-----------------------------------------------------------------------------------------------------------------
Following the global offering of the ordinary shares of the Company in November
1994, the Company used a portion of the proceeds from the offering to repay all
amounts outstanding under the revolving credit facilities entered into by
subsidiaries of the Company operating in the London South, Avon, and Scotland
regional franchise groups. The credit facilities have been retained for future
drawdowns to finance the construction of the telecommunications network in
these regional franchise groups.
Borrowings under the credit facilities are secured by the assets and shares of
the London South, Avon, and Scotland regional franchise groups and bear
interest at a floating rate based on LIBOR. The credit facilities contain
covenants regarding financial and operating ratios and targets.
The credit facilities are divided into two tranches: a non-recourse portion
(Tranche A) and a recourse portion (Tranche B). All principal, interest and
other obligations in respect of Tranche B are guaranteed severally by TCI and U
S WEST such that each party is liable for no more than 50% of such outstanding
principal, interest and other obligations.
The total amount available for drawdown is restricted as follows:
Total facility restriction
(L. million)
---------------------------------------------------------------------------------------------------
London/South Avon Scotland
facility facility
1 January 1995 to 30 June 1995 175 75
1 July 1995 to 31 December 1995 190 115
1 January 1996 190 195
Any amounts outstanding under Tranche A must be repaid by 31 December, 2001
under the London South/Avon facility and by 31 December, 2003 under the
Scotland facility. Any amounts outstanding under Tranche B must be repaid by 31
March 1998 and by 31 December 1999 for the London South/Avon facility and
Scotland facility, respectively.
Other debt is represented by property loans which are secured on freehold land
and buildings held by the Company. The property loans bear interest at a rate
of 1.5% to 1.75% above LIBOR. Annual maturities of other debt at 31 December
1994, are as follows: 1995 - none; 1996 - L.938; 1997 - L.2,948.
IV-35
219
72 TeleWest Annual Report 1994
US GAAP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
12. INCOME TAXES
As discussed in note 1, the Company adopted SFAS No. 109 as of 22 November
1994. The adoption of this standard has no cumulative effect to be reported in
the 1994 consolidated statement of operations. Prior years' figures have not
been shown as the predecessor businesses of the Company operated as a Joint
Venture and any taxes would be paid by the Joint Venturers.
Loss before income taxes is solely attributable to the UK:
The provisions for income taxes (credit)follow:
31 December
--------------------------------
1994
L.'000
Currently payable (refundable) -
Deferred taxes -
---------------------------------------------------------------------------------------------------
-
---------------------------------------------------------------------------------------------------
A reconciliation of income taxes determined using the statutory federal UK rate
of 33% to actual income taxes provided is as follows:
Year ended 31 December
--------------------------------
1994
L.'000
---------------------------------------------------------------------------------------------------
Corporate tax at United Kingdom federal
statutory rates (21,562)
Net operating loss carryforwards 18,540
Temporary differences, principally depreciation 512
Non-deductible expenses (347)
Other 63
Share of losses of affiliates 2,794
---------------------------------------------------------------------------------------------------
Provision for income taxes -
---------------------------------------------------------------------------------------------------
Effective rate -
---------------------------------------------------------------------------------------------------
Deferred income tax assets and liabilities at 31 December 1994 are summarised
as follows:
1994
L.'000
---------------------------------------------------------------------------------------------------
Deferred tax assets relating to:
Fixed assets 1,031
Net operating loss carryforward 41,582
Other 1,329
---------------------------------------------------------------------------------------------------
43,942
Deferred tax liabilities relating to:
Liabilities and provisions (460)
Other (2,945)
---------------------------------------------------------------------------------------------------
Net deferred tax assets before valuation allowance 40,537
Valuation allowance (40,537)
---------------------------------------------------------------------------------------------------
DEFERRED TAX ASSET PER BALANCE SHEET -
---------------------------------------------------------------------------------------------------
Following the reorganisation effective on 22 November 1994, the Company became
subject to UK taxation.
At 31 December 1994 the Company estimates that it has, subject to Inland
Revenue agreement, net operating losses ("NOLs") of L.126 million available to
relieve against future profits.
IV-36
220
TeleWest Annual Report 1994 73
US GAAP
12. INCOME TAXES CONTINUED
The NOLs have an unlimited carryforward period under UK tax law, but are
limited in their use to the type of business which has generated the loss.
13. SHAREHOLDERS' EQUITY
The authorised share capital of the Company consists of 204,000,000 convertible
preference shares with a par value of 10 pence per share, of which 153,000,000
are outstanding at 31 December 1994, and 1,293,835,000 ordinary shares with a
par value of 10 pence per share, of which 844,244,940 are outstanding at 31
December 1994 after deducting the 4,000,000 shares which are held in trust for
future awards under the Company's restricted share scheme as described below.
MOVEMENTS IN SHARE CAPITAL
The Company was incorporated on 1 January 1994 with authorised share capital of
L.50,000 divided into ordinary shares of L.1 each of which two shares were
issued at par for cash. On 19 October 1994, the Company issued a further 49,998
ordinary shares at par for cash.
On 17 November 1994, the issued share capital was sub-divided into 250,000 A
ordinary shares of 10p each and 250,000 B ordinary shares of 10p each. On the
same day, the authorised share capital was increased to L.100,000,000 by the
creation of a total of 999,500,000 A, B, C and D ordinary shares of 10p each,
of which a total of 204,000,000 were redeemable.
On 18 November 1994, 757,000,000 A, B, C and D ordinary shares were issued for
cash consideration of L.75,700,000. 153,000,000 of these shares were
redeemable. The funds raised were used to repay debt outstanding to the
partners of the former TeleWest Group. On 22 November 1994, the issued and
unissued non-redeemable A, B, C and D ordinary shares were converted into
ordinary shares of 10p each and the issued and unissued redeemable shares were
converted into convertible preference shares of 10p each. The authorised share
capital of the Company was increased by the creation of a further 497,835,000
ordinary shares of l0p each.
In connection with the global offering of the Company, a further 239,744,940
ordinary shares were issued for cash consideration of L.436,050,000 before
expenses of L.34,684,000. The funds raised were used to repay the debt of the
Group and to finance a portion of the costs of constructing the
telecommunications network, operating cash flow deficits, and additional
investments in associated undertakings. Remaining funds will be used for
similar activities.
A further 4,000,000 ordinary shares were issued during the year to an
independent corporate trustee to establish a restricted share scheme under
which certain employees of the Company will be compensated by awards of
ordinary shares. The issue was financed by an interest-free loan of L.7,280,000
made by the Company to the trustee.
CONVERTIBLE PREFERENCE SHARES
The convertible preference shares are convertible into fully paid ordinary
shares at any time on the basis of one ordinary share for every convertible
preference share provided that, immediately following the conversion, the
percentage of the issued ordinary share capital of the Company held by members
of the public, as defined by the listing rules of the London Stock Exchange,
does not fall below 25%. The ordinary shares arising on conversion will rank
pari passu in all respects with the ordinary shares then in issue.
The holders of the convertible preference shares are entitled to receive a
dividend of such amount as is declared and paid in relation to each ordinary
share, subject to the dividend to be paid not exceeding 20p per share net of
any associated tax credit.
IV-37
221
74 TeleWest Annual Report 1994
US GAAP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
13. SHAREHOLDERS' EQUITY continued
In the event of a winding-up of the Company or other return of capital, the
assets of the Company available for distribution will be paid first to the
holders of the convertible preference shares up to the sum of capital paid-up
or credited as paid-up unless the right of election upon a winding-up of the
Company has been exercised in respect of the convertible preference shares
("the elected shares"). If the election has been exercised, the holders of the
ordinary shares and the elected shares will receive any surplus in accordance
with the amount paid-up or credited as paid-up on the shares held.
The holders of the convertible preference shares are not entitled to vote at
any general meeting of the Company unless the meeting includes the
consideration of a resolution for winding up the Company or a resolution
modifying the rights or privileges attaching to the convertible preference
shares.
EMPLOYEE SHARE SCHEMES
During the year, the Company established a savings-related share option scheme
("the sharesave scheme").
At 31 December 1994, 1,666,534 options were outstanding over the ordinary
shares of the Company under the sharesave scheme. The exercise price is 150p
per share and the options are exercisable in 2000.
4,000,000 shares issued during the year are held in trust by an independent
corporate trustee for release as awards to employees participating in the
restricted share scheme. On 31 December 1994, 2,613,584 shares were allocated
but not issued to employees participating in the restricted share scheme. The
scheme will not alter the amount of compensation which will be paid under the
Company's existing compensation programme, but is expected to enhance the
Company's financial flexibility.
14. COMMITMENTS AND CONTINGENCIES
CAPITAL AND OPERATING LEASES
The Company leases a number of assets under arrangements accounted for as
capital leases. Included in the net book value of electronic equipment is
L.13,024,000 for 1994 and L.7,181,000 for 1993 and in the net book value of
other equipment is L.375,000 for 1994 and L.419,000 for 1993 in respect of
these assets. Depreciation for the year on these assets was L.171,000 in 1994
and L.219,000 in 1993.
The Company leases business offices and uses certain equipment under lease
arrangements accounted for as operating leases. Minimum rental expense under
such arrangements amounted to L.1,535,055 and L.1,229,000 and L.873,000 for the
years ended 31 December 1994, 1993 and 1992.
Future minimum lease payments under capital and operating leases are summarised
as follows as at 31 December 1994:
Capital leases Operating leases
L.'000 L.'000
---------------------------------------------------------------------------------------------------
1995 1,594 1,507
1996 1,617 1,579
1997 2,122 1,502
1998 2,854 1,480
1999 3,163 957
2000 and thereafter 8,916 13,323
---------------------------------------------------------------------------------------------------
20,266
Imputed interest (5,713)
--------------------------------------------------------------------------------
TOTAL 14,553
--------------------------------------------------------------------------------
It is expected that, in the normal course of business, expiring leases will be
renewed or replaced by leases on other properties.
IV-38
222
TeleWest Annual Report 1994 75
US GAAP
14. COMMITMENTS AND CONTINGENCIES continued
MINORITY INTERESTS
In October 1993, the Company acquired all of the outstanding minority interests
in the London South regional franchise group from various shareholders other
than the interest of one shareholder holding approximately 0.07% interest in
the London South regional franchise group. In consideration for such minority
interests, the Company made an initial payment to the sellers of approximately
L.790,000 and may be required to make an additional payment to one of the
sellers upon the occurrence of certain events (including the completion of
certain share issuances by the Company). The amount of this payment, if any, is
based upon the valuation of the London South regional franchise group and the
percentage of such franchise formerly owned by the minority shareholders. The
Company does not expect any payment to have a material effect on the liquidity
or capital resources of the Company.
In connection with the Company's acquisition of the South East regional
franchise group, the Company granted to Trans-Global (UK) Limited an option to
acquire up to 9.9% of the equity in the South East regional franchise group. If
Trans-Global elects to exercise its option in full, the Company's interest in
the South East regional franchise group would decrease to 90.1% and the Company
would be entitled to a payment from Trans-Global representing Trans-Global's
pro-rata share (9.9%) of all funding provided by the Company to the South East
regional franchise group through to the date of exercise. As of the date of
hereof, such option has not been exercised.
The Company is party to various legal proceedings in the ordinary course of
business which it does not believe will result, in aggregate, in a material
adverse effect on its financial condition.
15. RELATED-PARTY TRANSACTIONS
The Company, in the normal course of providing cable television services,
purchases certain of its programming from certain UK affiliates of TCI. Such
programming is purchased on commercially-available terms.
The Company has management agreements with TCI and U S WEST under which amounts
are paid by the Company relating to TCI and U S WEST employees who have been
seconded to the Company. For the years ended 31 December 1994, 1993 and 1992,
fees paid by the Company under the agreements were L.2,128,000 L.4,451,000 and
L.3,597,000 respectively.
The Company has entered into consulting agreements with its affiliates pursuant
to which the Company provides consulting services related to cable telephony
operations. Under the agreements, the Company receives an annual fee from each
affiliate based upon the affiliate's revenues. Fees received for the years
ended 31 December 1994 and 1993 were L.557,000 and L.1,801,000. The Company
also receives a fee for providing switching support services, comprising a
fixed element based on the number of switches, and a variable element based on
the number of lines. Fees received for the year ended 31 December 1994 were
L.822,000.
16. FOURTH QUARTER FINANCIAL INFORMATION (UNAUDITED)
In connection with the global offering of the ordinary share capital of the
Company, certain financial information for the nine months ended 30 September
1994 has been disclosed in the offer documents.
The following provides a summary of this financial information and sets out
comparative figures for the fourth quarter ended 31 December 1994.
Fourth quarter 9 months ended
Total 1994 30 September 1994
L.'000 L.'000 L.'000
---------------------------------------------------------------------------------------------------
Revenue 72,027 22,727 49,300
Operating loss (50,748) (17,808) (32,940)
Unrealised gain on interest rate swap 1,636 1,636 -
Loss before extraordinary gain (65,337) (20,874) (44,463)
Extraordinary gain 7,287 7,287 -
Net loss (58,050) (13,587) (44,463)
Pro forma loss per ordinary share (9) pence
IV-39
223
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
TELE-COMMUNICATIONS, INC.
By /s/ John C. Malone
---------------------------------
John C. Malone
President and
Chief Executive Officer
Dated: March 28, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Signature Title Date
--------- ----- ----
/s/ Bob Magness Chairman of the Board March 28, 1995
------------------------------ and Director
Bob Magness
/s/ John C. Malone President, Chief Executive March 28, 1995
----------------------------- Officer and Director
John C. Malone
/s/ Jerome H. Kern Director March 28, 1995
-----------------------------
Jerome H. Kern
/s/ Kim Magness Director March 28, 1995
------------------------------
Kim Magness
/s/ D. F. Fisher Executive Vice President March 28, 1995
--------------------------------- and Director
D. F. Fisher (Principal Financial Officer
and Principal Accounting
Officer)
/s/ Stephen M. Brett Executive Vice President March 28, 1995
------------------------------ and Secretary
Stephen M. Brett
IV-40
224
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
TCI COMMUNICATIONS, INC.
By /s/ Brendan R. Clouston
----------------------------
Brendan R. Clouston
President
Dated: March 28, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Signature Title Date
--------- ----- ----
/s/ Bob Magness Chairman of the Board March 28, 1995
------------------------------ and Director
Bob Magness
/s/ John C. Malone Director March 28, 1995
-----------------------------
John C. Malone
/s/ Donne F. Fisher Director March 28, 1995
------------------------------
Donne F. Fisher
/s/ Brendan R. Clouston President March 28, 1995
---------------------------
Brendan R. Clouston
/s/ Stephen M. Brett Executive Vice President March 28, 1995
------------------------------
Stephen M. Brett
/s/ Gary K. Bracken Senior Vice President and March 28, 1995
----------------------------- Controller
Gary K. Bracken (Principal Financial Officer
and Principal Accounting
Officer)
IV-41
225
EXHIBIT INDEX
The following exhibits are filed herewith or are incorporated by reference
herein (according to the number assigned to them in Item 601 of Regulation S-K)
as noted:
3 - Articles of Incorporation and Bylaws:
The Restated Certificate of Incorporation, dated August 4, 1994, as
amended on August 4, 1994, August 16, 1994, October 11, 1994,
October 21, 1994 and January 26, 1995.
The Bylaws as adopted June 16, 1994.
Restated Certificate of Incorporation, dated as of August 4, 1994.
Bylaws as adopted August 4, 1994.
10 - Material Contracts:
Tele-Communications, Inc. 1994 Stock Incentive Plan
Incorporated herein by reference to the Company's Form S-4
Registration Statement. (Commission File No. 33-54263)
Restated and Amended Employment Agreement, dated as of November 1, 1992,
between the Company and Bob Magness.*
Incorporated herein by reference to the Company's Annual Report
on Form 10-K for the year ended December 31, 1992, as amended
by Form 10-K (amendment #1) for the year ended December 31,
1992. (Commission File No. 0-5550)
Assignment and Assumption Agreement, dated as of August 4, 1994, among
TCI/Liberty Holding Company, Tele-Communications, Inc. and Bob
Magness.*
Restated and Amended Employment Agreement, dated as of November 1, 1992,
between the Company and John C. Malone.*
Incorporated herein by reference to the Company's Annual Report
on Form 10-K for the year ended December 31, 1992, as amended
by Form 10-K/A (amendment #1) for the year ended December
31, 1992. (Commission File No. 0-5550)
Assignment and Assumption Agreement, dated as of August 4, 1994, among
TCI/Liberty Holding Company, Tele-Communications, Inc. and John C.
Malone.*
Employment Agreement, dated as of November 1, 1992, between
Tele-Communications, Inc. and J. C. Sparkman.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992,
as amended by Form 10-K/A (amendment #1) for the year ended
December 31, 1992. (Commission File No. 0-5550)
Assignment and Assumption Agreement, dated as of August 4, 1994, among
TCI/Liberty Holding Company, Tele-Communications, Inc. and J. C.
Sparkman.*
(continued)
226
10 - Material contracts, continued:
Employment Agreement, dated as of January 1, 1992, between
Tele-Communications, Inc. and Donne F. Fisher.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992,
as amended by Form 10-K/A (amendment #1) for the year
ended December 31, 1992. (Commission File No. 0-5550)
Assignment and Assumption Agreement, dated as of August 4, 1994, among
TCI/Liberty Holding Company, Tele-Communications, Inc. and Donne F.
Fisher.*
Restricted Stock Award Agreement, made as of December 10, 1992, among
Tele-Communications, Inc., Donne F. Fisher and WestMarc
Communications, Inc.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992,
as amended by Form 10-K/A (amendment #1) for the year ended
December 31, 1992. (Commission File No. 0-5550)
Deferred Compensation Plan for Non-Employee Directors, effective on
November 1, 1992.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992,
as amended by Form 10-K/A (amendment #1) for the year
ended December 31, 1992. (Commission File No. 0-5550)
Employment Agreement, dated as of November 1, 1992, between
Tele-Communications, Inc. and Fred A. Vierra.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992, as
amended by Form 10-K/A (amendment #1) for the year ended
December 31, 1992. (Commission File No. 0-5550)
Assignment and Assumption Agreement, dated as of August 4, 1994, among
TCI/Liberty Holding Company, Tele-Communications, Inc. and Fred A.
Vierra.*
Employment Agreement, dated as of January 1, 1993, between
Tele-Communications, Inc. and Larry E. Romrell.*
Assignment and Assumption Agreement, dated as of August 4, 1994, among
TCI/Liberty Holding Company, Tele-Communications, Inc. and Larry E.
Romrell.*
Form of 1992 Non-Qualified Stock Option and Stock Appreciation Rights
Agreement.*
Incorporated herein by reference to the Company's
Annual Report on Form 10-K for the year ended December 31,
1993, as amended by Form 10-K/A (amendment #1) for the year
ended December 31, 1993. (Commission File No. 0-5550)
(continued)
227
10 - Material contracts, continued:
Form of 1993 Non-Qualified Stock Option and Stock Appreciation Rights
Agreement.*
Incorporated herein by reference to the Company's
Annual Report on Form 10-K for the year ended December 31,
1993, as amended by Form 10-K/A (amendment #1) for the year
ended December 31, 1993. (Commission File No. 0-5550)
Non-Qualified Stock Option and Stock Appreciation Rights Agreement,
dated as of November 12, 1993, by and between Tele-Communications,
Inc. and Jerome H. Kern.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993,
as amended by Form 10-K/A (amendment #1) for the year ended
December 31, 1993. (Commission File No. 0-5550)
Form of Assumption and Amended and Restated Stock Option Agreement
between the Company, Liberty Media Corporation and grantee relating
to stock appreciation rights granted pursuant to letter dated
September 17, 1991.
Incorporated herein by reference to the Company's Post
Effective Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement.
(Commission File No. 33-54263)
Form of Assumption and Amended and Restated Stock Option Agreement
between the Company, Liberty Media Corporation and grantee relating
to the assumption of options and related stock appreciation rights
granted under the Liberty Media Corporation 1991 Stock Incentive
Plan pursuant to letter dated July 26, 1993.
Incorporated herein by reference to the Company's Post
Effective Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement.
(Commission File No. 33-54263)
Assumption and Amended and Restated Stock Option Agreement between the
Company, TCI/Liberty Holding Company and a director of
Tele-Communications, Inc. relating to assumption of options and
related stock appreciation rights granted outside of an employee
benefit plan pursuant to Tele-Communications, Inc.'s 1993
Non-Qualified Stock Option and Stock Appreciation Rights Agreement.
Incorporated herein by reference to the Company's Post
Effective Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement.
(Commission File No. 33-54263)
Form of Assumption and Amended and Restated Stock Option Agreement
between the Company, TCI/Liberty Holding Company and grantee
relating to assumption of options and related stock appreciation
rights granted under Tele-Communications, Inc.'s 1992 Stock
Incentive Plan pursuant to Tele-Communications, Inc.'s 1993
Non-Qualified Stock Option and Stock Appreciation Rights Agreement.
Incorporated herein by reference to the Company's Post
Effective Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement.
(Commission File No. 33-54263)
(continued)
228
10 - Material contracts, continued:
Form of Assumption and Amended and Restated Stock Option Agreement
between the Company, TCI/Liberty Holding Company and grantee
relating to assumption of grants pursuant to the Agreement and Plan
of Merger dated June 6, 1991 between United Artists Entertainment
Company and Tele-Communications, Inc.
Incorporated herein by reference to the Company's Post
Effective Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement.
(Commission File No. 33-54263)
Form of letter dated September 17, 1991 from Liberty Media Corporation
to grantee relating to grant of stock appreciation rights.
Incorporated herein by reference to the Company's Post
Effective Amendment No. 1 to Form S-4 Registration Statement
on Form S-8 Registration Statement.
(Commission File No. 33-54263)
Form of letter dated July 26, 1993 from Liberty Media Corporation to
grantee relating to grant of options and stock appreciation rights.
Incorporated by reference to Tele-Communications, Inc.'s Post
Effective Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement.
(Commission File No. 33-54263)
Form of Assumption and Amended and Restated Stock Option Agreement
between the Company, TCI/Liberty Holding Company and grantee
relating to assumption of options and related stock appreciation
rights under Tele-Communications, Inc.'s 1992 Stock Incentive Plan
pursuant to Tele-Communications, Inc.'s 1992 Non-Qualified Stock
Option and Stock Appreciation Rights Agreement.
Incorporated herein by reference to the Company's Post
Effective Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement.
(Commission File No. 33-54263)
Forms of Assumption and Amended and Restated Stock Option Agreements
relating to options granted under the United Artists Entertainment
Company 1988 Incentive and Non-Qualified Stock Option Plan and
executed by employees who did not have employment agreements with
United Artists Entertainment Company.
Incorporated herein by reference to Tele-Communications,
Inc.'s Post-Effective Amendment No. 1 to Form S-4
Registration Statement on Form S-8 Registration Statement.
(Commission File No. 33-43009)
Forms of Assumption and Amended and Restated Stock Option Agreements
relating to options granted under the United Artists Entertainment
Company 1988 Incentive and Non-Qualified Stock Option Plan and
executed by employees who had employment agreements with United
Artists Entertainment.
Incorporated herein by reference to Tele-Communications,
Inc.'s Post-Effective Amendment No. 1 to Form S-4
Registration Statement on Form S-8 Registration Statement.
(Commission File No. 33-43009)
(continued)
229
10 - Material contracts, continued:
Forms of Second Assumption and Amended and Restated Stock Option
Agreements relating to options granted under the Amended and
Restated United Artists Communications, Inc. 1983 Stock Option Plan
and executed by employees who did not have employment agreements
with United Artists Entertainment Company.
Incorporated herein by reference to Tele-Communications Inc.'s
Post-Effective Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement.
(Commission File No. 33-43009)
Forms of Second Assumption and Amended and Restated Stock Option
Agreements relating to options granted under the Amended and
Restated United Artists Communications, Inc. 1983 Stock Option Plan
and executed by employees who had employment agreements with United
Artists Entertainment Company.
Incorporated herein by reference to Tele-Communications,
Inc.'s Post-Effective Amendment No. 1 to Form S-4
Registration Statement on Form S-8 Registration Statement.
(Commission File No. 33-43009)
Form of 1994 Non-Qualified Stock Option and Stock Appreciation Rights
Agreement.*
Form of Indemnification Agreement.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993,
as amended by Form 10-K/A (amendment #1) for the year ended
December 31, 1993. (Commission File No. 0-5550)
Qualified Employee Stock Purchase Plan of Tele-Communications, Inc.,
as amended.*
Incorporated herein by reference to the Tele-Communications,
Inc. Registration Statement on Form S-8.
(Commission File No. 33-59058)
Second Amendment to Community Cable Television General Partnership
Agreement, dated March 12, 1993, between Tele-Communications of
Colorado, Inc. and Liberty Cable Partner, Inc.
Incorporated herein by reference to Liberty Media
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1992. (Commission File No. 0-19036)
Agreement to Purchase and Sell Partnership Interests, dated as of
January 29, 1993, among Mile Hi Cable Partners, L.P., Mile Hi
Cablevision, Inc., Time Warner Entertainment Company, L.P.,
Daniels & Associates Partners Limited, Daniels Communications,
Inc., Cablevision Associates, Ltd., and John Yelenick and Maria
Garcia-Berry, as agents for the limited partners.
Incorporated herein by reference to Liberty Media
Corporation's Current Report on Form 8-K, dated March 24,
1993. (Commission File No. 0-19036)
Loan and Security Agreement, dated January 28, 1993, among Community
Cable Television and Robert L. Johnson, the Paige Johnson Trust and
the Brett Johnson Trust.
Incorporated herein by reference to Liberty Media
Corporation's Current Report on Form 8-K, dated March 24,
1993. (Commission File No. 0-19036)
(continued)
230
10 - Material contracts, continued:
Agreement of Limited Partnership, dated as of January 28, 1993 among
P & B Johnson Corp., Community Cable Television and Daniels
Communications, Inc.
Incorporated herein by reference to Liberty Media
Corporation's Current Report on Form 8-K, dated March 24,
1993. (Commission File No. 0-19036)
Recapitalization Agreement, dated March 26, 1993, among Liberty Media
Corporation, TCI Liberty, Inc. and Tele-Communications of Colorado,
Inc.
Incorporated herein by reference to Liberty Media
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1992. (Commission File No. 0-19036)
Amendment to Recapitalization Agreement, dated June 3, 1993, between
Liberty Media Corporation, TCI Liberty and Tele-Communications of
Colorado, Inc.
$18,539,442 Promissory Note, dated June 3, 1993, from Liberty Media
Corporation to Tele-Communications of Colorado, Inc.
$66,900,000 Promissory Note, dated June 3, 1993, from Liberty
Media Corporation to Tele-Communications of Colorado, Inc.
$10,052,000 Promissory Note, dated June 3, 1993, from Liberty Media
Corporation to Tele-Communications of Colorado, Inc.
$86,105,000 Promissory Note, dated June 3, 1993, from Liberty Media
Corporation to Tele-Communications of Colorado, Inc.
Pledge and Security Agreement, dated June 3, 1993, between
Liberty Cable Partner, Inc. and Tele-Communications of
Colorado, Inc.
Stock Pledge and Security Agreement, dated June 3, 1993, between
Liberty Capital Corp. and Liberty Cable, Inc., and
Tele-Communications of Colorado, Inc.
Option-Put Agreement, dated June 3, 1993, between Tele-Communications
of Colorado, Inc. and Liberty Cable Partner, Inc.
Assignment and Assumption Agreement, dated June 3, 1993, between
Liberty Cable Partner, Inc. and TCI Holdings, Inc.
Option Agreement dated June 3, 1993, between TCI Holdings, Inc. and
Liberty Cable Partner, Inc.
Incorporated herein by reference to Liberty Media
Corporation's Current Report on Form 8-K, dated June 24,
1993. (Commission File No. 0-19036)
Modification of Promissory Note, dated November 30, 1993, between
Liberty Media Corporation and Tele-Communications of Colorado, Inc.
Modification of Promissory Note, dated November 30, 1993, between
Liberty Media Corporation and TCI Liberty, Inc.
Amendment to Option-Put Agreement, dated November 30, 1993, between
Tele-Communications of Colorado, Inc. and Liberty Cable Partner,
Inc.
Incorporated herein by reference to Liberty Media
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1993. (Commission File No. 0-19036)
(continued)
231
10 - Material contracts, continued:
Agreement Regarding Purchase and Sales of Partnership Interest, dated
as of March 26, 1993, between Liberty Cable Partners, Inc. and TCI
Holdings, Inc.
Incorporated herein by reference to Liberty Media
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1992. (Commission File No. 0-19036)
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.
Incorporated herein by reference to the Company's Current
Report on Form 8-K, dated February 15, 1994.
(Commission File No. 0-5550)
Amendment No. 1, dated as of March 30, 1994, to Agreement and Plan of
Merger, dated as of January 27, 1994, by and among
Tele-Communications, Inc., Liberty Media Corporation, TCI/Liberty
Holding Company, TCI Mergeco, Inc. and Liberty Mergeco, Inc.
Incorporated herein by reference to the Company's Current
Report on Form 8-K, dated April 6, 1994.
(Commission File No. 0-5550)
Amendment No. 2, dated as of August 4, 1994, to Agreement and Plan of
Merger, dated as of January 27, 1994, by and among
Tele-Communications, Inc., Liberty Media Corporation, TCI/Liberty
Holding Company, TCI Mergeco, Inc. and Liberty Mergeco, Inc.
Incorporated herein by reference to the Company's Current
Report on Form 8-K, dated August 18, 1994.
(Commission File No. 0-20421)
Agreement and Plan of Merger, dated as of August 8, 1994, among
Tele-Communications, Inc., TCI Communications, Inc. and TeleCable
Corporation
Incorporated herein by reference to Tele-Communications,
Inc.'s Current Report on Form 8-K, dated August 18, 1994.
(Commission File No. 0-20421)
21 - Subsidiaries of Tele-Communications, Inc.
23 - Consents of experts and counsel
Consent of KPMG Peat Marwick LLP.
Consent of KPMG Peat Marwick LLP.
Consent of KPMG.
27 - Financial data schedule
Tele-Communications, Inc.
TCI Communications, Inc.
*Constitutes management contract or compensatory arrangement.
EX-3.1
2
RESTATED CERTIFICATE OF INCORPORATION
1
Exhibit (3.1)
State of Delaware
PAGE 1
Office of the Secretary of State
---------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED CERTIFICATE OF
"TCI/LIBERTY HOLDING COMPANY". CHANGING ITS NAME FROM "TCI/LIBERTY HOLDING
COMPANY" TO "TELE-COMMUNICATIONS, INC.", FILED IN THIS OFFICE ON THE FOURTH DAY
OF AUGUST, A.D. 1994, AT 4:14 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT COUNTY
RECORDER OF DEEDS FOR RECORDING.
[SEAL]
/s/ EDWARD J. FREEL
Edward J. Freel, Secretary of State
AUTHENTICATION: 7202362
DATE: 08-04-94
2371729 8100
944145668
2
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 04:14 PM 08/04/1994
944145668 -- 2371729
RESTATED CERTIFICATE OF INCORPORATION
OF
TCI/LIBERTY HOLDING COMPANY
---------------------
TCI/LIBERTY HOLDING COMPANY, a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
(1) The name of the Corporation is TCI/Liberty Holding Company. The
original Certificate of Incorporation of the Corporation was filed on
January 24, 1994. The name under which the Corporation was originally
incorporated is TCI/Liberty Holding Company.
(2) This Restated Certificate of Incorporation restates and amends the
Certificate of Incorporation of the Corporation.
(3) Pursuant to Section 242 and 245 of the General Corporation Law of
the State of Delaware, the text of the Certificate of Incorporation is
hereby restated to read in its entirety as follows:
ARTICLE I
NAME
The name of the Corporation is Tele-Communications, Inc.
ARTICLE II
REGISTERED OFFICE
The location of the registered office of the Corporation in the State of
Delaware is the office of The Prentice-Hall Corporation System, Inc., 32
Loockerman Square, Suite L-100, Dover, Kent County, Delaware 19904, and the name
of the registered agent at such address is The Prentice-Hall Corporation System,
Inc.
ARTICLE III
PURPOSE
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the Delaware General Corporation
Law.
3
ARTICLE IV
AUTHORIZED STOCK
The total number of shares of capital stock which the Corporation shall
have authority to issue is one billion two hundred sixty two million three
hundred seventy five thousand ninety six (1,262,375,096) shares, of which one
billion two hundred fifty million (1,250,000,000) shares shall be common stock
("Common Stock") and twelve million three hundred seventy five thousand ninety
six (12,375,096) shares shall be preferred stock ("Preferred Stock"). Said
shares of Common Stock and Preferred Stock shall be divided into the following
classes:
(a) One billion one hundred million (1,100,000,000) shares of Common Stock
shall be of a class designated as Class A Common Stock with a par value of $1.00
per share;
(b) One hundred fifty million (150,000,000) shares of Common Stock shall be
of class designated as Class B Common Stock with a par value of $1.00 per share;
(c) Seven hundred thousand (700,000) shares of Preferred Stock shall be of
a class designated as Class A Preferred Stock with a par value of $.01 per
share;
(d) One million six hundred seventy five thousand and ninety six
(1,675,096) shares of Preferred Stock shall be of a class designated as Class B
6% Cumulative Redeemable Exchangeable Junior Preferred Stock with a par value of
$.01 per share; and
(e) Ten million (10,000,000) shares of Preferred Stock shall be of a class
designated as Series Preferred Stock with a par value of $.01 per share.
The description of the Common Stock and the Preferred Stock of the
Corporation, and the relative rights, preferences and limitations thereof, or
the method of fixing and establishing the same, are as hereinafter in this
Article IV set forth:
-2-
4
SECTION A
CERTAIN DEFINITIONS
Unless the context otherwise requires, the terms defined in this Section A
shall have, for all purposes of this Article IV, the meanings herein specified:
"Board of Directors" shall mean the Board of Directors of the Corporation
and, unless the context indicates otherwise, shall also mean, to the extent
permitted by law, any committee thereof authorized, with respect to any
particular matter, to exercise the power of the Board of Directors of the
Corporation with respect to such matter.
"Business Day" shall mean any day other than a Saturday, Sunday or a day on
which banking institutions in the City of New York, New York, are not required
to be open.
"capital stock" shall mean any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated) corporate stock.
"Certificate" shall mean this Restated Certificate of Incorporation of the
Corporation, as it may from time to time hereafter be amended or restated.
"Person" shall mean any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization,
government or agency or political subdivision thereof, or other entity, whether
acting in an individual fiduciary or other capacity.
SECTION B
CLASS A PREFERRED STOCK
The Class A Preferred Stock shall have the following preferences,
limitations and relative rights:
1. Certain Definitions. Unless the context otherwise requires, the terms
defined in this paragraph 1 shall have, for all purposes of this Section B, the
meanings herein specified:
"Class A Common Stock" shall mean the Class A Common Stock, par value $1.00
per share, of the Corporation, which term shall include, where appropriate, in
the case of any reclassification, recapitalization or other change in the Class
A Common Stock, or in the case of a consolidation or merger of the Corporation
with or into another Person affecting the Class A Common Stock, such capital
stock to which a holder of Class A Common Stock shall be entitled upon the
occurrence of such event.
-3-
5
"Class A Preferred Stock" shall mean the Class A Preferred Stock, par value
$.01 per share, of the Corporation.
"Class B Common Stock" shall mean the Class B Common Stock, par value $1.00
per share, of the Corporation, which term shall include, where appropriate, in
the case of any reclassification, recapitalization or other change in the Class
B Common Stock, or in the case of a consolidation or merger of the Corporation
with or into another Person affecting the Class B Common Stock, such capital
stock to which a holder of Class B Common Stock shall be entitled upon the
occurrence of such event.
"Class B Preferred Stock" shall mean the Class B 6% Cumulative Redeemable
Exchangeable Junior Preferred Stock, par value $.01 per share, of the
Corporation.
"Dividend Payment Date" shall mean, for any Dividend Period, the last day
of such Dividend Period which shall be the first day of March of each year,
commencing with March 1, 1995, or the next succeeding Business Day if any such
day is not a Business Day.
"Dividend Period" shall mean the period from the Issue Date to and
including the first Dividend Payment Date and each annual period between
consecutive Dividend Payment Dates.
"Issue Date" shall mean the date on which shares of Class A Preferred Stock
are first issued.
"Junior Stock" shall mean (i) the Class A Common Stock, (ii) the Class B
Common Stock, (iii) the Class B Preferred Stock, (iv) any other class or series
of capital stock, whether now existing or hereafter created, of the Corporation,
other than (A) the Class A Preferred Stock, (B) any class or series of Parity
Stock (except to the extent provided under clause (v) hereof) and (C) any Senior
Stock, and (v) any class or series of Parity Stock to the extent that it ranks
junior to the Class A Preferred Stock as to dividend rights, rights of
redemption or rights on liquidation, as the case may be. For purposes of clause
(v) above, a class or series of Parity Stock shall rank junior to the Class A
Preferred Stock as to dividend rights, rights of redemption or rights on
liquidation if the holders of shares of Class A Preferred Stock shall be
entitled to dividend payment, payments on redemption or payments of amounts
distributable upon dissolution, liquidation or winding up of the Corporation, as
the case may be, in preference or priority to the holders of shares of such
class or series.
"Liquidation Preference" measured per share of the Class A Preferred Stock
as of any date in question (the "Determination Date") shall mean an amount equal
to the sum of (a) the Stated Liquidation Value of such share, plus (b) an amount
equal to all dividends accrued on such share which pursuant to paragraph 2(b) of
this Section B have been added to and remain a part of the Liquidation
Preference as of the Determination Date, plus (c) for purposes of determining
the amounts payable pursuant to paragraph 3 and paragraph 4 of this Section B
and the definition of Redemption Price, an amount equal to all unpaid dividends
accrued on such share during the period from the immediately preceding Dividend
Payment Date (or the Issue Date if the
-4-
6
Determination Date is on or prior to the first Dividend Payment Date) through
and including the Determination Date, and, in the case of clauses (b) and (c)
hereof, whether or not such unpaid dividends have been earned or declared or
there are any unrestricted funds of the Corporation legally available for the
payment of dividends. In connection with the determination of the Liquidation
Preference of a share of Class A Preferred Stock upon redemption or upon
liquidation, dissolution or winding up of the Corporation, the Determination
Date shall be the applicable date of redemption or the date of distribution of
amounts payable to stockholders in connection with any such liquidation,
dissolution or winding up.
"Parity Stock" shall mean any class or series of capital stock, whether now
existing or hereafter created, of the Corporation ranking on a parity basis with
the Class A Preferred Stock as to dividend rights, rights of redemption or
rights on liquidation. Capital stock of any class or series shall rank on a
parity as to dividend rights, rights of redemption or rights on liquidation with
the Class A Preferred Stock, whether or not the dividend rates, dividend payment
dates, redemption or liquidation prices per share or sinking fund or mandatory
redemption provisions, if any, are different from those of the Class A Preferred
Stock, if the holders of shares of such class or series shall be entitled to
dividend payments, payments on redemption or payments of amounts distributable
upon dissolution, liquidation or winding up of the Corporation, as the case may
be, in proportion to their respective accumulated and accrued and unpaid
dividends, redemption prices or liquidations prices, respectively, without
preference or priority, one over the other, as between the holders of shares of
such class or series and the holders of Class A Preferred Stock. No class or
series of capital stock that ranks junior to the Class A Preferred Stock as to
rights on liquidation shall rank or be deemed to rank on a parity basis with the
Class A Preferred Stock as to dividend rights or rights of redemption, unless
the instrument creating or evidencing such class or series of capital stock
otherwise expressly provides.
"Record Date" for the dividends payable on any Dividend Payment Date means
the fifteenth day of the month preceding the month during which such Dividend
Payment Date shall occur, or if any such day is not a Business Day, then on the
next preceding Business Day, as and if designated by the Board of Directors.
"Redemption Date" as to any share of Class A Preferred Stock shall mean the
date fixed for redemption of such share pursuant to paragraph 4(a) or (b) of
this Section B, provided that no such date will be a Redemption Date unless the
applicable Redemption Price is actually paid in full on such date.
"Redemption Price" as to any share of Class A Preferred Stock which is to
be redeemed on any Redemption Date shall mean the Liquidation Preference thereof
on such Redemption Date.
"Senior Stock" shall mean any class or series of capital stock, whether now
existing or hereafter created, of the Corporation ranking prior to the Class A
Preferred Stock as to dividend rights, rights of redemption or rights on
liquidation. Capital stock of any class or series shall rank prior to the Class
A Preferred Stock as to dividend rights, rights of redemption or rights on
liquidation if the holders of shares of such class or series shall be entitled
to dividend
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payments, payments on redemption or payments of amounts distributable upon
dissolution, liquidation or winding up of the Corporation, as the case may be,
in preference or priority to the holders of shares of Class A Preferred Stock.
No class or series of capital stock that ranks on a parity basis with or junior
to the Class A Preferred Stock as to rights on liquidation shall rank or be
deemed to rank prior to the Class A Preferred Stock as to dividend rights or
rights of redemption, notwithstanding that the dividend rate, dividend payment
dates, sinking fund provisions, if any, or mandatory redemption provisions
thereof are different from those of the Class A Preferred Stock, unless the
instrument creating or evidencing such class or series of capital stock
otherwise expressly provides.
"Special Record Date" has the meaning ascribed to such term in paragraph
2(b) of this Section B.
"Stated Liquidation Value" of a share of Class A Preferred Stock means
$322.84.
"Subsidiary" of any Person shall mean (i) a corporation a majority of the
capital stock of which, having voting power under ordinary circumstances to
elect directors, is at the time, directly or indirectly, owned by such Person
and/or one or more Subsidiaries of such Person and (ii) any other Person (other
than a corporation) in which such Person and/or one or more Subsidiaries of such
Person, directly or indirectly, has (x) a majority ownership interest or (y) the
power to elect or direct the election of a majority of the members of the
governing body of such first-named Person.
2. Dividends.
(a) DIVIDEND RIGHTS; DIVIDEND PAYMENT DATES. Subject to the prior
preferences and other rights of any Senior Stock and the provisions of paragraph
5 hereof, the holders of Class A Preferred Stock shall be entitled to receive,
when and as declared by the Board of Directors, out of unrestricted funds
legally available therefor, cumulative dividends, in preference to dividends on
any Junior Stock, that shall accrue on each share of Class A Preferred Stock at
the rate of 9 3/8% per annum of the Stated Liquidation Value of such share from
the Issue Date to and including the date on which the Liquidation Preference of
such share is made available (whether on liquidation, dissolution, or winding up
of the Corporation or, in the case of paragraph 4 of this Section B, upon the
applicable Redemption Date). Accrued dividends on the Class A Preferred Stock
will be payable, as provided in paragraph 2(c) below, annually on each Dividend
Payment Date to the holders of record of the Class A Preferred Stock as of the
close of business on the Record Date for such dividend payment. Dividends shall
be fully cumulative and shall accrue (without interest or compounding) on a
daily basis without regard to the occurrence of a Dividend Payment Date and
whether or not such dividends are declared and whether or not there are any
unrestricted funds of the Corporation legally available for the payment of
dividends. The amount of dividends "accrued" as of the first Dividend Payment
Date and as of any date that is not a Dividend Payment Date shall be calculated
on the basis of the foregoing rate per annum for the actual number of days
elapsed from the Issue Date (in the case of the first Dividend Payment Date and
any date prior to the first Dividend Payment Date) or the
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last preceding Dividend Payment Date (in the case of any other date) to and
including the date as of which such determination is to be made, based on a 365-
or 366-day year, as the case may be.
(b) SPECIAL RECORD DATE. On each Dividend Payment Date, all dividends that
have accrued on each share of Class A Preferred Stock during the immediately
preceding Dividend Period shall, to the extent not paid as provided in paragraph
2(c) below on such Dividend Payment Date for any reason (whether or not such
unpaid dividends have been earned or declared or there are any unrestricted
funds of the Corporation legally available for the payment of dividends), be
added to the Liquidation Preference of such share and will remain a part thereof
until such dividends are paid as provided in paragraph 2(c) below. No interest
or additional dividends will accrue or be payable with respect to any dividend
payment on the Class A Preferred Stock that may be in arrears or with respect to
that portion of any other payment on the Class A Preferred Stock that is in
arrears which consists of accumulated or accrued and unpaid dividends. Such
accumulated or accrued and unpaid dividends may be declared and paid at any time
(subject to the rights of any Senior Stock and, if applicable, to the concurrent
satisfaction of any dividend arrearages then existing with respect to any Parity
Stock which ranks on a parity basis with the Class A Preferred Stock as to the
payment of dividends) without reference to any regular Dividend Payment Date, to
holders of record as of the close of business on such date, not more than 45
days nor less than 10 days preceding the payment date thereof, as may be fixed
by the Board of Directors (the "Special Record Date"). Notice of each Special
Record Date shall be given, not more than 45 days nor less than 10 days prior
thereto, to the holders of record of the shares of Class A Preferred Stock.
(c) METHOD OF PAYMENT. All dividends payable with respect to the shares of
Class A Preferred Stock shall be declared and paid in cash. All dividends paid
with respect to the shares of Class A Preferred Stock pursuant to this paragraph
2 shall be paid pro rata to all the holders of shares of Class A Preferred Stock
outstanding on the applicable Record Date or Special Record Date, as the case
may be.
3. Distributions Upon Liquidation, Dissolution or Winding Up.
Subject to the prior payment in full of the preferential amounts to which
any Senior Stock is entitled, in the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, the holders of
Class A Preferred Stock shall be entitled to receive from the assets of the
Corporation available for distribution to stockholders, before any payment or
distribution shall be made to the holders of any Junior Stock, an amount in cash
or property at its fair market value, as determined by the Board of Directors in
good faith, or a combination thereof, per share, equal to the Liquidation
Preference of a share of Class A Preferred Stock as of the date of payment or
distribution, which payment or distribution shall be made pari passu with any
such payment or distribution made to the holders of any Parity Stock ranking on
a parity basis with the Class A Preferred Stock with respect to distributions
upon liquidation, dissolution or winding up of the Corporation. The holders of
Class A Preferred Stock shall be entitled to no other or further distribution of
or participation in any remaining assets of the Corporation after receiving the
Liquidation Preference per share. If, upon distribution of the
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Corporation's assets in liquidation, dissolution or winding up, the assets of
the Corporation to be distributed among the holders of the Class A Preferred
Stock and to all holders of any Parity Stock ranking on a parity basis with the
Class A Preferred Stock with respect to distributions upon liquidation,
dissolution or winding up shall be insufficient to permit payment in full to
such holders of the respective preferential amounts to which they are entitled,
then the entire assets of the Corporation to be distributed to holders of the
Class A Preferred Stock and such Parity Stock shall be distributed pro rata to
such holders based upon the aggregate of the full preferential amounts to which
the shares of Class A Preferred Stock and such Parity Stock would otherwise
respectively be entitled. Neither the consolidation or merger of the Corporation
with or into any other corporation or corporations nor the sale, transfer or
lease of all or substantially all of the assets of the Corporation shall itself
be deemed to be a liquidation, dissolution or winding up of the Corporation
within the meaning of this paragraph 3. Notice of the liquidation, dissolution
or winding up of the Corporation shall be given, not less than 20 days prior to
the date on which such liquidation, dissolution or winding up is expected to
take place or become effective, to the holders or record of the shares of Class
A Preferred Stock.
4. Redemption.
(a) MANDATORY REDEMPTION. Subject to the rights of any Senior Stock and the
provisions of paragraph 5 of this Section B, the Corporation shall redeem, out
of funds legally available therefor, on the twelfth anniversary of the Issue
Date (or, if such day is not a Business Day, on the first Business Day
thereafter), all shares of Class A Preferred Stock remaining outstanding at the
Redemption Price on the Redemption Date. If the funds of the Corporation legally
available for redemption of shares of the Class A Preferred Stock or Parity
Stock then required to be redeemed are insufficient to redeem the total number
of such shares remaining outstanding, those funds which are legally available
shall, subject to the rights of any Senior Stock and the provisions of paragraph
5, be used to redeem the maximum possible number of shares of Class A Preferred
Stock and Parity Stock. Subject to the rights of any Senior Stock and the
provisions of paragraph 5 hereof, at any time and from time to time thereafter
when additional funds of the Corporation are legally available for such purpose,
such funds shall immediately be used to redeem the shares of Class A Preferred
Stock and Parity Stock which are required to be redeemed that the Corporation
failed to redeem until the balance of such shares has been redeemed. The
selection of shares to be redeemed pursuant to the two immediately preceding
sentences shall be made on a pro rata basis as among the different classes or
series and as among the holders of shares of a particular class or series.
(b) OPTIONAL REDEMPTION. Subject to the rights of any Senior Stock and the
provisions of paragraph 5 of this Section B, the shares of Class A Preferred
Stock may be redeemed, at the option of the Corporation by the action of the
Board of Directors, in whole or from time to time in part, on any Business Day
occurring after the Issue Date, at the Redemption Price on the Redemption Date.
If less than all outstanding shares of Class A Preferred Stock are to be
redeemed on any Redemption Date, the shares of Class A Preferred Stock to be
redeemed shall be chosen pro rata among all holders of Class A Preferred Stock.
The Corporation shall not be required to register a transfer of (i) any shares
of Class A Preferred Stock for a period of 15
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days next preceding any selection of shares of Class A Preferred Stock to be
redeemed or (ii) any shares of Class A Preferred Stock selected or called for
redemption.
(c) NOTICE OF REDEMPTION. Notice of redemption shall be given by or on
behalf of the Corporation, not more than 60 days nor less than 30 days prior to
the Redemption Date, to the holders of record of the shares of Class A Preferred
Stock to be redeemed; but no defect in such notice or in the mailing thereof
shall affect the validity of the proceedings for the redemption of any shares of
Class A Preferred Stock. In addition to any information required by law or by
the applicable rules of any national securities exchange or national interdealer
quotation system on which the Class A preferred Stock may be listed or admitted
to trading or quoted, such notice shall set forth the Redemption Price, the
Redemption Date, the number of shares to be redeemed and the place at which the
shares called for redemption will, upon presentation and surrender of the stock
certificates evidencing such shares, be redeemed. In the event that fewer than
the total number of shares of Class A Preferred Stock represented by a
certificate are redeemed, a new certificate representing the number of
unredeemed shares will be issued to the holder thereof without cost to such
holder.
(d) DEPOSIT OF REDEMPTION PRICE. If notice of any redemption by the
Corporation pursuant to this paragraph 4 shall have been given as provided in
paragraph 4(c) above, and if on or before the Redemption Date specified in such
notice an amount in cash sufficient to redeem in full on the Redemption Date at
the Redemption Price all shares of Class A Preferred Stock called for redemption
shall have been set apart so as to be available for such purpose and only for
such purpose, then effective as of the close of business on the Redemption Date,
the shares of Class A Preferred Stock called for redemption, notwithstanding
that any certificate therefor shall not have been surrendered for cancellation,
shall no longer be deemed outstanding, and the holders thereof shall cease to be
stockholders with respect to such shares and all rights with respect to such
shares shall forthwith cease and terminate, except the right of the holders
thereof to receive the Redemption Price of such shares, without interest, upon
the surrender of certificates representing the same.
(e) STATUS OF REDEEMED SHARES. All shares of Class A Preferred Stock
redeemed, exchanged, purchased or otherwise acquired by the Corporation shall be
retired and shall not be reissued.
5. Limitations on Dividends and Redemptions.
If at any time the Corporation shall have failed to pay, or declare and set
aside the consideration sufficient to pay, full cumulative dividends for all
prior dividends periods on any Parity Stock which by the terms of the instrument
creating or evidencing such Parity Stock is entitled to the payment of such
cumulative dividends prior to the redemption, exchange, purchase or other
acquisition of the Class A Preferred Stock, and until full cumulative dividends
on such Parity Stock for all prior dividend periods are paid, or declared and
the consideration sufficient to pay the same in full is set aside so as to be
available for such purpose and no other purpose, neither the Corporation nor any
Subsidiary thereof shall redeem, exchange, purchase or
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otherwise acquire any shares of Class A Preferred Stock, Parity Stock or Junior
Stock, or set aside any money or assets for any such purpose, pursuant to
paragraph 4 hereof, a sinking fund or otherwise, unless all then outstanding
shares of Class A Preferred Stock, of such Parity Stock and of any other class
of series of Parity Stock that by the terms of the instrument creating or
evidencing such Parity Stock is required to be redeemed under such circumstances
are redeemed or exchanged pursuant to the terms hereof and thereof.
If at any time the Corporation shall have failed to pay, or declare and set
aside the consideration sufficient to pay, full cumulative dividends on the
Class A Preferred Stock for all Dividend Periods ending on or before the
immediately preceding Dividend Payment Date, and until full cumulative dividends
on the Class A Preferred Stock for all Dividend Periods ending on or before the
immediately preceding Dividend Payment Date are paid, or declared and the
consideration sufficient to pay the same in full is set aside so as to be
available for such purpose and no other purpose, neither the Corporation nor any
Subsidiary thereof shall redeem, exchange, purchase or otherwise acquire any
shares of Class A Preferred Stock, Parity Stock or Junior Stock, or set aside
any money or assets for any such purpose, pursuant to paragraph 4 hereof, a
sinking fund or otherwise, unless all then outstanding shares of Class A
Preferred Stock and of any other class or series of Parity Stock that by the
terms of the instrument creating or evidencing such Parity Stock is required to
be redeemed under such circumstances are redeemed or exchanged pursuant to the
terms hereof and thereof.
If at any time the Corporation shall have failed to pay, or declare and set
aside the consideration sufficient to pay, full cumulative dividends on the
Class A Preferred Stock for all Dividend Periods ending on or before the
immediately preceding Dividend Payment Date, and until full cumulative dividends
on the Class A Preferred Stock for all Dividend Periods ending on or before the
immediately preceding Dividend Payment Date are paid, or declared and the
consideration sufficient to pay the same in full is set aside for such purpose
and no other purpose, the Corporation shall not declare or pay any dividend on
or make any distribution with respect to any Junior Stock or Parity Stock or set
aside any money or assets for any such purpose, except that the Corporation may
declare and pay a dividend on any Parity Stock ranking on a parity basis with
the Class A Preferred Stock with respect to the right to receive dividend
payments, contemporaneously with the declaration and payment of a dividend on
the Class A Preferred Stock, provided that such dividends are declared and paid
pro rata so that the amount of dividends declared and paid per share of the
Class A Preferred Stock and such Parity Stock shall in all cases bear to each
other the same ratio that accumulated and accrued and unpaid dividends per share
on the Class A Preferred Stock and such Parity Stock bear to each other.
If the Corporation shall fail to redeem on any date fixed for redemption or
exchange pursuant to paragraph 4 hereof any shares of Class A Preferred Stock
called for redemption on such date, and until such shares are redeemed in full,
the Corporation shall not redeem or exchange any Parity Stock or Junior Stock or
declare or pay any dividend on or make any distribution with respect to any
Junior Stock, or set aside any money or assets for any such purpose, and neither
the Corporation nor any Subsidiary thereof shall purchase or otherwise acquire
any Class A Preferred Stock, Parity Stock or Junior Stock, or set aside any
money or assets for any such purpose.
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Neither the Corporation nor any Subsidiary thereof shall redeem, exchange,
purchase or otherwise acquire any Parity Stock or Junior Stock, or set aside any
money or assets for any such purpose, if after giving effect to such redemption,
exchange, purchase or other acquisition, the amount (as determined by the Board
of Directors in good faith) that would be available for distribution to the
holders of the Class A Preferred Stock upon liquidation, dissolution or winding
up of the Corporation if such liquidation, dissolution or winding up were to
occur on the date fixed for such redemption, exchange, purchase or other
acquisition of such Parity Stock or Junior Stock would be less than the
aggregate Liquidation Preference as of such date of all shares of Class A
Preferred Stock then outstanding.
Nothing contained in the first, fourth or fifth paragraph of this paragraph
5 shall prevent (i) the payment of dividends on any Junior Stock solely in
shares of Junior Stock or the redemption, purchase or other acquisition of
Junior Stock solely in exchange for (together with a cash adjustment for
fractional shares, if any), or (but only in the case of the first and fifth
paragraphs hereof) through the application of the proceeds from the sale of,
shares of Junior Stock; or (ii) the payment of dividends on any Parity Stock
solely in shares of Parity Stock and/or Junior Stock or the redemption,
exchange, purchase or other acquisition of Class A Preferred Stock or Parity
Stock solely in exchange for (together with a cash adjustment for fractional
shares, if any), or (but only in the case of the first and fifth paragraphs
hereof) through the application of the proceeds from the sale of, shares of
Parity Stock and/or Junior Stock.
The provisions of the first paragraph of this paragraph 5 are for the sole
benefit of the holders of Class A Preferred Stock and Parity Stock having the
terms described therein and accordingly, at any time when there are no shares of
any such class or series of Parity Stock outstanding or if the holders of each
such class or series of Parity Stock have, by such vote or consent of the
holders thereof as may be provided for in the instrument creating or evidencing
such class or series, waived in whole or in part the benefit of such provisions
(either generally or in the specific instance), then the provisions of the first
paragraph of this paragraph 5 shall not (to the extent waived, in the case of
any partial waiver) restrict the redemption, exchange, purchase or other
acquisition of any shares of Class A Preferred Stock, Parity Stock or Junior
Stock. All other provisions of this paragraph 5 are for the sole benefit of the
holders of Class A Preferred Stock and accordingly, if the holders of shares of
Class A Preferred Stock shall have waived (as provided in paragraph 7 of this
Section B) in whole or in part the benefit of the applicable provisions, either
generally or in the specific instance, such provision shall not (to the extent
of such waiver, in the case of a partial waiver) restrict the redemption,
exchange, purchase or other acquisition of, or declaration, payment or making of
any dividends or distributions on the Class A Preferred Stock, any Parity Stock
or any Junior Stock.
6. Voting.
(a) VOTING RIGHTS. The holders of Class A Preferred Stock shall have no
voting rights whatsoever, except as required by law and except for the voting
rights described in this paragraph 6; provided, however, that the number of
authorized shares of Class A Preferred Stock may be increased or decreased (but
not below the number of shares of Class A preferred Stock then outstanding) by
the affirmative vote of the holders of at least 66 2/3 of the total voting
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power of the then outstanding Voting Securities (as defined in Section C of
Article V of this Certificate), voting together as a single class as provided in
Article IX of this Certificate. Without limiting the generality of the
foregoing, no vote or consent of the holders of Class A Preferred Stock shall be
required for (a) the creation of any indebtedness of any kind of the
Corporation, (b) the creation or designation of any class or series of Senior
Stock, Parity Stock or Junior Stock, or (c) any amendment to this Certificate
that would increase the number of authorized shares of Preferred Stock or the
number of authorized shares of Class A Preferred Stock or that would decrease
the number of authorized shares of Class A Preferred Stock or the number of
authorized shares of Class A Preferred Stock (but not below the number of shares
of Preferred Stock or Class A Preferred Stock, as the case may be, then
outstanding).
(b) ELECTION OF DIRECTORS. The holders of the Class A Preferred Stock shall
have the right to vote at any annual or special meeting of stockholders for the
purpose of electing directors. Each share of Class A Preferred Stock shall have
one vote for such purpose, and shall vote as a single class with any other class
or series of capital stock of the Corporation entitled to vote in any general
election of directors, unless the instrument creating or evidencing such class
or series of capital stock otherwise expressly provides.
7. Waiver.
Any provision of this Section B which, for the benefit of the holders of
Class A Preferred Stock, prohibits, limits or restricts actions by the
Corporation, or imposes obligations on the Corporation, may be waived in whole
or in part, or the application of all or any part of such provision in any
particular circumstance or generally may be waived, in each case with the
consent of the holders of at least a majority of the number of shares of Class A
Preferred Stock then outstanding (or such greater percentage thereof as may be
required by applicable law or any applicable rules of any national securities
exchange or national interdealer quotation system), either in writing or writing
or by vote at an annual meeting or a meeting called for such purpose at which
the holders of Class A Preferred Stock shall vote as a separate class.
8. Method of Giving Notices.
Any notice required or permitted by the provisions of this Section B to be
given to the holders of share of Class A Preferred Stock shall be deemed duly
given if deposited in the United States mail, first class mail, postage prepaid,
and addressed to each holder of record at his address appearing on the books of
the Corporation or supplied by him in writing to the Corporation for the purpose
of such notice.
9. Exclusion of Other Rights.
Except as may otherwise be required by law and except for the equitable
rights and remedies which may otherwise be available to holders of Class A
Preferred Stock, the shares of Class A Preferred Stock shall not have any
designations, preferences, limitations or relative rights other than those
specifically set forth in this Certificate.
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10. Heading of Subdivisions.
The headings of the various subdivisions of this Section are for
convenience of reference only and shall not affect the interpretation of any of
the provisions of this Section.
SECTION C
CLASS B 6% CUMULATIVE REDEEMABLE EXCHANGEABLE
JUNIOR PREFERRED STOCK
The Class B 6% Cumulative Redeemable Exchangeable Junior Preferred Stock
shall have the following preferences, limitations and relative rights:
1. Certain Definitions. Unless the context otherwise requires, the terms
defined in this paragraph 1 shall have, for all purposes of this Section C, the
meanings herein specified:
"Average Market Price" as of any Record Date or Special Record Date for a
dividend payment declared by the Board of Directors means the average of the
daily Current Market Prices of the Class A Common Stock for a period of 20
consecutive trading days ending on the tenth trading day prior to such Record
Date or Special Record Date, appropriately adjusted to take into account any
stock dividends on the Class A Common Stock, or any stock splits,
reclassifications or combinations of the Class A Common Stock, during the period
following the first of such 20 trading days and ending on the last full trading
day immediately preceding the Dividend Payment Date or other date fixed for the
payment of dividends to which such Record Date or Special Record Date, as the
case may be, relates.
"Class A Common Stock" shall mean the Class A Common Stock, par value $1.00
per share, of the Corporation, which term shall include, where appropriate, in
the case of any reclassification, recapitalization or other change in the Class
A Common Stock, or in the case of a consolidation or merger of the Corporation
with or into another Person affecting the Class A Common Stock, such capital
stock to which a holder of Class A Common Stock shall be entitled upon the
occurrence of such event.
"Class A Preferred Stock" shall mean the Class A Preferred Stock, par value
$.01 per share, of the Corporation.
"Class B Common Stock" shall mean the Class B Common Stock, par value $1.00
per share, of the Corporation, which term shall include, where appropriate, in
the case of any reclassification, recapitalization or other change in the Class
B Common Stock, or in the case of a consolidation or merger of the Corporation
with or into another Person affecting the Class B Common Stock, such capital
stock to which a holder of Class B Common Stock shall be entitled upon the
occurrence of such event.
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"Class B Preferred Stock" shall mean the Class B 6% Cumulative Redeemable
Exchangeable Junior Preferred Stock, par value $.01 per share, of the
Corporation.
"Current Market Price" of a share of Class A Common Stock on any day means
the last reported per share sale price (or, if no sale price is reported, the
average of the high and low bid prices) of the Class A Common Stock on such day
on the Nasdaq National Market or as quoted by the National Quotation Bureau
Incorporated, or if the Class A Common Stock is listed on an exchange, on the
principal exchange on which the Class A Common Stock is listed. In the event
that no such quotation is available for any day, the Board of Directors shall be
entitled to determine the Current Market Price on the basis of such quotations
as it considers appropriate.
"Dividend Payment Date" shall mean, for any Dividend Period, the last day
of such Dividend Period which shall be the first day of March of each year,
commencing with March 1, 995, or the next succeeding Business Day if any such
day is not a Business Day.
"Dividend Period" shall mean the period from the Initial Accrual Date to
and including the first Dividend Payment Date and each annual period between
consecutive Dividend Payment Dates.
"Initial Accrual Date", when used with respect to the shares of Class B
Preferred Stock, shall mean March 2, 1994.
"Issue Date" shall mean the date on which shares of Class B Preferred Stock
are first issued.
"Junior Exchange Notes" shall mean junior subordinated debt securities of
the Corporation of a series to be issued under the Junior Exchange Note
Indenture in exchange for shares of Class B Preferred Stock as contemplated by
paragraphs 4(d) and (f) of this Section C.
"Junior Exchange Note Indenture" shall mean an indenture substantially in
the form annexed as Exhibit 4.5 to the S-4 Registration Statement, as
supplemented by a supplemental indenture substantially in the form annexed as
Exhibit 1 to such form of indenture, as said indenture and supplemental
indenture may be amended or further supplemented from time to time (subject to
any applicable restrictions of this Certificate) and, unless the context
indicates otherwise, shall include the form and terms of the Junior Exchange
Notes established as contemplated thereunder.
"Junior Stock" shall mean (i) the Class A Common Stock, (ii) the Class B
Common Stock, (iii) any other class or series of capital stock, whether now
existing or hereafter created, of the Corporation, other than (A) the Class B
Preferred Stock, (B) the Class A Preferred Stock, (C) any class or series of
Parity Stock (except to the extent provided under clause (iv) hereof) and (D)
any Senior Stock, and (iv) any class or series of Parity Stock to the extent
that it ranks junior to the Class B Preferred Stock as to dividend rights,
rights of redemption or rights on liquidation, as the case may be. For purposes
of clause (iv) above, a class or series of Parity
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Stock shall rank junior to the Class B Preferred Stock as to dividend rights,
rights of redemption or rights on liquidation if the holders of shares of Class
B Preferred Stock shall be entitled to dividend payments, payments on redemption
or payments of amounts distributable upon dissolution, liquidation or winding up
of the Corporation, as the case may be, in preference or priority to the holders
of shares of such class or series.
"Liquidation Preference" measured per share of the Class B Preferred Stock
as of any date in question (the "Determination Date") shall mean an amount equal
to the sum of (a) the Stated Liquidation Value of such share, plus (b) an amount
equal to all dividends accrued on such share which pursuant to paragraph 2(b) of
this Section C have been added to and remain a part of the Liquidation
Preference as of the Determination Date, plus (c) for purposes of determining
the amounts payable pursuant to paragraph 3 and paragraph 4 of this Section C
and the definition of Redemption Price, an amount equal to all unpaid dividends
accrued on such share during the period from the immediately preceding Dividend
Payment Date (or the Initial Accrual Date if the Determination Date is on or
prior to the first Dividend Payment Date) through and including the
Determination Date, and, in the case of clauses (b) and (c) hereof, whether or
not such unpaid dividends have been earned or declared or there are any
unrestricted funds of the Corporation legally available for the payment of
dividends. In connection with the determination of the Liquidation Preference of
a share of Class B Preferred Stock upon redemption or upon liquidation,
dissolution or winding up of the Corporation, the Determination Date shall be
the applicable date of redemption or the date of distribution of amounts payable
to stockholders in connection with any such liquidation, dissolution or winding
up.
"1933 Act" shall mean the Securities Act of 1933, as amended from time to
time, or any successor statute, and the rules and regulations promulgated
thereunder.
"Optional Exchange Date" shall mean the date fixed for the exchange of
shares of Class Be Preferred Stock pursuant to paragraph 4(d) of this Section C,
provided that such date will not be the Optional Exchange Date unless on or
before such date all conditions to the issuance and delivery of Junior Exchange
Notes upon such exchange contained in paragraph 4(f) of this Section C have been
satisfied.
"Parity Stock" shall mean any class or series of capital stock, whether now
existing or hereafter created, of the Corporation ranking on a parity basis with
the Class B Preferred Stock as to dividend rights, rights of redemption or
rights on liquidation. Capital stock of any class or series shall rank on a
parity as to dividend rights, rights of redemption or rights on liquidation with
the Class B Preferred Stock, whether or not the dividend rates, dividend payment
dates, redemption or liquidation prices per share or sinking fund or mandatory
redemption provisions, if any, are different from those of the Class B Preferred
Stock, if the holders of shares of such class or series shall be entitled to
dividend payments, payments on redemption or payments of amounts distributable
upon dissolution, liquidation or winding up of the Corporation, as the case may
be, in proportion to their respective accumulated and accrued and unpaid
dividends, redemption prices or liquidations prices, respectively, without
preference or priority, one over the other, as between the holders of shares of
such class or series and the holders of Class B Preferred Stock. No class or
series of capital stock that ranks junior to the Class B Preferred
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Stock as to rights on liquidation shall rank or be deemed to rank on a parity
basis with the Class B Preferred Stock as to dividend rights of redemption,
unless the instrument creating or evidencing such class or series of capital
stock otherwise expressly provides.
"Record Date" for the dividends payable on any Dividend Payment Date means
the fifteen day of the month preceding the month during which such Dividend
Payment Date shall occur, or if any such day is not a Business Day, then on the
next preceding Business Day, as and if designated by the Board of Directors.
"Redemption Agent" has the meaning ascribed to such term in paragraph 4(c)
of this Section C.
"Redemption Date" as to any share of Class B Preferred Stock shall mean the
date fixed for redemption of such share pursuant to paragraph 4(a) of this
Section C, provided that no such date will be a Redemption Date unless the
applicable Redemption Price is actually paid in full on such date or the
consideration sufficient for the payment thereof, and for no purpose, has been
set apart or deposited in trust as contemplated by paragraph 4(c) of this
Section C.
"Redemption Price" as to any share of Class B Preferred Stock which is to
be redeemed on any Redemption Date shall mean the Liquidation Preference thereof
on such Redemption Date.
"S-4 Registration Statement" shall mean the Corporation's Registration
Statement on Form S-4 (Reg. No. 33-54263) filed with the Securities and Exchange
Commission pursuant to the Securities Act of 1933 and declared effective on June
28, 1994.
"Senior Stock" shall mean (i) the Class A Preferred Stock and (ii) any
other class or series of capital stock, whether now existing or hereafter
created, of the Corporation ranking prior to the Class B Preferred Stock as to
dividend rights, rights of redemption or rights on liquidation. Capital stock of
any class or series shall rank prior to the Class B Preferred Stock as to
dividend rights, rights of redemption or rights on liquidation if the holders of
shares of such class or series shall be entitled to dividend payments, payments
on redemption or payments of amounts distributable upon dissolution, liquidation
or winding up of the Corporation, as the case may be, in preference or priority
to the holders of shares of Class B Preferred Stock. No class or series of
capital stock that ranks on a parity basis with or junior to the Class B
Preferred Stock as to rights on liquidation shall rank or be deemed to rank
prior to the Class B Preferred Stock as to dividend rights or rights of
redemption, notwithstanding that the dividend rate, dividend payment dates,
sinking fund provisions, if any, or mandatory redemption provisions thereof are
different from those of the Class B Preferred Stock, unless the instrument
creating or evidencing such class or series of capital stock otherwise expressly
provides.
"Special Record Date" has the meaning ascribed to such term in paragraph
2(b) of this Section C.
"Stated Liquidation Value" of a share of Class B Preferred Stock means
$100.
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"Subsidiary" of any Person shall mean (i) a corporation a majority of the
capital stock of which, having voting power under ordinary circumstances to
elect directors, is at the time, directly or indirectly, owned by such Person
and/or one or more Subsidiaries of such Person and (ii) any other Person (other
than a corporation) in which such Person and/or one or more Subsidiaries of such
Person, directly or indirectly, has (x) a majority ownership interest or (y) the
power to elect or direct the election of a majority of the members of the
governing body of such first-named Person.
"TIA" shall mean the Trust Indenture Act of 1939 (or any successor statute)
as in effect on the date the Junior Exchange Note Indenture is or is required to
be qualified thereunder in accordance with paragraph 4 of this Section C.
2. Dividends.
(a) DIVIDEND RIGHTS; DIVIDEND PAYMENT DATES. Subject to the prior
preferences and other rights of any Senior Stock and the provisions of paragraph
5 hereof, the holders of Class B Preferred Stock shall be entitled to receive,
when and as declared by the Board of Directors, out of unrestricted funds
legally available therefor, cumulative dividends, in preference to dividends on
any Junior Stock, that shall accrue on each share of Class B Preferred Stock at
the rate of 6.0% per annum of the Stated Liquidation Value of such share from
the Initial Accrual Date to and including the date on which the Liquidation
Preference of such share is made available (whether on liquidation, dissolution,
or winding up of the Corporation or, in the case of paragraph 4 of this Section
C, upon the applicable Redemption Date or Optional Exchange Date. Accrued
dividends on the Class B Preferred Stock will be payable, as provided in
paragraph 2(c) below, annually on each Dividend Payment Date to the holders of
record of the Class B Preferred Stock as of the close of business on the Record
Date for such dividend payment. Dividends shall be fully cumulative and shall
accrue (without interest or compounding) on a daily basis without regard to the
occurrence of a Dividend Payment Date and whether or not such dividends are
declared and whether or not there are any unrestricted funds of the Corporation
legally available for the payment of dividends. The amount of dividends
"accrued" as of the first Dividend Payment Date and as of any date that is not a
Dividend Payment Date shall be calculated on the basis of the foregoing rate per
annum for the actual number of days elapsed from the Initial Accrual Date (in
the case of the first Dividend Payment Date and any date prior to the first
Dividend Payment Date) or the last preceding Dividend Payment Date (in the case
of any other date) to and including the date as of which such determination is
to be made, based on a 365- or 366-day year, as the case may be.
(b) SPECIAL RECORD DATE. On each Dividend Payment Date, all dividends that
have accrued on each share of Class B Preferred Stock during the immediately
preceding Dividend Period shall, to the extent not paid as provided in paragraph
2(c) below on such Dividend Payment Date for any reason (whether or not such
unpaid dividends have been earned or declared or there are any unrestricted
funds of the Corporation legally available for the payment of dividends), be
added to the Liquidation Preference of such share and will remain a part thereof
until such dividends are paid as provided in paragraph 2(c) below. No interest
or additional dividends will accrue or be payable (whether in cash, shares of
Class A Common Stock
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or otherwise) with respect to any dividend payment on the Class B Preferred
Stock that may be in arrears or with respect to that portion of any other
payment on the Class B Preferred Stock that is in arrears which consists of
accumulated or accrued and unpaid dividends. Such accumulated or accrued and
unpaid dividends may be declared and paid at any time (subject to the rights of
any Senior Stock and, if applicable, to the concurrent satisfaction of any
dividend arrearages then existing with respect to any Parity Stock which ranks
on a parity basis with the Class B Preferred Stock as to the payment of
dividends) without reference to any regular Dividend Payment Date, to holders of
record as of the close of business on such date, not more than 45 days nor less
than 10 days preceding the payment date thereof, as may be fixed by the Board of
Directors (the "Special Record Date"). Notice of each Special Record Date shall
be given, not more than 45 days nor less than 10 days prior thereto, to the
holders of record of the shares of Class B Preferred Stock.
(c) METHOD OF PAYMENT. All dividends payable with respect to the shares of
Class B Preferred Stock may be declared and paid, in the sole discretion of the
Board of Directors, in cash, through the issuance of shares of Class A Common
Stock or in any combination of the foregoing, provided, however, that if on any
Dividend Payment Date or other date fixed for the payment of dividends declared
by the Board of Directors, the Corporation pursuant to applicable law or
otherwise is prohibited or restricted from paying in cash the full amount of
dividends declared payable to the holders of Class B Preferred Stock on such
date, then the portion of such dividends the payment of which in cash is so
prohibited or restricted (or such greater portion of such dividends as the Board
of Directors may determine) shall be paid through the issuance of shares of
Class A Common Stock. If any dividend payment declared by the Board of Directors
with respect to the shares of Class B Preferred Stock is to be paid in whole or
in part through the issuance of shares of Class A Common Stock, the amount of
such dividend payment to be paid per share of Class B Preferred Stock in shares
of Class A Common Stock (the "Stock Dividend Amount") shall be satisfied and
paid by the delivery to the holders of record of such shares of Class B
Preferred Stock on the Record Date or Special Record Date, as the case may be,
for such dividend payment, of a number of shares of Class A Common Stock
determined by dividing the Stock Dividend Amount by the Average Market Price of
a share of Class A Common Stock as of such Record Date or Special Record Date.
The Corporation shall not be required to issue any fractional share of Class A
Common Stock to which any holder of Class B Preferred Stock may become entitled
pursuant to this paragraph 2(c). The Board of Directors may elect to settle any
final fraction of a share of Class A Common Stock which a holder of one or more
shares of Class B Preferred Stock would otherwise be entitled to receive
pursuant to this paragraph 2(c) by having the Corporation pay to such holder, in
lieu of issuing such fractional share, cash in an amount (rounded upward to the
nearest whole cent) equal to the same fraction of the Average Market Price of a
share of Class A Common Stock as of the Record Date or Special Record Date, as
the case may be, for the dividend payment with respect to which such shares of
Class A Common Stock are being delivered. Such election, if made, shall be made
as to all holders of Class B Preferred Stock who would otherwise be entitled to
receive a fractional share of Class A Common Stock on the Dividend Payment Date
or other date fixed for the payment of such dividend.
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All dividends paid with respect to the shares of Class B Preferred Stock
pursuant to this paragraph 2 shall be paid pro rata to all the holders of shares
of Class B Preferred Stock outstanding on the applicable Record Date or Special
Record Date, as the case may be.
3. Distributions Upon Liquidation, Dissolution or Winding Up.
Subject to the prior payment in full of the preferential amounts to which
any Senior Stock is entitled, in the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, the holders of
Class B Preferred Stock shall be entitled to receive from the assets of the
Corporation available for distribution to stockholders, before any payment or
distribution shall be made to the holders of any Junior Stock, an amount in cash
or property at its fair market value, as determined by the Board of Directors in
good faith, or a combination thereof, per share, equal to the Liquidation
Preference of a share of Class B Preferred Stock of the date of payment or
distribution, which payment or distribution shall be made pari passu with any
such payment or distribution made to the holders of any Parity Stock ranking on
a parity basis with the Class B Preferred Stock with respect to distributions
upon liquidation, dissolution or winding up of the Corporation. The holders of
Class B Preferred Stock shall be entitled to no other or further distribution of
or participation in any remaining assets of the Corporation's assets in
liquidation, dissolution or winding up, the assets of the Corporation to be
distributed among the holders of the Class B Preferred Stock and to all holders
of any Parity Stock ranking on a parity basis with the Class B Preferred Stock
with respect to distributions upon liquidation, dissolution or winding up shall
be insufficient to permit payment in full to such holders of the respective
preferential amounts to which they are entitled, then the entire assets of the
Corporation to be distributed to holders of the Class B Preferred Stock and such
Parity Stock shall be distributed pro rata to such holders based upon the
aggregate of the full preferential amounts to which the shares of Class B
Preferred Stock and such Parity Stock would otherwise respectively be entitled.
Neither the consolidation or merger of the Corporation with or into any other
corporation or corporations nor the sale, transfer or lease of all or
substantially all of the assets of the Corporation shall itself be deemed to be
a liquidation, dissolution or winding up of the Corporation within the meaning
of this paragraph 3. Notice of the liquidation, dissolution or winding up of the
Corporation shall be given, not less than 20 days prior to the date on which
such liquidation, dissolution or winding up is expected to take place or become
effective, to the holders of record of the shares of Class B Preferred Stock.
4. Redemption or Exchange.
(a) OPTIONAL REDEMPTION. Subject to the rights of any Senior Stock and the
provisions of paragraph 5 of this Section C, the shares of Class B Preferred
Stock may be redeemed, at the option of the Corporation by the action of the
Board of Directors, in whole or from time to time in part, on any Business Day
occurring after the Issue Date, at the Redemption Price on the Redemption Date.
If less than all outstanding shares of Class B Preferred Stock are to be
redeemed on any Redemption Date, the shares of Class B Preferred Stock to be
redeemed shall be chosen by lot or by such other method as the Board of
Directors
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considers fair and appropriate (and which complies with the requirements, if
any, of any national securities exchange or national interdealer quotation
system on which the Class B Preferred Stock may be listed or admitted to trading
or quoted). The Corporation shall not be required to register a transfer of (i)
any shares of Class B Preferred Stock for a period of 15 days next preceding any
selection of shares of Class B Preferred Stock to be redeemed or (ii) any shares
of Class B Preferred Stock selected or called for redemption.
(b) NOTICE OF REDEMPTION. Notice of redemption shall be given by or on
behalf of the Corporation, not more than 60 days nor less than 30 days prior to
the Redemption Date, to the holders of record of the shares of Class B Preferred
Stock to be redeemed; but no defect in such notice or in the mailing thereof
shall affect the validity of the proceedings for the redemption of any shares of
Class B Preferred Stock. In addition to any information required by law or by
the applicable rules of any national securities exchange or national interdealer
quotation system on which the Class B Preferred Stock may be listed or admitted
to trading or quoted, such notice shall set forth the Redemption Price, the
Redemption Date, the number of shares to be redeemed and the place at which the
shares called for redemption will, upon presentation and surrender of the stock
certificates evidencing such shares, be redeemed, and if the Corporation has
elected to deposit the Redemption Price with a Redemption Agent in accordance
with paragraph 4(c) below, shall state the name and address of the Redemption
Agent and the date on which such deposit was or will be made. In the event that
fewer than the total number of shares of Class B Preferred Stock represented by
a certificate are redeemed, a new certificate representing the number of
unredeemed shares will be issued to the holder thereof without cost to such
holder.
(c) DEPOSIT OF REDEMPTION PRICE. If notice of any redemption by the
Corporation pursuant to this paragraph 4 shall have been given as provided in
paragraph 4(b) above, and if on or before the Redemption Date specified in such
notice an amount in cash sufficient to redeem in full on the Redemption Date at
the Redemption Price all shares of Class B Preferred Stock called for redemption
shall have been set apart so as to be available for such purpose and only for
such purpose, then effective as of the close of business on the Redemption Date,
the shares of Class B Preferred Stock called for redemption, notwithstanding
that any certificate therefor shall not have been surrendered for cancellation,
shall no longer be deemed outstanding, and the holders thereof shall cease to be
stockholders with respect to such shares and all rights with respect to such
shares shall forthwith cease and terminate, except the right of the holders
thereof to receive the Redemption Price of such shares, without interest, upon
the surrender of certificates representing the same.
At its election, the Corporation on or prior to the Redemption Date (but no
more than 60 days prior to the Redemption Date) may deposit immediately
available funds in an amount equal to the aggregate Redemption Price of the
shares of Class B Preferred Stock called for redemption in trust for the holders
thereof with any bank or trust company organized under the laws of the United
States of America or any state thereof having capital, undivided profits and
surplus aggregating at least $50 million (the "Redemption Agent"), with
irrevocable instructions and authority to the Redemption Agent, on behalf and at
the expense of the Corporation, to mail the notice of redemption as soon as
practicable after receipt of such
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irrevocable instructions (or to complete such mailing previously commenced, if
it has not already been completed) and to pay, on and after the Redemption Date
or prior thereto, the Redemption Price of the shares of Class B Preferred Stock
to be redeemed to their respective holders upon the surrender of the
certificates therefor. A deposit made in compliance with the immediately
preceding sentence shall be deemed to constitute full payment for the shares of
Class B Preferred Stock to be redeemed and from and after the close of business
on the date of such deposit (although prior to the Redemption Date), the shares
of Class B Preferred Stock to be redeemed shall no longer be deemed outstanding
and the holders thereof shall cease to be stockholders with respect to such
shares and shall have no rights with respect to such shares except the right of
the holders thereof to receive the Redemption Price of such shares (calculated
through the Redemption Date), without interest, upon surrender of the
certificates therefor. Any interest accrued on the funds so deposited shall be
paid to the Corporation from time to time. Any funds so deposited with the
Redemption Agent which shall remain unclaimed by the holders of such shares of
Class B Preferred Stock at the end of one year after the Redemption Date shall
be returned by the Redemption Agent to the Corporation, after which repayment
the holders of such shares of Class B Preferred Stock called for redemption
shall look only to the Corporation for the payment thereof, without interest,
unless an applicable escheat or abandoned property law designates another
Person.
(d) OPTIONAL EXCHANGE FOR JUNIOR EXCHANGE NOTES. Subject to the rights of
any Senior Stock and the provisions of paragraph 5 of this Section C, the shares
of Class B Preferred Stock may be exchanged, out of funds legally available
therefor, at the option of the Corporation by action of the Board of Directors,
in whole but not in part, on any Business Day occurring after the Issue Date,
for Junior Exchange Notes. Each holder of outstanding shares of Class B
Preferred Stock shall be entitled to receive, in exchange for his shares of
Class B Preferred Stock pursuant to this paragraph 4(d), newly issued Junior
Exchange Notes of a series authorized and established for the purpose of such
exchange, the aggregate principal amount of which shall be equal to the
aggregate Liquidation Preference on the Optional Exchange Date of the shares of
Class B Preferred Stock so exchanged by such holder, provided that the Junior
Exchange Notes will be issuable only in principal amounts of $100 or any
integral multiple thereof and an adjustment will be paid by the Corporation, in
cash or by its check, in an amount equal to any excess principal amount
otherwise issuable.
(e) NOTICE OF EXCHANGE. Notice of the Corporation's election to exercise
its optional exchange right pursuant to paragraph 4(d) (an "Optional Exchange
Notice") shall be given by or on behalf of the Corporation, not more than 60
days nor less than 30 days prior to the Optional Exchange Date, to the holders
of record of the shares of Class B Preferred Stock; but no defect in such notice
or in the mailing thereof shall affect the validity of the proceedings for the
exchange of any shares of Class B Preferred Stock. In addition to any
information required by law or by the applicable rules of any national
securities exchange or national interdealer quotation system on which the shares
of Class B Preferred Stock may be listed or admitted to trading or quoted, such
notice shall set forth the Optional Exchange Date, the place at which shares of
Class B Preferred Stock will, upon presentation and surrender of the stock
certificates evidencing such shares, be exchanged for Junior Exchange Notes, and
the material terms (or, as to the rate per annum at which the Junior Exchange
Notes will bear
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interest, and, if applicable, as to any other of such terms, the method of
determining the same), consistent with the provisions hereof and of the Junior
Exchange Note Indenture, of the series of Junior Exchange Notes to be issued
upon such exchange.
Upon determination of the rate per annum at which the Junior Exchange Notes
to be issued upon such exchange will bear interest and any other terms of such
Junior Exchange Notes, the method of determining which was set forth in the
Optional Exchange Notice, the Corporation shall promptly give notice of such
determination to the holders of shares of Class B Preferred Stock, which notice
may be given by (or, if required by applicable law, shall be given by)
publication of such determination in a daily newspaper of national circulation.
(f) CONDITIONS TO EXCHANGE FOR JUNIOR EXCHANGE NOTE. Prior to the giving of
an Optional Exchange Notice, the Corporation shall execute and deliver, with a
bank or trust company selected by the Corporation, the Junior Exchange Note
Indenture, substantially in the form annexed to the S-4 Registration Statement
with only such changes as (i) are necessary to comply with law, any applicable
rules of any securities exchange or usage, (ii) are requested by the Corporation
and which would make any provisions of the Junior Exchange Note Indenture, or of
the Junior Exchange Notes of the series established thereunder for the purpose
of such exchange, more restrictive to the Corporation or beneficial to the
holders of the Junior Exchange Notes of such series, as determined by the Board
of Directors in good faith, such determination to be conclusive, (iii) are
requested by the Corporation to add to the covenants and agreements of the
Corporation contained in the Junior Exchange Note Indenture or to remove any
right or power therein reserved to or conferred upon the Corporation, (iv) are
requested by the Corporation in the event of any amendment to this Certificate
that effects a change in the terms of the Class B Preferred Stock, to conform
(as nearly as may be taking into account the differences between debt securities
and equity securities) the provisions of the Junior Exchange Note Indenture
(including, without limitation, the provisions relating to the establishment of
the terms of any series of Junior Exchange Notes authorized to be issued
thereunder) to the terms of the Class B Preferred Stock as so changed, (v) are
consented to by the holders of at least a majority of the number of shares of
Class B Preferred Stock then outstanding (or such greater percentage thereof as
may be required by applicable law or any applicable rules of any national
securities exchange or national interdealer quotation system), either in writing
or by vote at a meeting called for that purpose at which the holders of Class B
Preferred Stock shall vote as a separate class, or (vi) would not adversely
affect the rights of the holders of Junior Exchange Notes of such series
issuable thereunder.
Prior to the Optional Exchange Date, the Corporation shall (i) establish in
the manner contemplated by the Junior Exchange Note Indenture the terms of the
series of Junior Exchange Notes to be issued thereunder on the Optional Exchange
Date, and (ii) file at the office of the exchange agent for the Class B
Preferred Stock (or with the books of the Corporation if there is no exchange
agent) an opinion of counsel to the effect that (A) the Junior Exchange Note
Indenture has been duly authorized, executed and delivered by the Corporation,
and constitutes a valid and binding instrument enforceable against the
Corporation in accordance with its terms (subject, as to enforceability, to
bankruptcy, insolvency, reorganization and other laws of general applicability
relating to or affecting creditors' rights and to general principles of equity
and
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except that the Corporation may be prohibited from making payments on the Junior
Exchange Notes of the series to be issued if and to the extent it would at the
time be prohibited from redeeming capital stock and subject to other
qualifications as are then customarily contained in opinions of counsel
experienced in such matters); (B) that the Junior Exchange Notes of such series
have been duly authorized and, when executed and authenticated in accordance
with the provisions of the Junior Exchange Note Indenture and delivered in
exchange for the shares of Class B Preferred Stock, will constitute valid and
binding obligations of the Corporation entitled to the benefits of the Junior
Exchange Note Indenture (subject as aforesaid); (C) that the issuance and
delivery of the Junior Exchange Notes of such series in exchange for the shares
of Class B Preferred Stock will not violate the laws of the state of
incorporation of the Corporation; and (D) that (x) the Junior Exchange Note
Indenture has been duly qualified under the TIA (or that such qualification is
not necessary) and (y) that the issuance and delivery of the Junior Exchange
Notes of such series in exchange for the shares of Class B Preferred Stock is
exempt from the registration or qualification requirements of the 1933 Act and
applicable state securities laws or, if no such exemption is available, that the
Junior Exchange Notes of such series have been duly registered or qualified for
such exchange under the 1933 Act and such applicable state securities laws.
(g) METHOD OF EXCHANGE. If an Optional Exchange Notice shall have been
given by the Corporation pursuant to paragraph 4(e) of this Section C, and if
the Corporation shall have satisfied the conditions to such exchange contained
in paragraph 4(f), then effective as of the close of business on the Optional
Exchange Date, the shares of Class B Preferred Stock, notwithstanding that any
certificate therefor shall not have been surrendered for cancellation, shall no
longer be deemed outstanding, and the holders thereof shall cease to be
stockholders with respect to such shares and all rights with respect to such
shares shall forthwith cease and terminate, except the right of the holders
thereof upon the surrender of certificates evidencing the same to receive the
Junior Exchange Notes exchangeable therefor, and the cash adjustment, if any, in
lieu of Junior Exchange Notes in other than authorized denominations, without
interest.
Before any holder of shares of Class B Preferred Stock called for exchange
shall be entitled to receive the Junior Exchange Notes deliverable in exchange
therefor, such holder shall surrender the certificate or certificates
representing the shares to be exchanged at such place as the Corporation shall
have specified in the Optional Exchange Notice, which certificate or
certificates shall be duly endorsed to the Corporation or in blank (or
accompanied by duly executed instruments to transfer to the Corporation or in
blank) with signatures guaranteed (such endorsements or instruments of transfer
to be in form satisfactory to the Corporation), together with a written notice
to the Corporation, specifying the name or names (with addresses) in which the
Junior Exchange Notes are to be issued. If any transfer is involved in the
issuance or delivery of any Junior Exchange Notes in a name other than that of
the registered holder of the shares of Class B Preferred Stock surrendered for
exchange, such holder shall also deliver to the Corporation a sum sufficient for
all taxes payable in respect of such transfer or evidence satisfactory to the
Corporation that such taxes have been paid. Except as provided in the
immediately preceding sentence, the Corporation shall pay any issue, stamp or
other similar tax in respect of such issuance or delivery.
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As soon as practicable after the later of the Optional Exchange Date and
the proper surrender of the certificate(s) for such shares of Class B Preferred
Stock as provided above, the Corporation shall deliver at the place specified in
the Optional Exchange Notice, to the holder of the shares of Class B Preferred
Stock so surrendered, or to his nominee(s) or, subject to compliance with
applicable law, transferee(s), a Junior Exchange Note or Notes (of authorized
denominations) in the principal amount to which he shall be entitled upon such
exchange, together with a check in the amount of any cash adjustment as provided
in paragraph 4(d). The Person in whose name any Junior Exchange Note is issued
upon an exchange pursuant to paragraph 4(d) shall be treated for all purposes as
the holder of record thereof as of the close of business on the Optional
Exchange Date.
(h) STATUS OF REDEEMED SHARES. All shares of Class B Preferred Stock
redeemed, exchanged, purchased or otherwise acquired by the Corporation shall be
retired and shall not be reissued.
5. Limitations on Dividends and Redemptions.
If at any time the Corporation shall have failed to pay, or declare and set
aside the consideration sufficient to pay, full cumulative dividends for all
prior dividend periods on any Parity Stock which by the terms of the instrument
creating or evidencing such Parity Stock is entitled to the payment of such
cumulative dividends prior to the redemption, exchange, purchase or other
acquisition of the Class B Preferred Stock, and until full cumulative dividends
on such Parity Stock for all prior dividend periods are paid, or declared and
the consideration sufficient to pay the same in full is set aside so as to be
available for such purpose and no other purpose, neither the Corporation nor any
Subsidiary thereof shall redeem, exchange, purchase or otherwise acquire any
shares of Class B Preferred Stock, Parity Stock or Junior Stock, or set aside
any money or assets for any such purpose, pursuant to paragraph 4 hereof, a
sinking fund or otherwise, unless all then outstanding shares of Class B
Preferred Stock, of such Parity Stock and of any other class of series of Parity
Stock that by the terms of the instrument creating or evidencing such Parity
Stock is required to be redeemed under such circumstances are redeemed or
exchanged pursuant to the terms hereof and thereof.
If at any time the Corporation shall have failed to pay, or declare and set
aside the consideration sufficient to pay, full cumulative dividends on the
Class B Preferred Stock for all Dividend Periods ending on or before the
immediately preceding Dividend Payment Date, and until full cumulative dividends
on the Class B Preferred Stock for all Dividend Periods ending on or before the
immediately preceding Dividend Payment Date are paid, or declared and the
consideration sufficient to pay the same in full is set aside so as to be
available for such purpose and no other purpose, neither the Corporation nor any
Subsidiary thereof shall redeem, exchange, purchase or otherwise acquire any
shares of Class B Preferred Stock, Parity Stock or Junior Stock, or set aside
any money or assets for any such purpose, pursuant to paragraph 4 hereof, a
sinking fund or otherwise, unless all then outstanding shares of Class B
Preferred Stock and of any other class or series of Parity Stock that by the
terms of the instrument creating or evidencing such Parity Stock is required to
be redeemed under such circumstances are redeemed or exchanged pursuant to the
terms hereof and thereof.
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If at any time the Corporation shall have failed to pay, or declare and set
aside the consideration sufficient to pay, full cumulative dividends on the
Class B Preferred Stock for all Dividend Periods ending on or before the
immediately preceding Dividend Payment Date, and until the full cumulative
dividends on the Class B Preferred Stock for all Dividend Periods ending on or
before the immediately preceding Dividend Payment Date are paid, or declared and
the consideration sufficient to pay the same in full is set aside for such
purpose and no other purpose, the Corporation shall not declare or pay any
dividend on or make any distribution with respect to any Junior Stock or Parity
Stock or set aside any money or assets for any such purpose, except that the
Corporation may declare and pay a dividend on any Parity Stock ranking on a
parity basis with the Class B Preferred Stock with respect to the right to
receive dividend payments, contemporaneously with the declaration and payment of
a dividend on the Class B Preferred Stock, provided that such dividends are
declared and paid pro rata so that the amount of dividends declared and paid per
share of the Class B Preferred Stock and such Parity Stock shall in all cases
bear to each other the same ratio that accumulated and accrued and unpaid
dividends per share on the Class B Preferred Stock and such Parity Stock bear to
each other.
If the Corporation shall fail to redeem or exchange on any date fixed for
redemption or exchange pursuant to paragraph 4(a) or 4(d) hereof any shares of
Class B Preferred Stock called for redemption or exchange on such date, and
until such shares are redeemed or exchanged in full, the Corporation shall not
redeem or exchange any Parity Stock or Junior Stock or declare or pay any
dividend on or make any distribution with respect to any Junior Stock, or set
aside any money or assets for any such purpose, and neither the Corporation nor
any Subsidiary thereof shall purchase or otherwise acquire any Class B Preferred
Stock, Parity Stock or Junior Stock, or set aside any money or assets for any
such purpose.
Neither the Corporation nor any Subsidiary thereof shall redeem, exchange,
purchase or otherwise acquire any Parity Stock or Junior Stock, or set aside any
money or assets for any such purpose, if after giving effect to such redemption,
exchange, purchase or other acquisition, the amount (as determined by the Board
or Directors in good faith) that would be available for distribution to the
holders of the Class B Preferred Stock upon liquidation, dissolution or winding
up of the Corporation if such liquidation, dissolution or winding up were to
occur on the date fixed for such redemption, exchange, purchase or other
acquisition of such Parity Stock or Junior Stock would be less than the
aggregate Liquidation Preference as of such date of all shares of Class B
Preferred Stock then outstanding.
Nothing contained in the first, fourth or fifth paragraph of this paragraph
5 shall prevent (i) the payment of dividends on any Junior Stock solely in
shares of Junior Stock or the redemption, purchase or other acquisition of
Junior Stock solely in exchange for (together with a cash adjustment for
fractional shares, if any), or (but only in the case of the first and fifth
paragraphs hereof) through the application of the proceeds from the sale of,
shares of Junior Stock; or (ii) the payment of dividends on any Parity Stock
solely in shares of Parity Stock and/or Junior Stock or the redemption,
exchange, purchase or other acquisition of Class B Preferred Stock or Parity
Stock solely in exchange for (together with a cash adjustment for fractional
shares, if any), or (but only in the case of the first and fifth paragraphs
hereof) through the application of the proceeds from the sale of, shares of
Parity Stock and/or Junior Stock.
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The provisions of the first paragraph of this paragraph 5 are for the sole
benefit of the holders of Class B Preferred Stock and Parity Stock having the
terms described therein and accordingly, at any time when there are no shares of
any such class or series of Parity Stock outstanding or if the holders of each
such class or series of Parity Stock have, by such vote or consent of the
holders thereof as may be provided for in the instrument creating or evidencing
such class or series, waived in whole or in part the benefit of such provisions
(either generally or in the specific instance), then the provisions of the first
paragraph of this paragraph 5 shall not (to the extent waived, in the case of
any partial waiver) restrict the redemption, exchange, purchase or other
acquisition of any shares of Class B Preferred Stock, Parity Stock or Junior
Stock. All other provisions of this paragraph 5 are for the sole benefit of the
holders of Class B Preferred Stock and accordingly, if the holders of shares of
Class B Preferred Stock shall have waived (as provided in paragraph 7 of this
Section C) in whole or in part the benefit of the applicable provisions, either
generally or in the specific instance, such provision shall not (to the extent
of such waiver, in the case of a partial waiver) restrict the redemption,
exchange, purchase or other acquisition of, or declaration, payment or making of
any dividends or distributions on the Class B Preferred Stock, any Parity Stock
or any Junior Stock.
6. Voting
(a) VOTING RIGHTS. The holders of Class B preferred Stock shall have no
voting rights whatsoever, except as required by law and except for the voting
rights described in this paragraph 6; provided, however, that the number of
authorized shares of Class B Preferred Stock may be increased or decreased (but
not below the number of shares of Class B Preferred Stock then outstanding) by
the affirmative vote of the holders of at least 66 2/3% of the total voting
power of the then outstanding Voting Securities (as defined in Section C of
Article V of this Certificate), voting together as a single class as provided in
Article IX of this Certificate. Without limiting the generality of the
foregoing, no vote or consent of the holders of Class B Preferred Stock shall be
required for (a) the creation of any indebtedness of any kind of the
Corporation, (b) the creation or designation of any class or series of Senior
Stock, Parity Stock or Junior Stock, or (c) any amendment to this Certificate
that would increase the number of authorized shares of Preferred Stock or the
number of authorized shares of Class B Preferred Stock or that would decrease
the number of authorized shares of Preferred Stock or the number of authorized
shares of Class B Preferred Stock (but not below the number of shares of
Preferred Stock or Class B Preferred Stock, as the case may be, then
outstanding).
(b) ELECTION OF DIRECTORS. The holders of the Class B Preferred Stock shall
have the right to vote at any annual or special meeting of stockholders for the
purpose of electing directors. Each share of Class B Preferred Stock shall have
one vote for such purpose, and shall vote as a single class with any other class
or series of capital stock of the Corporation entitled to vote in any general
election of directors, unless the instrument creating or evidencing such class
or series of capital stock otherwise expressly provides.
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7. Waiver.
Any provision of this Section C which, for the benefit of the holders of
Class B Preferred Stock, prohibits, limits or restricts actions by the
Corporation, or imposes obligations on the Corporation, may be waived in
whole or in part, or the application of all or any part of such provision in any
particular circumstance or generally may be waived, in each case with the
consent of the holders of at least a majority of the number of shares of Class B
Preferred Stock then outstanding (or such greater percentage thereof as may be
required by applicable law or any applicable rules of any national securities
exchange or national interdealer quotation system), either in writing or by vote
at an annual meeting or a meeting called for such purpose at which the holders
of Class B Preferred Stock shall vote as a separate class.
8. Method of Giving Notices.
Any notice required or permitted by the provisions of this Section C to be
given to the holders of shares of Class B Preferred Stock shall be deemed duly
given if deposited in the United States mail, first class mail, postage prepaid,
and addressed to each holder of record at his address appearing on the books of
the Corporation or supplied by him in writing to the Corporation for the purpose
of such notice.
9. Exclusion of Other Rights.
Except as may otherwise be required by law and except for the equitable
rights and remedies which may otherwise be available to holders of Class B
Preferred Stock, the shares of Class B Preferred Stock shall not have any
designations, preferences, limitations or relative rights other than those
specifically set forth in this Certificate.
10. Heading of Subdivisions.
The headings of the various subdivisions of this Section C are for
convenience of reference only and shall not affect the interpretation of any of
the provisions of this Section C.
SECTION D
SERIES PREFERRED STOCK
The Series Preferred Stock may be issued, from time to time, in one or more
series, with such designations, preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions thereof, as shall be stated and expressed in a resolution or
resolutions providing for the issue of such series adopted by the Board of
Directors. The Board of Directors, in such resolution or resolutions (a copy of
which shall be filed and recorded as required by law), is also expressly
authorized to fix:
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(i) the distinctive serial designations and the division of such
shares into series and the number of shares of a particular series, which
may be increased or decreased, but not below the number of shares thereof
then outstanding, by a certificate made, signed, filed and recorded as
required by law;
(ii) the annual dividend rate, if any, for the particular series, and
the date or dates from which dividends on all shares of such series shall
be cumulative, if dividends on stock of the particular series shall be
cumulative:
(iii) the redemption price or prices for the particular series:
(iv) the right, if any, of the holders of a particular series to
convert or exchange such stock into or for other classes of stock or
indebtedness of the Corporation, and the terms and conditions of such
conversion;
(v) the voting rights, if any, of the holders of a particular series;
and
(vi) the obligation, if any, of the Corporation to purchase and retire
and redeem shares of a particular series as a sinking fund or redemption or
purchase account, the terms thereof and the redemption price or prices per
share for such series redeemed pursuant to the sinking fund or redemption
account.
All shares of any one series of the Series Preferred Stock shall be alike
in every particular and all series shall rank equally and be identical in all
respects except insofar as they may vary with respect to the matters which the
Board of Directors is hereby expressly authorized to determine in the resolution
or resolutions providing for the issue of any series of the Series Preferred
Stock.
SECTION E
CLASS A COMMON STOCK AND CLASS B COMMON STOCK
Each share of the Class A Common Stock, par value $1.00 per share (the
"Class A Common Stock"), and each share of the Class B Preferred Stock, par
value $1.00 per share (the "Class B Common Stock"), of the Corporation shall,
except as otherwise provided in this Section E, be identical in all respects and
shall have equal rights and privileges.
1. Voting Rights.
Holders of Class A Common Stock shall be entitled to one vote for each
share of such stock held, and holders of Class B Preferred Stock shall be
entitled to ten votes for each share of such stock held, on all matters
presented to such stockholders. Except as may otherwise be required by the laws
of the State of Delaware or in the instrument creating or evidencing any class
or series of Preferred Stock the holders of shares of Class A Common Stock
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and the holders of shares of Class B Common Stock shall vote with the holders of
Preferred Stock, if any, as one class with respect to the election of directors
and with respect to all other matters to be voted on by stockholders of the
Corporation (including, without limitations, any proposed amendment to this
Certificate that would increase the number of authorized shares of Class A
Common Stock, of Class B Common Stock or of any class or series of Preferred
Stock or decrease the number of authorized shares of any such class or series of
stock (but not below the number of shares thereof then outstanding)), and no
separate vote or consent of the holders of shares of Class A Common Stock, the
holders of shares of Class B Common Stock or the holders of shares of Preferred
Stock shall be required for the approval of any such matter.
2. Conversion Rights.
Each share of Class B Common Stock shall be convertible, at the option of
the holder thereof, into one share of Class A Common Stock. Any such conversion
may be effected by any holder of Class B Common Stock by surrendering such
holder's certificate or certificates for the Class B Common Stock to be
converted, duly endorsed, at the office of the Corporation or any transfer agent
for the Class B Common Stock, together with a written notice to the Corporation
at such office that such holder elects to convert all or a specified number of
shares of Class B Common Stock represented by such certificate and stating the
name or names in which such holder desires the certificate or certificates for
Class A Common Stock to be issued. If so required by the Corporation, any
certificate for shares surrendered for conversion shall be accompanied by
instruments of transfer, in form satisfactory to the Corporation, duly executed
by the holder of such shares or the duly authorized representative of such
holder. Promptly thereafter, the Corporation shall issue and deliver to such
holder or such holder's nominee or nominees, a certificate or certificates for
the number of shares of Class A Common Stock to which such holder shall be
entitled as herein provided. Such conversion shall be deemed to have been made
at the close of business on the date of receipt by the Corporation or any such
transfer agent of the certificate or certificates, notice and, if required,
instruments of transfer referred to above, and the person or persons entitled to
receive the Class A Common Stock issuable on such conversion shall be treated
for all purposes as the record holder or holders of such Class A Common Stock on
that date. A number of shares of Class A Common Stock equal to the number of
shares of Class B Common Stock outstanding from time to time shall be set aside
and reserved for issuance upon conversion of shares of Class B Common Stock.
Shares of Class B Common Stock that have been converted hereunder shall remain
treasury shares to be disposed of by resolution of the Board of Directors.
Shares of Class A Common Stock shall not be convertible into shares of Class B
Common Stock.
3. Dividends. Subject to paragraph 4 of this Section E, whenever a dividend
is paid to the holders of Class A Common Stock, the Corporation also shall pay
to the holders of Class B Common Stock a dividend per share at least equal to
the dividend per share paid to the holders of the Class A Common Stock. Subject
to paragraph 4 of this Section E, whenever a dividend is paid to the holders of
Class B Common Stock, the Corporation shall also pay to the holders of the Class
A Common Stock a dividend per share at least equal to the dividend per share
paid to the holders of the Class B Common Stock. Dividends shall be payable only
as and when declared by the Board of Directors.
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4. Share Distributions. If at any time a distribution on the Class A Common
Stock or Class B Common Stock is to be paid in Class A Common Stock, Class B
Common Stock or any other securities of the Corporation (hereinafter sometimes
called a "share distribution"), such share distribution may be declared and paid
only as follows:
(a) a share distribution consisting of Class A Common Stock to holders of
Class A Common Stock and Class B Common Stock, on an equal per share basis; or
to holders of Class A Common Stock only, but in such event there shall also be a
simultaneous share distribution to holders of Class B Common Stock consisting of
shares of Class B Common Stock on an equal per share basis:
(b) a share distribution consisting of Class B Common Stock to holders of
Class B Common Stock and Class A Common Stock, on an equal per share basis; or
to holders of Class B Common Stock only, but in such event there shall also be a
simultaneous share distribution to holders of Class A Common Stock consisting of
shares of Class A Common Stock on an equal per share basis; and
(c) a share distribution consisting of any class of securities of the
Corporation other than Common Stock, to the holders of Class A Common Stock and
the holders of Class B Common Stock on an equal per share basis.
The Corporation shall not reclassify, subdivide or combine one class of its
Common Stock without reclassifying, subdividing or combining the other class of
Common Stock, on an equal per share basis.
5. Liquidation and Mergers. Subject to the prior payment in full of the
preferential amounts to which any Preferred Stock is entitled, the holders of
Class A Common Stock and the holders of Class B Common Stock shall share
equally, on a share for share basis, in any distribution of the Corporation's
assets upon any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, after payment or provisions for payment of the
debts and other liabilities of the Corporation. Neither the consolidation or
merger of the Corporation with or into any other corporation or corporations nor
the sale, transfer or lease of all or substantially all of the assets of the
Corporation shall itself be deemed to be a liquidation, dissolution or winding
up of the Corporation within the meaning of this paragraph 5.
SECTION F
UNCLAIMED DIVIDENDS
Any and all right, title, interest and claim in or to any dividends
declared by the Corporation, whether in cash, stock or otherwise, which are
unclaimed for a period of four years after the close of business on the payment
date, shall be and be deemed extinguished and abandoned; and such unclaimed
dividends in the possession of the Corporation, its transfer agent
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or other agents or depositories, shall at such time become the absolute property
of the Corporation, free and clear of any and all claims of any Persons
whatsoever.
ARTICLE V
DIRECTORS
SECTION A
NUMBER OF DIRECTORS
The governing body of the Corporation shall be a Board of Directors.
Subject to any rights of the holders of any class or series of Preferred Stock
to elect additional directors, the number of directors shall not be less than
three (3) and the exact number of directors shall be fixed by the Board of
Directors by resolution. Election of directors need not be by written ballot.
SECTION B
CLASSIFICATION OF THE BOARD
Except as otherwise fixed by or pursuant to the provisions of Article IV
hereof relating to the rights of the holders of any class or series of Preferred
Stock to separately elect additional directors, which additional directors are
not required to be classified pursuant to the terms of such class or series of
Preferred Stock, the Board of Directors of the Corporation shall be divided into
three classes: Class I, Class II and Class III. Each class shall consist, as
nearly as possible, of a number of directors equal to one-third (33 1/3%) of the
then authorized number of members of the Board of Directors. The term of office
of the initial Class I directors shall expire at the annual meeting of
stockholders in 1995; the term of office of the initial Class II directors shall
expire at the annual meeting of stockholders in 1996; and term of office of the
initial Class III directors shall expire at the annual meeting of stockholders
in 1997. At each annual meeting of stockholders of the Corporation the
successors of that class of directors whose term expires at that meeting shall
be elected to hold office for a term expiring at the annual meeting of
stockholders held in the third year following the year of their election. The
directors of each class will hold office until their respective successors are
elected and qualified.
SECTION C
REMOVAL OF DIRECTORS
Subject to the rights of the holders of any class or series of Preferred
Stock, directors may be removed from office only for cause (as hereinafter
defined) upon the affirmative vote of the
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holders of at least 66 2/3% of the total voting power of the then outstanding
Voting Securities (as hereinafter defined), voting together as a single class.
Except as may otherwise to provided by law, "cause" for removal, for purposes of
this Section C, shall exist only if: (i) the director whose removal is proposed
has been convicted of a felony, or has been granted immunity to testify in an
action where another has been convicted of a felony, by a court of competent
jurisdiction and such conviction is no longer subject to direct appeal; (ii)
such director has become mentally incompetent, whether or not so adjudicated,
which mental incompetence directly affects his ability as a director of the
Corporation, as determined by at least 66 2/3% of the members of the Board of
Directors then in office (other than such director); or (iii) such director's
actions or failure to act have been determined by at least 66 2/3% of the
members of the Board of Directors then in office (other than such director) to
be in derogation of the director's duties. The term "Voting Securities" shall
include the Class A Common Stock, the Class B Common Stock and any class or
series of Preferred Stock entitled to vote with the holders of Common Stock
generally upon all matters which may be submitted to a vote of stockholders at
any annual meeting or special meeting thereof.
SECTION D
NEWLY CREATED DIRECTORSHIPS AND VACANCIES
Subject to the rights of the holders of any class or series of Preferred
Stock, vacancies on the Board of Directors resulting from death, resignation,
removal, disqualification or other cause, and newly created directorships
resulting from any increase in the number of directors on the Board of
Directors, shall be filled by the affirmative vote of a majority of the
remaining directors then in office (even though less than a quorum) or by the
sole remaining director. Any director elected in accordance with the preceding
sentence shall hold office for the remainder of the full term of the class of
directors in which the vacancy occurred or to which the new directorship is
apportioned, and until such director's successor shall have been elected and
qualified. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director, except as may be
provided in the terms of any class or series of Preferred Stock with respect to
any additional director elected by the holders of such class or series of
Preferred Stock.
SECTION E
LIMITATION ON LIABILITY AND INDEMNIFICATION
1. Limitation On Liability.
To the fullest extent permitted by the Delaware General Corporation Law as
the same exists or may hereafter be amended, a director of the Corporation shall
not be liable to the Corporation or any of its stockholders for monetary damages
for breach of fiduciary duty as a director. Any repeal or modification of this
paragraph 1 shall be prospective only and shall not
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adversely affect any limitation, right or protection of a director of the
Corporation existing at the time of such repeal or modification.
2. Indemnification.
(a) RIGHT TO INDEMNIFICATION. The Corporation shall indemnify and hold
harmless, to the fullest extent permitted by applicable law as it presently
exists or may hereafter be amended, any person who was or is made or is
threatened to be made a party or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"proceeding") by reason of the fact that he, or a person for whom he is the
legal representative, is or was a director or officer of the Corporation or is
or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust, enterprise or nonprofit entity, including service with respect to
employee benefit plans, against all liability and loss suffered and expenses
(including attorneys' fees) reasonably incurred by such person. Such right of
indemnification shall inure whether or not the claim asserted is based on
matters which antedate the adoption of this Section E. The Corporation shall be
required to indemnify a person in connection with a proceeding (or part thereof)
initiated by such person only if the proceeding (or part thereof) was authorized
by the Board of Directors of the Corporation.
(b) PREPAYMENT OF EXPENSES. The Corporation shall pay the expenses
(including attorneys' fees) incurred in defending any proceeding in advance of
its final disposition, provided, however, that the payment of expenses incurred
by a director or officer in advance of the final disposition of the proceeding
shall be made only upon receipt of an undertaking by the director or officer to
repay all amounts advanced if it should be ultimately determined that the
director or officer is not entitled to be indemnified under this paragraph or
otherwise.
(c) CLAIMS. If a claim for indemnification or payment of expenses under
this paragraph is not paid in full within 60 days after a written claim therefor
has been received by the Corporation, the claimant may file suit to recover the
unpaid amount of such claim and, if successful in whole or in part, shall be
entitled to be paid the expense of prosecuting such claim. In any such action
the Corporation shall have the burden of proving that the claimant was not
entitled to the requested indemnification or payment of expenses under
applicable law.
(d) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by this
paragraph shall not be exclusive of any other rights which such person may or
hereafter acquire under any statute, provision of this Certificate, the Bylaws,
agreement, vote of stockholders or disinterested directors or otherwise.
(e) OTHER INDEMNIFICATION. The Corporation's obligation, if any, to
indemnify any person who was or is serving at its request as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, enterprise or nonprofit entity shall be reduced by any amount such person
may collect as indemnification from such other corporation, partnership, joint
venture, trust, enterprise or nonprofit entity.
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3. Amendment or Repeal.
Any repeal or modification of the foregoing provisions of this Section E
shall not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification.
SECTION F
AMENDMENT OF BYLAWS
In furtherance and not in limitation of the powers conferred by the laws of
the State of Delaware, the Board of Directors, by action taken by the
affirmative vote of not less than 75% of the members of the Board of Directors
then in office, is hereby expressly authorized and empowered to adopt, amend or
repeal any provision of the Bylaws of this Corporation.
ARTICLE VI
TERM
The term of existence of this Corporation shall be perpetual.
ARTICLE VII
STOCK NOT ASSESSABLE
The capital stock of this Corporation shall not be assessable. It shall be
issued as fully paid, and the private property of the stockholders shall not be
liable for the debts, obligations or liabilities of this Corporation. This
Certificate shall not be subject to amendment in this respect.
ARTICLE VIII
MEETINGS OF STOCKHOLDERS
SECTION A
ANNUAL AND SPECIAL MEETINGS
Subject to the rights of the holders of any class or series of Preferred
Stock, stockholder action may be taken only at an annual or special meeting.
Except as otherwise provided in the
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terms of any class or series of Preferred Stock or unless otherwise prescribed
by law or by another provision of this Certificate, special meetings of the
stockholders of the Corporation, for any purpose or purposes, shall be called by
the Secretary of the Corporation (i) upon the written request of the holders of
not less than 66 2/3% of the total voting power of the outstanding Voting
Securities (as defined in Section C of Article V of this Certificate) or (ii) at
the request of at least 75% of the members of the Board of Directors then in
office.
SECTION B
ANNUAL AND SPECIAL MEETINGS
Except as otherwise provided in the terms of any class or series of
Preferred Stock, no action required to be taken or which may be taken at any
annual meeting or special meeting of stockholders may be taken without a
meeting, and the power of stockholders to consent in writing, without a meeting,
is specifically denied.
ARTICLE IX
ACTIONS REQUIRING SUPERMAJORITY STOCKHOLDER VOTE
Subject to the rights of the holders of any class or series of Preferred
Stock, the affirmative vote of the holders of at least 66 2/3% of the total
voting power of the then outstanding Voting Securities (as defined in Section C
of Article V of this Certificate), voting together as a single class at a
meeting specifically called for such purpose, shall be required in order for the
Corporation to take any action to authorize:
(a) the amendment, alteration or repeal of any provision of this
Certificate or the addition or insertion of other provisions herein;
(b) the adoption, amendment or repeal of any provision of the Bylaws of the
Corporation; provided, however, that this clause (b) shall not apply to, and no
vote of the stockholders of the Corporation shall be required to authorize, the
adoption, amendment or repeal of any provision of the Bylaws of the Corporation
by the Board of Directors in accordance with the power conferred upon it
pursuant to Section F of Article V of this Certificate;
(c) the merger or consolidation of this Corporation with or into any other
corporation; provided, however, that this clause (c) shall not apply to any
merger or consolidation (i) as to which the laws of the State of Delaware, as
then in effect, do not require the consent of this Corporation's stockholders,
or (ii) which at least 75% of the members of the Board of Directors then in
office have approved;
(d) the sale, lease or exchange of all, or substantially all, of the
property and assets of the Corporation; or
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(e) the dissolution of the Corporation.
All rights at any time conferred upon the stockholders of the Corporation
pursuant to this Certificate are granted subject to the provisions of this
Article IX.
# # # #
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IN WITNESS WHEREOF, the undersigned has signed this Restated Certificate of
Incorporation this 4th DAY OF August, 1994.
TCI/LIBERTY HOLDING COMPANY
By: /s/ Brendan R. Clouston
Brendan R. Clouston
Title: Executive Vice President
ATTEST:
By: /s/ Stephen M. Brett
Stephen M. Brett
Title: Secretary
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STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE PAGE 1
--------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "TELE-COMMUNICATIONS, INC.", FILED IN THIS OFFICE ON THE FOURTH
DAY OF AUGUST, A.D. 1994, AT 4:18 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT
COUNTY RECORDER OF DEEDS FOR RECORDING.
[SEAL]
/s/ EDWARD J. FREEL
EDWARD J. FREEL, SECRETARY OF STATE
AUTHENTICATION:
7202383
DATE: 08-04-94
40
TELE-COMMUNICATIONS, INC.
CERTIFICATE OF DESIGNATION
--------------------
SETTING FORTH A COPY OF A RESOLUTION
CREATING AND AUTHORIZING THE ISSUANCE
OF A SERIES OF PREFERRED STOCK DESIGNATED
AS "CONVERTIBLE PREFERRED STOCK,
SERIES C" ADOPTED BY THE BOARD OF DIRECTORS
OF TELE-COMMUNICATIONS, INC.
--------------------
The undersigned Executive Vice President of Tele-Commumcations, Inc.,
a Delaware corporation (the "Corporation"), hereby certifies that the Board of
Directors duly adopted the following resolutions creating a series of preferred
stock designated as "Convertible Preferred Stock, SERIES C":
"BE IT RESOLVED, that, pursuant to authority expressly granted by the
provisions of the Restated Certificate of Incorporation of this Corporation,
the Board of Directors hereby creates and authorizes the issuance of a series
of preferred stock, par value $1.00 per share, of this Corporation, to consist
of 80,000 shares, and hereby fixes the designations, dividend rights, voting
powers, rights on liquidation and other preferences and relative,
participating, optional or other special rights and the qualifications,
limitations or restrictions thereof of the shares of such series (in addition
to the designations, preferences and relative, participating, limitations or
restrictions thereof set forth in the Restated Certificate of Incorporation
that are applicable to preferred stock of all series) as follows:
1. Designation. The designation of the series of preferred stock,
par value $1.00 per share, of this Corporation authorized hereby is
"Convertible Preferred Stock, Series C" (the "Convertible Preferred Stock").
2. Certain Definitions. Unless the context otherwise requires,
the terms defined in this Section 2 shall have the meanings herein specified:
Affiliate: As defined in Section 7(b).
41
Board of Directors: The Board of Directors of this Corporation and any
authorized committee thereof.
Capital Stock: Any and all shares, interests, participations or other
equivalents (however designated) of corporate stock of this Corporation.
Class A Common Stock: The Class A Common Stock, par value $1.00 per
share, of this Corporation as such exists on the date of this Certificate of
Designations, and Capital Stock of any other class into which such Class A
Common Stock may thereafter have been changed.
Class B Common Stock: The Class B Common Stock, par value $1.00 per
share, of this Corporation as such exists on the date of this Certificate of
Designations, and Capital Stock of any other class into which such Class B
Common Stock may thereafter have been changed.
Conversion Rate: As defined in Section 5(b).
Convertible Preferred Holder: As defined in Section 7(a).
Convertible Securities: Securities, other than the Class B Common
Stock, that are convertible into Class A Common Stock.
Debt Instrument: Any bond, debenture, note, indenture, guarantee or
other instrument or agreement evidencing any Indebtedness, whether existing
at the Issue Date or thereafter created, incurred, assumed or guaranteed.
Dividend Payment Date: As defined in Section 3(b).
Dividend Period: The period from but excluding the First Accrual Date
to and including the first Dividend Payment Date and each three-month period
from but excluding the Dividend Payment Date for the preceding Dividend Period
to and including the Dividend Payment Date for such Dividend Period.
First Accrual Date: August 8, 1994.
Indebtedness: Any (i) liability, contingent or otherwise, of this
Corporation (x) for borrowed money whether or not the recourse of the lender is
to the whole of the assets of this Corporation or only to a portion thereof),
(y) evidenced by a note, debenture or similar instrument (including a purchase
money obligation) given other than in connection with the acquisition of
inventory or similar property in the ordinary course of business, or (z) for
the payment of money relating to an obligation under a lease that is required
to be capitalized for financial accounting purposes in accordance with
generally accepted accounting principles; (ii) liability of others described in
the preceding clause (i) which this Corporation has guaranteed or which is
otherwise its legal liability; (iii) obligations secured by a mortgage,
pledge, lien, charge or other encumbrance
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to which the property or assets of this Corporation are subject whether or not
the obligations secured thereby shall have been assumed by or shall otherwise
be this Corporation's legal liability; and (iv) any amendment, renewal,
extension or refunding of any liability of the types referred to in clauses
(i), (ii) and (iii) above.
Issue Date: The first date on which any shares of the Convertible
Preferred Stock are first issued or deemed to have been issued.
Junior Securities: All shares of Class A Common Stock, Class B Common
Stock, and any other class or series of stock of this Corporation not entitled
to receive any dividends unless all dividends required to have been paid or
declared and set apart for payment on the Convertible Preferred Stock shall
have been so paid or declared and set apart for payment and, for purposes of
Section 4 hereof. any class or series of stock of this Corporation not entitled
to receive any assets upon liquidation, dissolution or winding up of the
affairs of this Corporation until the Convertible Preferred Stock shall have
received the entire amount to which such stock is entitled upon such
liquidation, dissolution or winding up.
Liquidation Value: Measured per Share of the Convertible Preferred
Stock as of any particular date, the sum of(i) $2.375 plus an amount equal to
all dividends accrued on such Share through the Dividend Payment Date
immediately preceding the date on which the Liquidation Value is being
determined, which pursuant to Section 3(c) have been added to and remain a part
of the Liquidation Value as of such date, plus (iii), for purposes of
determining amounts payable pursuant to Sections 4 and 6 hereof, an amount
equal to all unpaid dividends accrued on the sum of the amounts specified in
clauses (i) and (ii) above to the date as of which the Liquidation Value is
being determined.
Original Holder: As defined in Section 7(a).
Parity Securities: Any class or series of stock of this Corporation
entitled to receive payment of dividends on a parity with the Convertible
Preferred Stock or entitled to receive assets upon liquidation, dissolution or
winding up of the affairs of this Corporation on a parity with the Convertible
Preferred Stock.
Permitted Transferee: As defined in Section 7(a).
Record Date: For dividends payable on any Dividend Payment Date, the
fifteenth day of the month preceding the month during which such Dividend
Payment Date shall occur.
Redemption Date: As to any Share, the date fixed for redemption of
such Share as specified in the notice of redemption given in accordance with
Section 6(c), provided that no such date will be a Redemption Date unless the
applicable Redemption Price is actually paid on such date or the consideration
sufficient for the payment thereof, and for no other purpose, has been set
apart, and if the Redemption Price is not so paid in full or the consideration
sufficient therefor so set apart
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then the Redemption Date will be the date on which such Redemption Price is
fully paid or the consideration sufficient for the payment thereof, and for no
other purpose, has been set apart.
Redemption Price: As to any Share that is to be redeemed on any
Redemption Date, the Liquidation Value as in effect on such Redemption Date.
Senior Securities: Any class or series of stock of this Corporation
ranking senior to the Convertible Preferred Stock in respect of the right to
receive payment of dividends or the right to participate in any distribution
upon liquidation, dissolution or winding up of the affairs of this Corporation.
Share: As defined in Section 3(a).
Special Record Date: As defined in Section 3(C).
3. Dividends.
(a) Subject to the rights of any Parity Securities with respect to
dividends, the holders of the Convertible Preferred Stock shall be entitled to
receive, and, subject to any prohibition or restriction contained in any Debt
Instrument, this Corporation shall be obligated to pay, but only out of funds
legally available therefor, preferential cumulative cash dividends which shall
accrue as provided herein. Except as otherwise provided in Sections 3(c) or
3(d) hereof, dividends on each share of Convertible Preferred Stock
(hereinafter referred to as a "Share") shall accrue on a daily basis at the
rate of 5 1/2% per annum of the Liquidation Value to and including the date of
conversion thereof pursuant to Section 5 or the date on which the Liquidation
Value or Redemption Price of such Share is made available pursuant to Section 4
or 6 hereof, respectively. Dividends on the Convertible Preferred Stock shall
accrue as provided herein, whether or not such dividends have been declared and
whether or not there are profits, surplus or other funds of the Corporation
legally or contractually available for the payment of dividends.
(b) Accrued dividends on the Convertible Preferred Stock shall be
payable quarterly on the first day of each January, April, July and October, or
the immediately preceding business day if such first day is a Saturday, Sunday
or legal holiday (each such payment date being hereinafter referred to as a
"Dividend Payment Date"), commencing on October 1, 1994 to the holders of
record of the Convertible Preferred Stock as of the close of business on the
applicable Record Date. For purposes of determining the amount of dividends
"accrued" as of any date that is not a Dividend Payment Date, such amount shall
be calculated on the basis of the rate per annum specified in Section 3(a) for
actual days elapsed from but excluding the First Accrual Date (in the case of
any date prior to the first Dividend Payment Date) or the last preceding
Dividend Payment Date (in the case of any other date) to and including the date
as of which such determination is to be made, based on a 365-day year.
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(c) If on any Dividend Payment Date this Corporation pursuant to
applicable law or the terms of any Debt Instrument shall be prohibited or
restricted from paying in cash the full dividends to which holders of the
Convertible Preferred Stock and any Parity Securities shall be entitled, the
amount available for such payment pursuant to applicable law and which is not
restricted by the terms of any Debt instrument shall be distributed among the
holders of the Convertible Preferred Stock and such Parity Securities ratably
in proportion to the full amounts to which they would otherwise be entitled. To
the extent not paid on each Dividend Payment Date, all dividends which have
accrued on each Share during the Dividend Period ending on such Dividend
Payment Date will be added cumulatively to the Liquidation Value of such Share
and will remain a part thereof until such dividends are paid. In the event that
dividends are not paid in full on two consecutive Dividend Payment Dates,
dividends on that portion of the Liquidation Value of each Share which consists
of accrued dividends that have theretofore been or thereafter are added to, and
remain a part of, the Liquidation Value in accordance with the preceding
sentence shall accrue cumulatively on a daily basis at the rate of fifteen
percent (15%) per annum, from and after such second consecutive Dividend
Payment Date to and including the date of conversion of such Share pursuant to
Section 5 or the date on which the Liquidation Value or Redemption Price of
such Share is made available pursuant to Section 4 or 6 hereof, respectively,
unless such portion of the Liquidation Value that consists of accrued unpaid
dividends shall be earlier paid in full. Such portion of the Liquidation Value
as consists of accrued unpaid dividends, may be declared and paid at any time
without reference to any regular Dividend Payment Date, to holders of record as
of the close of business on such date, not more than 50 days nor less than 10
days preceding the payment date thereof, as may be fixed by the Board of
Directors of this Corporation (the "Special Record Date").
(d) In the event that on any date fixed for redemption of Shares
pursuant to Section 6 (other than on any date fixed for a redemption of Shares
pursuant to Section 6(a)), this Corporation shall fail to pay the Redemption
Price due and payable upon presentation and surrender of the stock certificates
evidencing Shares to be redeemed, then dividends on such Shares shall accrue
cumulatively on a daily basis at the rate of fifteen percent (15%) per annum of
the Liquidation Value thereof from and after such Redemption date to and
including the date of conversion of such Shares pursuant to Section 5 or the
date on which the Liquidation Value or Redemption Price of such Shares is made
available pursuant to Section 4 or 6 hereof, respectively.
(e) Notice of each Special Record Date shall be mailed, in the
manner provided in Section 6(c), to the holders of record of the Convertible
Preferred Stock not less than 15 days prior thereto.
(f) As long as any Convertible Preferred Stock shall be outstanding,
no dividend, whether in cash or property, shall be paid or declared, nor shall
any other distribution be made, on any Junior Security, nor shall any shares
of any Junior Security be purchased, redeemed, or otherwise acquired for value
by the Corporation, unless the holders of the Convertible Preferred Stock shall
have received all dividends to which they are entitled pursuant to Section 3(a)
hereof for all the Dividend Periods preceding the date on which such dividend
on the Junior Securities is to
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occur, or such dividends shall have been declared and the consideration
sufficient for the payment thereof set apart so as to be available for the
payment in full thereof and for no other purpose. The provisions of this
Section 3(f) shall not apply (i) to a dividend payable in any Junior Security,
or (ii) to the repurchase, redemption or other acquisition of shares of any
Junior Security solely through the issuance of Junior Securities (together
with a cash adjustment for tractional shares, if any) or through the
application of the proceeds from the sale of Junior Securities.
4. Liquidation. Upon any liquidation, dissolution or winding up
of this Corporation, whether voluntary or involuntary, the holders of
Convertible Preferred Stock shall be entitled to be paid an amount in cash
equal to the aggregate Liquidation Value at the date fixed for liquidation of
all Shares outstanding before any distribution or payment is made upon any
Junior Securities, which payment shall be made pari passu with any such payment
made to the holders of any Parity Securities. The holders of Convertible
Preferred Stock shall be entitled to no other or further distribution of or
participation in any remaining assets of this Corporation after receiving the
Liquidation Value per Share. If upon such liquidation, dissolution or winding
up, the assets of this Corporation to be distributed among the holders of
Convertible Preferred Stock and to all holders of Parity Securities are
insufficient to permit payment in full to such holders of the aggregate
preferential amounts which they are entitled to be paid, then the entire assets
of this Corporation to be distributed to such holders shall be distributed
ratably among them based upon the full preferential amounts to which the shares
of Convertible Preferred Stock and such Parity Securities would otherwise
respectively be entitled. Upon any such liquidation, dissolution or winding up,
after the holders of Convertible Preferred Stock and Parity Securities have
been paid in full the amounts to which they are entitled, the remaining assets
of this Corporation may be distributed to the holders of Junior Securities.
This Corporation shall mail written notice of such liquidation, dissolution or
winding up to each record holder of Convertible Preferred Stock not less than
30 days prior to the payment date stated in such written notice. Neither the
consolidation or merger of this Corporation into or with any other corporation
or corporations, nor the sale, transfer or lease by this Corporation of all or
any part of its assets, shall be deemed to be a liquidation, dissolution or
winding up of this Corporation within the meaning of this Section 4.
5. Conversion.
(a) Unless previously called for redemption as provided in Section
6 hereof, the Convertible Preferred Stock may be converted at any time or from
time to time, in such manner and upon such terms and conditions as hereinafter
provided in this Section 5 into fully paid and nonassessable full shares of
Class A Common Stock. In the case of Shares called for redemption by this
Corporation pursuant to Section 6(a) hereof, the conversion right provided by
this Section 5 shall terminate at the close of business on the fifteenth day
preceding the date fixed for redemption. In the case of Shares required to be
redeemed pursuant to Section 6(b), the conversion right provided by this
Section 5 shall terminate immediately upon receipt by this Corporation of a
notice given pursuant to said Section. In case cash, securities or property
other than Class A Common Stock shall be payable, deliverable or issuable upon
conversion as provided herein, then all references to Class A
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Common Stock in this Section 5 shall be deemed to apply, so far as appropriate
and as nearly as may be, to such cash, property or other securities.
(b) Subject to the provisions for adjustment hereinafter set forth
in this Section 5, the Convertible Preferred Stock may be convened into Class A
Common Stock at the initial conversion rate of 100 fully paid and
non-assessable shares of Class A Common Stock for one share of the Convertible
Preferred Stock. (This conversion rate as from time to time adjusted
cumulatively pursuant to the provisions of this Section is hereinafter referred
to as the "Conversion Rate").
(c) In case this Corporation shall (i) pay a dividend or make a
distribution on its outstanding shares of Class A Common Stock in shares of its
Capital Stock, (ii) subdivide the then outstanding shares of Class A Common
Stock into a greater number of shares of Class A Common Stock, (iii) combine
the then outstanding shares of Class A Common Stock into a smaller number of
shares of Class A Common Stock, or (iv) issue by reclassification of its shares
of Class Common Stock any shares of any other class of Capital Stock of this
Corporation (including any such reclassification in connection with a merger in
which this Corporation is the continuing corporation), then the Conversation
Rate in effect immediately prior to the opening of business on the record date
for such dividend or distribution or the effective date of such subdivision,
combination or reclassification shall be adjusted so that the holder of each
share of the Convertible Preferred Stock thereafter surrendered for conversion
shall be entitled to receive the number and kind of shares of Capital Stock of
this Corporation that such holder would have owned or been entitled to receive
immediately following such action had such shares of Convertible Preferred
Stock been converted immediately prior to such time. An adjustment made
pursuant to this Section 5(c) for a dividend or distribution shall become
effective immediately after the record date for the dividend or distribution
and an adjustment made pursuant to this Section 5(c) for a subdivision,
combination or reclassification shall become effective immediately after the
effective date of the subdivision, combination or reclassification. Such
adjustment shall be made successively whenever any action listed above shall be
taken.
(d) In case this Corporation shall issue any rights or warrants to
all holders of shares of Class A Common Stock entitling them (for a period
expiring within 45 days after the record date for the determination of
stockholders entitled to receive such rights or warrants) to subscribe for or
purchase shares of Class A Common Stock (or Convertible Securities) at a price
per share of Class A Common Stock (or having an initial exercise price or
conversion price per share of Class A Common Stock) less than the then current
market price per share of Class A Common Stock (as determined in accordance
with the provisions of Section 5(f) below) on such record date, the number of
shares of Class A Common Stock into which each Share shall thereafter be
convertible shall be determined by multiplying the number of shares of Class A
Common Stock into which such Share was theretofore convertible immediately
prior to such record date by a fraction of which the numerator shall be the
number of shares of Class A Common Stock outstanding on such record date plus
the number of additional shares of Class A Common Stock offered for
subscription or purchase (or into which the Convertible Securities so offered
are initially convertible) and of
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which the denominator shall be the number of shares of Class A Common Stock
outstanding on such record date plus the number of shares of Class A Common
Stock which the aggregate offering price of the total number of shares of Class
A Common Stock so offered (or the aggregate initial conversion or exercise
price of the Convertible Securities so offered) would purchase at the then
current market price per share of Class A Common Stock (as determined in
accordance with the provisions of Section 5(f) below) on such record date. Such
adjustment shall be made successively whenever any such rights or warrants are
issued and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants. In
the event that all of the shares of Class A Common Stock (or all of the
Convertible Securities) subject to such rights or warrants have not been issued
when such rights or warrants expire (or, in the case of rights or warrants to
purchase Convertible Securities which have been exercised, all of the shares of
Class A Common Stock issuable upon conversion of such Convertible Securities
have not been issued prior to the expiration of the conversion right thereof),
then the Conversion Rate shall be readjusted retroactively to be the Conversion
Rate which would then be in effect had the adjustment upon the issuance of such
rights or warrants been made on the basis of the actual number of shares of
Class A Common Stock (or Convertible Securities) issued upon the exercise of
such rights or warrants (or the conversion of such Convertible Securities); but
such subsequent adjustment shall not affect the number of shares of Class A
Common Stock issued upon the conversion of any Share prior to the date such
subsequent adjustment is made.
(e) In case this Corporation shall distribute to all holders of
shares of Class A Common Stock (including any such distribution made in
connection with a merger in which this Corporation is the continuing
corporation, other than a merger to which Section 5(g) is applicable) any
evidences of its indebtedness or assets (other than cash dividends or Capital
Stock) or rights or warrants to purchase shares of Class A Common Stock or
Class B Common Stock or securities convertible into shares of Class A Common
Stock or Class B Common Stock (excluding those referred to in Section 5(d)
above), then in each such case the number of shares of Class A Common Stock
into which each Share shall thereafter be convertible shall be determined by
multiplying the number of shares of Class A Common Stock into which such Share
was theretofore convertible immediately prior to the record date for the
determination of stockholders entitled to receive the distribution by a
fraction of which the numerator shall be the then current market price per share
of Class A Common Stock (as determined accordance with the provisions of
Section 5(f) below) on such record date and of which the denominator shall be
such current market price per share of Class A Common Stock less the fair
market value on such record date (as determined by the Board of Directors of
this Corporation, whose determination shall be conclusive) of the portion of
the assets or evidences of indebtedness or rights and warrants so to be
distributed applicable to one share of Class A Common Stock. Such adjustment
shall be made successively whenever any such distribution is made and shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such distribution.
(f) For the purpose of any computation under Section 5(d), (e) or
(k), the current market price per share of Class A Common Stock at any date
shall be deemed to be the average of the daily closing prices for a share of
Class A Common Stock for the ten (10) consecutive trading
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48
days before the day in question. The closing price or each day shall be the
last reported sale price regular way or, in case no such reported sale takes
place on such day, the average of the reported closing bid and asked prices
regular way, in either case on the composite tape, or if the shares of Class A
Common Stock are not quoted on the composite tape, on the principal United
States securities exchange registered under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), on which the shares of Class A Common
Stock are listed or admitted to trading, or if they are not listed or admitted
to trading on any such exchange, the last reported sale price (or the average
of the quoted closing bid and asked prices if there were no reported sales) as
reported by the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") or any comparable system, or if the Class A Common Stock is
not quoted on NASDAQ or any comparable system, the average of the closing bid
and asked prices as furnished by any member of the National Association of
Securities Dealers, Inc. selected from time to time by this Corporation for
that purpose or, in the absence of such quotations, such other method of
determining market value as the Board of Directors shall from time to time deem
to be fair.
(g) In case of any reclassification or change in the Class A
Common Stock (other than any reclassification or change referred to in Section
5(c) and other than a change in par value) or in case of any consolidation of
this Corporation with any other corporation or any merger of this Corporation
into another corporation or of another corporation into this Corporation (other
than a merger in which this Corporation is the continuing corporation and which
does not result in any reclassification or change (other than a change in par
value or any reclassification or change to which Section 5(c) is applicable) in
the outstanding Class A Common Stock), or in case of any sale or transfer to
another corporation or entity (other than by mortgage or pledge) of all or
substantially all of the properties and assets of this Corporation, this
Corporation (or its successor in such consolidation or merger) or the purchaser
of such properties and assets shall make appropriate provision so that the
holder of a Share shall have the right thereafter to convert such Share into
the kind and amount of shares of stock and other securities and property that
such holder would have owned immediately after such reclassification, change,
consolidation, merger, sale or transfer if such holder had converted such Share
into Class A Common Stock immediately prior to the effective date of such
reclassification, change, consolidation, merger, sale or transfer (assuming for
this purpose (to the extent applicable) that such holder failed to exercise any
rights of election and received per share of Class A Common Stock the kind and
amount of shares of stock and other securities and property received per share
by a plurality of the non-electing shares), and the holders of the Convertible
Preferred Stock shall have no other conversion rights under these provisions;
provided, that effective provision shall be made, in the Articles or
Certificate of Incorporation of the resulting or surviving corporation or
otherwise or in any contracts of sale or transfer, so that the provisions set
forth herein for the protection of the conversion rights of the Convertible
Preferred Stock shall thereafter be made applicable, as nearly as reasonably
may be to any such other shares of stock and other securities and property
deliverable upon conversion of the Convertible Preferred Stock remaining
outstanding or other convertible preferred stock or other Convertible
Securities received by the holders of Convertible Preferred Stock in place
thereof; and provided, further, that any such resulting or surviving
corporation or purchaser shall expressly assume the obligation to deliver, upon
the exercise of the conversion privilege, such shares, securities or property
as the holders of the
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Convertible Preferred Stock remaining outstanding, or other convertible
preferred stock or other convertible securities received by the holders in
place thereof, shall be entitled to receive pursuant to the provisions hereof,
and to make provisions for the protection of the conversion rights as above
provided.
(h) Whenever the Conversion Rate or the conversion privilege shall
be adjusted as provided in Sections 5(c), (d), (e) or(g), this Corporation
shall promptly cause a notice to be mailed to the holders of record of the
Convertible Preferred Stock describing the nature of the event requiring such
adjustment, the Conversion Rate in effect immediately thereafter and the kind
and amount of stock or other securities or property into which the
Convertible Preferred Stock shall be convertible after such event. Where
appropriate, such notice may be given in advance and included as a part of a
notice required to be mailed under the provisions of Section 5(j).
(i) This Corporation may, but shall not be required to, make any
adjustment of the Conversion Rate if such adjustment would require an increase
or decrease of less than 1% in such Conversion Rate; provided, however, that
any adjustments which by reason of this Section 5(i) are not required to be
made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 5 shall be made to the nearest
cent or the nearest 1/100th of a share, as the case may be. In any case in
which this Section 5(i) shall require that an adjustment shall become effective
immediately after a record date for such event, the Corporation may defer until
the occurrence of such event (x) issuing to the holder of any shares of
Convertible Preferred Stock converted after such record date and before the
occurrence of such event the additional shares of Class A Common Stock or other
Capital Stock issuable upon such conversion by reason of the adjustment
required by such event over and above the shares of Class A Common Stock, or
other Capital Stock issuable upon such conversion before giving effect to such
adjustment and (y) paying to such holder cash in lieu of any fractional
interest to which such holder is entitled pursuant to Section 5(n); provided,
however, that, if requested by such holder, this Corporation shall deliver to
such holder a due bill or other appropriate instrument evidencing such holder's
right to receive such additional shares of Class A Common Stock or other
Capital Stock, and such cash, upon the occurrence of the event requiring such
adjustment.
(j) In case at any time:
(i) this Corporation shall take any action which would
require an adjustment in the Conversion Rate pursuant to this Section;
(ii) there shall be any capital reorganization or
reclassification of the Class A Common Stock (other than a change in
par value), or any consolidation or merger to which the Corporation is
a party and for which approval of any shareholders of this Corporation
is required, or any sale, transfer or lease of all or substantially
all of the properties and assets of the Corporation, or a tender offer
for shares of Class A Common Stock representing,
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together with any shares of Class B Common Stock tendered for in such
tender offer, at least a majority of the total voting power
represented by the outstanding shares of Class A Common Stock and
Class B Common Stock which has been recommended by the Board of
Directors as being in the best interests of the holders of Class A
Common Stock; or
(iii) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of this Corporation;
then, in any such event, this Corporation shall give written notice, in the
manner provided in Section 6(c) hereof, to the holders of the Convertible
preferred Stock at their respective addresses as the same appear on the books
of the Corporation, at least twenty days (or ten days in the case of a
recommended tender offer as specified in clause (ii) above) prior to any record
date for such action, dividend or distribution or the date as of which it is
expected that holders of Class A Common Stock of record shall be entitled to
exchange their shares of Class A Common Stock for securities or other property,
if any, deliverable upon such reorganization, reclassification, consolidation,
merger, sale, transfer, lease, tender offer, dissolution, liquidation or
winding up; provided, however, that any notice required by any event described
in clause (ii) of this Section 5(j) shall be given in the manner and at the
time that such notice is given to the holders of Class A Common Stock. Without
limiting the obligations of this Corporation to provide notice of corporate
actions hereunder, the failure to give the notice required by this Section 5(j)
or any defect therein shall not affect the legality or validity of any such
corporate action of the Corporation or the vote upon such action.
(k) Before any holder of Convertible Preferred Stock shall be
entitled to convert the same into Class A Common Stock, such holder shall
surrender the certificate or certificates for such Convertible Preferred Stock
at the office of this Corporation or at the office of the transfer agent for
the Convertible Preferred Stock, which certificate or certificates, if this
Corporation shall so request, shall be duly endorsed to this Corporation or in
blank or accompanied by proper instruments of transfer to this Corporation or
in blank (such endorsements or instruments of transfer to be in form
satisfactory to this Corporation), and shall given written notice to this
Corporation at said office that it elects to convert all or a part of the
Shares represented by said certificate or certificates in accordance with the
terms of this Section 5, and shall state in writing therein the name or names
in which such holder wishes the certificates for Class A Common Stock to be
issued. Every such notice of election to convert shall constitute a contract
between the holder of such Convertible Preferred Stock and the Corporation,
whereby the holder of such Convertible Preferred Stock shall be deemed to
subscribe for the amount of Class A Common Stock which such holder shall be
entitled to receive upon conversion of the number of shares of Convertible
Preferred Stock to be converted, and, in satisfaction of such subscription, to
deposit the shares of Convertible Preferred Stock to be converted, and thereby
this Corporation shall be deemed to agree that the surrender of the shares of
Convertible Preferred Stock to be converted shall constitute full payment of
such subscription for Class A Common Stock to be issued upon such conversion.
This Corporation will as soon as practicable after such deposit of a
certificate or certificates for Convertible Preferred
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Stock, accompanied by the written notice and the statement above prescribed,
issue and deliver at the office of this Corporation or of said transfer agent
to the person for whose account such Convertible Preferred Stock was so
surrendered, or to his nominee(s) or, subject to compliance with applicable
law, transferee(s), a certificate or certificates for the number of full shares
of Class A Common Stock to which such holder shall be entitled, together with
cash in lieu of any fraction of a share as hereinafter provided. If surrendered
certificates for Convertible Preferred Stock are converted only in part, this
Corporation will issue and deliver to the holder, or to his nominee(s) without
charge therefor, a new certificate or certificates representing the aggregate
of the unconverted Shares. Such conversion shall be deemed to have been made as
of the date of such surrender of the Convertible Preferred Stock to be
converted; and the person or persons entitled to receive the Class A Common
Stock issuable upon conversion of such Convertible Preferred Stock shall be
treated for all purposes as the record holder or holders of such Class A Common
Stock on such date.
Upon the conversion of any Share, this Corporation shall pay, to the
holder of record of such Share on the immediately preceding Record Date, all
accrued but unpaid dividends on such Share to the date of the surrender of such
Share for conversion. Such payment shall be made in cash or, at the election of
this Corporation, the issuance of certificates representing such number of
shares of Class A Common Stock as have an aggregate current market price (as
determined in accordance with Section 5(f)) on the date of issuance equal to
the amount of such accrued but unpaid dividends. Upon the making of such
payment to the person entitled thereto as determined pursuant to the first
sentence of this paragraph, no further dividends shall accrue on such Share or
be payable to any other person.
The issuance of certificates for shares of Class A Common Stock upon
conversion of shares of Convertible Preferred Stock shall be made without
charge for any issue, stamp or other similar tax in respect of such issuance,
provided, however, if any such certificate is to be issued in a name other than
that of the registered holder of the share or shares of Convertible Preferred
Stock converted, the person or persons requesting the issuance thereof shall
pay to this Corporation the amount of any tax which may be payable in respect
of any transfer involved in such issuance or shall establish to the
satisfaction of this Corporation that such tax has been paid.
This Corporation shall not be required to convert any shares of
Convertible Preferred Stock, and no surrender of Convertible Preferred Stock
shall be effective for that purpose, while the stock transfer books of this
Corporation are closed for any purpose; but the surrender of Convertible
Preferred Stock for conversion during any period while such books are so closed
shall become effective for conversion immediately upon the reopening of such
books, as if the conversion had been made on the date such Convertible
Preferred Stock was surrendered.
(l) This Corporation shall at all times reserve and keep
available, solely for the purpose of issuance upon conversion of the
outstanding shares of Convertible Preferred Stock, such number of shares of
Class A Common Stock as shall be issuable upon the conversion of all
outstanding Shares, provided that nothing contained herein shall be construed
to preclude this
12
52
Corporation from satisfying its obligations in respect of the conversion of the
outstanding shares of Convertible Preferred Stock by delivery of shares of
Class A Common Stock which are held in the treasury of this Corporation. This
Corporation shall take all such corporate and other actions as from time to
time may be necessary to insure that all shares of Class A Common Stock
issuable upon conversion of shares of Convertible Preferred Stock at the
Conversion Rate in effect from time to time will, upon issue, be duly and
validly authorized and issued, fully paid and nonassessable and free of any
preemptive or similar rights.
(m) All shares of Convertible Preferred Stock received by this
Corporation upon conversion thereof into Class A Common Stock shall be retired
and shall be restored to the status of authorized and issued shares of
preferred stock (and may be reissued as part of another series of the preferred
stock of this Corporation, but such shares shall not be reissued as Convertible
Preferred Stock).
(n) This Corporation shall not be required to issue fractional
shares of Class A Common Stock or scrip upon conversion of the Convertible
Preferred Stock. As to any final fraction of a share of Class A Common Stock
which a holder of one or more Shares would otherwise be entitled to receive
upon conversion of such Shares in the same transaction, this Corporation shall
pay a cash adjustment in respect of such final fraction in an amount equal to
the same fraction of the market value of a full share of Class A Common Stock.
For purposes of this Section 5(n), the market value of a share of Class A
Common Stock shall be the last reported sale price regular way on the business
day immediately preceding the date of conversion, or, in case no such reported
sale takes place on such day, the average of the reported closing bid and asked
prices regular way on such day, in either case on the composite tape, or if the
shares of Class A Common Stock are not quoted on the composite tape, on the
principal United States securities exchange registered under the Exchange Act
on which the shares of Class A Common Stock are listed or admitted to trading,
or if the shares of Class A Common Stock are not listed or admitted to trading
on any such exchange, the last reported sale price (or the average of the
quoted last reported bid and asked prices if there were no reported sales) as
reported by NASDAQ or any comparable system, or if the Class A Common Stock is
not quoted on NASDAQ or any comparable system, the average of the closing bid
and asked prices as furnished by any member of the National Association of
Securities Dealers, Inc. selected from time to time by this Corporation for
that purpose or, in the absence of such quotations, such other method of
determining market value as the Board of Directors shall from time to time deem
to be fair.
6. Redemption.
(a) Subject to the provisions of Section 6(f), the shares of
Convertible Preferred Stock may be redeemed out of funds legally available
therefor, at the option of this Corporation by action of the Board of
Directors, in whole or from time to time in part, at any time after August 8.
2001 at the Redemption Price per share as of the applicable Redemption Date. If
less than all outstanding Shares are to be redeemed, Shares shall be redeemed
ratably among the holders thereof.
13
53
(b) Subject to the rights of any Parity Securities and the
provisions of Section 6(f) and subject to any prohibitions or restrictions
contained in any Debt Instrument, at any time on or after August 8,2001, any
holder shall have the right, at such holder's option, to require redemption by
this Corporation at the Redemption Price per Share as of the applicable
Redemption Date of all or any portion of his Shares having an aggregate
Liquidation Value in excess of $1,000,000, by written notice to this
Corporation stating the number of Shares to be redeemed. This Corporation shall
redeem, out of funds legally available therefor and not restricted in
accordance with the first sentence of this Section 6(b), the Shares so
requested to be redeemed on such date within 60 days following this
Corporation's receipt of such notice as this Corporation shall state in its
notice given pursuant to Section 6(c). If the funds of this Corporation legally
available for redemption of Shares and not restricted in accordance with the
first sentence of this Section 6(b) are insufficient to redeem the total number
of shares required to be redeemed pursuant to this Section 6(b), those funds
which are legally available for redemption of such Shares and not so restricted
will be used to redeem the maximum possible number of such Shares ratably among
the holders who have required Shares to be redeemed under this Section 6(b). At
any time thereafter when additional funds of this Corporation are legally
available and not so restricted for such purpose, such funds will immediately
be used to redeem the Shares this Corporation failed to redeem on such
Redemption Date until the balance of such Shares are redeemed.
(c) Notice of any redemption pursuant to this Section shall be
mailed, first class, postage prepaid, not less than 30 days nor more than 60
days prior to the Redemption Date, to the holders of record of the shares of
Convertible Preferred Stock to be redeemed, at their respective addresses as
the same appear upon the books of this Corporation or are supplied by them in
writing to this Corporation for the purpose of such notice (with telephonic or
facsimile confirmation of notice to Bill Daniels so long as he is a holder of
record); but no failure to mail such notice or any defect therein or in the
mailing thereof shall affect the validity of the proceedings for the redemption
of any shares of the Convertible Preferred Stock. Such notice shall set forth
the Redemption Price, the Redemption Date, the number of Shares to be redeemed
and the place at which the Shares called for redemption will, upon presentation
and surrender of the stock certificates evidencing such Shares, be redeemed. In
case fewer than the total number of shares of Convertible Preferred Stock
represented by any certificate are redeemed, a new certificate representing the
number of unredeemed Shares will be issued to the holder thereof without cost
to such holder.
(d) If notice of any redemption by this Corporation pursuant to
this Section 6 shall have been mailed as provided in Section 6(c) and if on or
before the Redemption Date specified in such notice the consideration necessary
for such redemption shall have been set apart so as to be available therefor
and only therefor, then on and after the close of business on the Redemption
Date, the Shares called for redemption, notwithstanding that any certificate
therefor shall not have been surrendered for cancellation, shall no longer be
deemed outstanding, and all rights with respect to such Shares shall forthwith
cease and terminate, except the right of the holders thereof to receive upon
surrender of their certificates the consideration payable upon redemption
thereof.
14
54
(e) All shares of Convertible Preferred Stock redeemed, retired,
purchased or otherwise acquired by this Corporation shall be retired and shall
be restored to the status of authorized and unissued shares of preferred stock
(and may be reissued as part of another series of the preferred stock of this
Corporation, but such shares shall not be reissued as Convertible Preferred
Stock).
(f) If at any time this Corporation shall have failed to pay, or
declare and set apart the consideration sufficient to pay, all dividends
accrued up to and including the immediately preceding Dividend Payment Date on
the Convertible Preferred Stock, and until all dividends accrued up to and
including the immediately preceding Dividend Payment Date on the Convertible
Preferred Stock shall have been paid or declared and set apart so as to be
available for the payment in full thereof and for no other purpose, this
Corporation shall not redeem, pursuant to a sinking fund or otherwise, any
shares of Convertible Preferred Stock or Junior Securities, unless all then
outstanding shares of Convertible Preferred Stock are redeemed, and shall not
purchase or otherwise acquire any shares of Convertible Preferred Stock or
Junior Securities. If and so long as this Corporation shall fail to redeem on a
Redemption Date pursuant to Section 6(b) all shares of Convertible Preferred
Stock required to be redeemed on such date, this Corporation shall not redeem,
or discharge any sinking fund obligation with respect to, any Junior
Securities, unless all then outstanding shares of Convertible Preferred Stock
are redeemed, and shall not purchase or otherwise acquire any shares of
Convertible Preferred Stock or Junior Securities. Nothing contained in this
Section 6(f) shall prevent the purchase or acquisition of shares of Convertible
Preferred Stock pursuant to a purchase or exchange offer or offers made to
holders of all outstanding shares of Convertible Preferred Stock, provided that
as to holders of all outstanding shares of Convertible Preferred Stock, the
terms of the purchase or exchange offer for all such shares are identical. The
provisions of this Section 6(f) are for the benefit of holders of Convertible
Preferred Stock and accordingly the provisions of this Section 6(f) shall not
restrict any redemption by this Corporation of Shares held by any holder,
provided that all other holders of Shares shall have waived in writing the
benefits of this provision with respect to such redemption.
7. Transfer.
(a) Without the prior written consent of this Corporation, no
person holding shares of Convertible Preferred Stock of record (hereinafter
called a "Convertible Preferred Holder") may transfer, and this Corporation
shall not register the transfer of, such shares of Convertible Preferred Stock,
whether by sale, assignment, or otherwise, except to a Permitted Transferee.
(i) In the case of a Convertible Preferred Holder
acquiring record and beneficial ownership of the shares of Convertible
Preferred Stock in question upon initial issuance by this Corporation
(an "Original Holder"), a "Permitted Transferee" shall mean:
(x) any Affiliate (as defined in Section 7(b)) of
such Original Holder.
15
55
(y) any other Original Holder (or any Affiliate
of any such other Original Holder), or
(z) any person or entity to whom Shares are
transferred by an Original Holder pursuant to
a gift or bequest or pursuant to the laws of
intestacy.
(ii) In the case of a Convertible Preferred Holder which
is a Permitted Transferee of an Original Holder, a "Permitted
Transferee" shall mean:
(x) any Original Holder,
(y) any Permitted Transferee of an Original
Holder, except any transferee referred to in
clause (i)(z) above, or
(z) any person or entity to whom Shares are
transferred by a Permitted Transferee
pursuant to a gift or bequest or pursuant to
the laws of intestacy.
(b) For purposes of this Section 7, the term "Affiliate" shall
mean (i) any person or corporation that owns beneficially and of record at
least a majority of the outstanding securities representing the right, other
than as affected by events of default, to vote for the election of directors
("voting securities") of an Original Holder or (ii) any person or corporation
at least a majority of the voting securities of which are owned beneficially
and of record by an Original Holder, where in the case of both (i) and (ii),
voting securities will be deemed "owned" by a person or corporation if either
owned directly or if owned indirectly through one or more intermediary
corporations at least a majority of the voting securities of which are owned
beneficially and of record by that person or corporation or by an intermediary
corporation in such a majority or more chain of ownership.
(c) This Corporation may, in connection with preparing a list of
stockholders entitled to vote at any meeting of stockholders, or as a condition
to the transfer or the registration of shares of Convertible Preferred Stock on
this Corporation's books, require the furnishing of such affidavits or other
proof as it deems necessary to establish that any person is the beneficial
owner of shares of Convertible Preferred Stock or is a Permitted Transferee.
(d) Shares of Convertible Preferred Stock shall be registered in
the names of the beneficial owners thereof and not in "street" or "nominee"
name. For this purpose, a "beneficial owner" of any shares of Convertible
Preferred Stock shall mean a person who, or any entity which, possesses the
power, either singly or jointly, to direct the voting or disposition of such
shares. Certificates for shares of Convertible Preferred Stock shall bear a
legend referencing the restrictions on transfer imposed by this Section 7.
16
56
8. Voting Rights. The holders of the Convertible Preferred Stock
shall be entitled to vote on all matters submitted to a vote of the holders of
the Capital Stock of this Corporation which is entitled to vote generally on
the election of directors. Each Share shall entitle the registered holder
thereof to such number of votes as is equal to the number of shares of Class A
Common Stock into which such Share is then convertible. Holders of Convertible
Preferred Stock shall vote together with holders of common stock and shall not
be entitled to vote as a class except as otherwise required by law or this
Corporation's Restated Certificate of Incorporation.
9. Amendment. No amendment or modification of the designation,
rights, preferences, and limitations of the Shares set forth herein shall be
binding or effective without the prior consent of the holders of record of
Shares representing 66 2/3% of the Liquidation Value of all Shares outstanding
at the time such action is taken.
10. Preemptive RightS. The holders of the Convertible Preferred
Stock will not have any preemptive right to subscribe for or purchase any
shares of stock or any other securities which may be issued by this
Corporation.
11. Senior Securities. The Convertible Preferred Stock shall not
rank junior to any other classes or series of stock of this Corporation in
respect of the right to receive dividends or the right to participate in any
distribution upon liquidation, dissolution or winding up of this Corporation.
Without the prior consent of the holders of record of Shares representing
66 2/3% of the Liquidation Value of all Shares then outstanding, this
Corporation shall not issue any Senior Securities.
12. Exclusion of Other Rights. Except as may otherwise be required
by law and for the equitable rights and remedies that may otherwise be
available to holders of Convertible Preferred Stock, the shares of Convertible
Preferred Stock shall not have any designations, preferences, limitations or
relative rights, other than those specifically set forth in these resolutions
(as such resolutions may, subject to Section 9, be amended from time to time)
and in the Restated Certificate of Incorporation of this Corporation.
13. Headings. The headings of the various sections and subsections
hereof are for convenience of reference only and shall not affect the
interpretation of any of the provisions hereof.
17
57
FURTHER RESOLVED, that the appropriate officers of this Corporation
are hereby authorized to execute and acknowledge a certificate setting forth
these resolutions and to cause such certificate to be filed and recorded, in
accordance with the requirements of Section 151(g) of the General Corporation
Law of the State of Delaware."
/s/ FRED A VIERRA
Fred A. Vierra
Executive Vice President
18
58
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE PAGE 1
-------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
CORRECTION OF "TELE-COMMUNICATIONS, INC.", FILED IN THIS OFFICE ON THE
TWENTY-SECOND DAY OF AUGUST, A.D. 1994, AT 9 O'CLOCK A.M.
[SEAL]
/s/ Edward J. Freel
Edward J. Freel, Secretary Of State
AUTHENTICATION: 7278684
DATE: 10-24-94
2371729 8100
944202094
59
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 08/22/1994
944156379 - 2371729
CERTIFICATE OF CORRECTION
Filed pursuant to Section 103(f)
of the Delaware General Corporation Law
with respect to a
CERTIFICATE OF DESIGNATION
of
TELE-COMMUNICATIONS, INC.
Whereas, on August 4, 1994, Tele-Communications, Inc. (the
"Corporation") filed with the Delaware Secretary of State a Certificate of
Designation (the "Certificate of Designation") authorizing the issuance of a
series of preferred stock of the Corporation designated "Convertible Preferred
Stock, Series C;"
Whereas, such Certificate of Designation inaccurately stated that the
par value of the Convertible Preferred Stock, Series C, is $1.00 per share,
when in fact the par value of the Convertible Preferred Stock, Series C, is
S.01 per share;
Therefore, the Certificate of Designation is hereby corrected in
accordance with the provisions of Section 103(f) of the Delaware General
Corporation Law as follows:
1. The words "par value $l.00 per share" shall be deleted from the
third line of the second (unnumbered) paragraph of the Certificate of
Designation and the words "par value S.01 per share" shall be substituted in
their place.
2. The words "par value $1.00 per share" shall be deleted from
paragraph number 1 of the Certificate of Designation and the words "par value
$.O1 per share" shall be substituted in their place.
Executed on the date set forth below by the undersigned duly
authorized officer of the Corporation.
Date: August ]6, 1994
Signature: /s/ Stephen M. Brett
Stephen M. Brett
Title: Executive Vice President
60
State of Delaware
Office of the Secretary of State PAGE 1
-------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "TELE-COMMUNICATIONS, INC.", FILED IN THIS OFFICE ON THE
ELEVENTH DAY OF OCTOBER, A.D. 1994, AT 4 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT
COUNTY RECORDER OF DEEDS FOR RECORDING.
(SEAL) /s/ Edward J. Freel
------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 7265951
2371729 8100 DATE: 10-12-94
944192934
61
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 04:00 PM 10/11/1994
944192934 - 2371729
TELE-COMMUNICATIONS, INC.
CERTIFICATE OF DESIGNATION
--------------------------
SETTING FORTH A COPY OF A RESOLUTION
CREATING AND AUTHORIZING THE ISSUANCE
OF A SERIES OF PREFERRED STOCK DESIGNATED
AS "REDEEMABLE CONVERTIBLE PREFERRED STOCK,
SERIES E" ADOPTED BY THE BOARD OF DIRECTORS
OF TELE-COMMUNICATIONS, INC.
--------------------------
The undersigned Executive Vice President of Tele-Communications, Inc.,
a Delaware corporation (the "Corporation"), hereby certifies that the Board of
Directors duly adopted the following resolutions creating a series of preferred
stock designated as "Redeemable Convertible Preferred Stock, Series E":
BE IT RESOLVED, that pursuant to authority expressly granted by the
provisions of Article IV, Section D of the Restated Certificate of
Incorporation of the Corporation, the Board of Directors hereby creates and
authorizes the issuance of a series of preferred stock, par value $.01 per
share, of the Corporation, to consist of 400,000 shares, and hereby fixes the
designations, dividend rights, voting powers, rights on liquidation, conversion
rights, redemption rights and other preferences and relative, particiating,
optional or other special rights and the qualifications, limitations or
restrictions of the shares of such series (in addition to the designations,
preferences and relative, participating, limitations or restrictions thereof
set forth in the Restated Certificate of Incorporation that are applicable to
preferred stock of all series) as follows:
1. Designation. The designation of the series of preferred stock,
par value $1.00 per share, of the Corporation authorized hereby is "Redeemable
Convertible Preferred Stock, Series E" (the "Series E Preferred Stock").
2. Certain Definitions. Unless the context otherwise requires, the
terms defined in this paragraph 2 shall have, for all purposes, the meanings
herein specified;
"Amendment Date" shall mean the date of the effectiveness under
applicable law of a duly approved amendment to the Corporation's Restated
Certificate of Incorporation
62
increasing the number of shares of capital stock and the number of shares of
capital stock designated as "Class A Common Stock" to an amount which, after
giving effect to the exercise, exchange or conversion of all Convertible
Securities then outstanding and the conversion of all shares of Class B Common
Stock then outstanding into shares of Class A Common Stock, would be sufficient
to permit the conversion, at the then applicable Conversion Rate, of all shares
of Series E Preferred Stock then outstanding into shares of Class A Common
Stock.
"Average Quoted Price", when used with respect to the Class A Common
Stock, shall mean the average of the Quoted Prices of the Class A Common Stock
for the most recent period of five trading days on which shares of such class
trade ending three Business Days prior to the Redemption Date, appropriately
adjusted to take into account the actual occurrence, during the period
following the first of such five trading days and ending on the Business Day
immediately preceding such Special Redemption Date, of any event of a type
described in paragraph 7. The "Quoted Price" of a share of Class A Common Stock
on any day means the last sale price (or, if no sale price is reported, the
average of the high and low bid prices) of the Class A Common Stock, on such
day as reported on the National Association of Securities Dealers, Inc.
Automated Quotation System, or if the Class A Common Stock is listed on an
exchange, as reported in the composite transactions for the principal exchange
on which such stock is listed.
"Board of Directors" shall mean the Board of Directors of the
Corporation and, unless the context indicates otherwise, shall also mean, to
the extent permitted by law, any committee thereof authorized, with respect to
any particular matter, to exercise the power of the Board of Directors of the
Corporation with respect to such matter.
"Business Day" shall mean any day other than a Saturday, Sunday or a
day on which banking institutions in Denver, Colorado are not required to be
open.
"Capital stock shall mean any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock.
"Certificate" shall mean the Restated Certificate of Incorporation of
the Corporation, as it may from time to time hereafter be amended or restated.
"Class A Common Stock" shall mean the Class A Common Stock, par value
$1.00 per share, of the Corporation, which term shall include, where
appropriate, in the case of any reclassification, recapitalization or other
change in the Class A Common Stock, or in the case of a consolidation or merger
of the Corporation with or into another Person affecting the Class A Common
Stock, such capital stock to which a holder of Class A Common Stock shall be
entitled upon the occurrence of such event.
"Class A Preferred Stock shall mean the Class A Preferred Stock, par
value $.01 per share, of the Corporation.
-2-
63
"C[ass B Common Stock" shall mean the Class B Common Stock, par value
$1.00 per share, of the Corporation, which term shall include, where
appropriate, in the case of any reclassification, recapitalization or other
change in the Class B Common Stock, or in the case of a consolidation or merger
of the Corporation with or into another Person affecting the Class B Common
Stock, such capital stock to which a holder of Class B Common Stock shall be
entitled upon the occurrence of such event.
"Class B Preferred Stock" shall mean the Class B 6% Cumulative
Redeemable Exchangeable Junior Preferred Stock, par value $.O1 per share, of
the Corporation.
"Convertible Securities" shall mean securities, other than the Class B
Common Stock, that are convertible into or exchangeable for Class A Common
Stock.
"Dividend Payment Date" shall mean, for any Dividend Period, the last
day of such Dividend Period which shall be the first day of March of each year,
commencing with March 1, 1995, or the next succeeding Business Day if any such
day is not a Business Day.
"Dividend Period" shall mean the period from the Issue Date to and
including the first Dividend Payment Date and each annual period between
consecutive Dividend Payment Dates.
"Issue Date" shall mean the date on which shares of Series E Preferred
Stock are first issued.
"Junior Stock" shall mean (i) the Class A Common Stock, (ii) the Class
B Common Stock, (iii) the Class B Preferred Stock, (iv) any other class or
series of capital stock, whether now existing or hereafter created, of the
Corporation, other than (A) the Series E Preferred Stock, (B) any class or
series of Parity Stock (except to the extent provided under clause (v) hereof)
and (C) any Senior Stock, and (v) any class or series of Parity Stock to the
extent that it ranks junior to the Series E Preferred Stock as to dividend
rights, rights of redemption or rights on liquidation, as the case may be. For
purposes of clause (v) above, a class or series of Parity Stock shall rank
junior to the Series E Preferred Stock as to dividend rights, rights of
redemption or rights on liquidation if the holders of shares of Series E
Preferred Stock shall be entitled to dividend payments, payments on redemption
or payments of amounts distributable upon dissolution, liquidation or winding
up of the Corporation, as the case may be, in preference or priority to the
holders of shares of such class or series.
"Liquidation Preference" measured per share of the Series E Preferred
Stock as of any date in question (the "Determination Date") shall mean an
amount equal to the sum of (a) the Stated Liquidation Value of such share, plus
(b) an amount equal to all dividends accrued on such share which pursuant to
paragraph 3(b) have been added to and remain a part of the Liquidation
Preference as of the Determination Date, plus (c) for purposes of determining
the amounts payable pursuant to paragraph 4 and paragraph 5 and the definition
of Redemption Price, an amount equal to all unpaid dividends accrued on such
share during the period from the immediately preceding Dividend Payment Date
(or the Issue Date if the Determination Date is
-3-
64
on or prior to the first Dividend Payment Date) through and including the
Determination Date, and, in the case of clauses (b) and (c) hereof, whether or
not such unpaid dividends have been earned or declared or there are any
unrestricted funds of the Corporation legally available for the payment of
dividends. In connection with the determination of the Liquidation Preference
of a share of Series E Preferred Stock upon redemption or upon liquidation,
dissolution or winding up of the Corporation, the Determination Date shall be
the applicable date of redemption or the date of distribution of amounts
payable to stockholders in connection with any such liquidation, dissolution or
winding up.
"1933 Act" shall mean the Securities Act of 1933, as amended.
"Officers' Certificate" shall mean a certificate signed by the
Chairman of the Board or the President of the Corporation and by the Treasurer
of the Corporation.
"Opinion of Counsel" shall mean a written opinion from legal counsel
selected by the Corporation. The counsel may be an employee of or counsel to
the Corporation.
"Parity Stock" shall mean any class or series of capital stock,
whether now existing or hereafter created, of the Corporation ranking on a
parity basis with the Series E Preferred Stock as to dividend rights, rights of
redemption or rights on liquidation. Capital stock of any class or series shall
rank on a parity as to dividend rights, rights of redemption or rights on
liquidation with the Series E Preferred Stock, whether or not the dividend
rates, dividend payment dates, redemption or liquidation prices per share or
sinking fund or mandatory redemption provisions, if any, are different from
those of the Series E Preferred Stock, if the holders of shares of such class
or series shall be entitled to dividend payments, payments on redemption or
payments of amounts distributable upon dissolution, liquidation or winding up
of the Corporation, as the case may be, in proportion to their respective
accumulated and accrued and unpaid dividends, redemption prices or liquidations
prices, respectively, without preference or priority, one over the other, as
between the holders of shares of such class or series and the holders of Series
E Preferred Stock. No class or series of capital stock that ranks junior to the
Series E Preferred Stock as to rights on liquidation shall rank or be deemed to
rank on a parity basis with the Series E Preferred Stock as to dividend rights
or rights of redemption, unless the instrument creating or evidencing such
class or series of capita[ stock otherwise expressly provides.
"Person" shall mean any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization,
government or agency or political subdivision thereof, or other entity, whether
acting in an individual, fiduciary, or other capacity.
"Record Date" for the dividends payable on any Dividend Payment Date
means the fifteenth day of the month preceding the month during which such
Dividend Payment Date shall occur, or if any such day is not a Business Day,
then on the next preceding Business Day, as and if designated by the Board of
Directors.
-4-
65
"Redemption Date" as to any share of Series E Preferred Stock shall
mean the date fixed for redemption of such share pursuant to paragraph 5(a),
provided that no such date will be a Redemption Date unless the applicable
Redemption Price is actually paid in full on such date.
"Redemption Price" as to any share of Series E Preferred Stock which
is to be redeemed on any Redemption Date shall mean the Liquidation Preference
thereof on such Redemption Date.
"Senior Stock" shall mean any class or series of capital stock,
whether now existing or hereafter created, of the Corporation ranking prior to
the Series E Preferred Stock as to dividend rights, rights of redemption or
rights on liquidation. Capital stock of any class or series shall rank prior
to the Series E Preferred Stock as to dividend rights, rights of redemption or
rights on liquidation if the holders of shares of such class or series shall be
entitled to dividend payments, payments on redemption or payments of amounts
distributable upon dissolution, liquidation or winding up of the Corporation,
as the case may be, in preference or priority to the holders of shares of
Series E Preferred Stock. No class or series of capital stock that ranks on a
parity basis with or junior to the Series E Preferred Stock as to rights on
liquidation shall rank or be deemed to rank prior to the Series E Preferred
Stock as to dividend rights or rights of redemption, notwithstanding that the
dividend rate, dividend payment dates, sinking fund provisions, if any, or
mandatory redemption provisions thereof are different from those of the Series
E Preferred Stock, unless the instrument creating or evidencing such class or
series of capital stock otherwise expressly provides.
"Share" shall mean one share of Series E Preferred Stock of the
Corporation.
"Special Record Date" has the meaning ascribed to such term in
paragraph 3(b).
"Stated Liquidation Value" of a share of Series E Preferred Stock
means $22,303.
"Subsidiary" of any Person shall mean (i) a corporation a majority of
the capital stock of which, having voting power under ordinary circumstances to
elect directors, is at the time, directly or indirectly, owned by such Person
and/or one or more Subsidiaries of such Person and (ii) any other Person (other
than a corporation) in which such Person and/or one or more Subsidiaries of
such Person, directly or indirectly, has (x) a majority ownership interest or
(y) the power to elect or direct the election of a majority of the members of
the governing body of such first-named Person.
"TCI Holder" shall mean the Corporation and each Subsidiary of the
Corporation.
3. Dividends.
(a) Dividends Rights; Dividend Payment Dates.
Subject to the prior preferences and other rights of any Senior Stock and the
provisions of Paragraph 6 hereof, the holders of Series E Preferred Stock shall
be entitled to receive, when and as declared by the
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Board of Directors, out of unrestricted funds legally available therefor,
cumulative dividends, in preference to dividends on any Junior Stock, that
shall accrue on each share of Series E Preferred Stock at the rate of 5.0% per
annum of the Stated Liquidation Value of such share from the Issue Date to and
including the date on which the Liquidation Preference of such share is made
available (whether on liquidation, dissolution, or winding up of the
Corporation or, in the case of paragraph 5, upon the applicable Redemption
Date). Accrued dividends on the Series E Preferred Stock will be payable, as
provided in paragraph 3(c) below, annually on each Dividend Payment Date to the
holders of record of the Series E Preferred Stock as of the close of business
on the Record Date for such dividend payment. Dividends shall be fully
cumulative and shall accrue (without interest or compounding) on a daily basis
without regard to the occurrence of a Dividend Payment Date and whether or not
such dividends are declared and whether or not there are any unrestricted funds
of the Corporation legally available for the payment of dividends. The amount
of dividends "accrued" as of the first Dividend Payment Date and as of any date
that is not a Dividend Payment Date shall be calculated on the basis of the
foregoing rate per annum for the actual number of days elapsed from the Issue
Date (in the case of the first Dividend Payment Date and any date prior to the
first Dividend Payment Date) or the last preceding Dividend Payment Date (in
the case of any other date) to and including the date as of which such
determination is to be made, based on a 365- or 366-day year, as the case may
be.
(b) SPECIAL RECORD DATE. On each Dividend Payment
Date, all dividends that have accrued on each share of Series E Preferred Stock
during the immediately preceding Dividend Period shall, to the extent not paid
as provided in paragraph 3(c) below on such Dividend Payment Date for any
reason (whether or not such unpaid dividends have been earned or declared or
there are any unrestricted funds of the Corporation legally available for the
payment of dividends), be added to the Liquidation Preference of such share and
will remain a part thereof until such dividends are paid as provided in
paragraph 3(c) below. No interest or additional dividends will accrue or be
payable with respect to any dividend payment on the Series E Preferred Stock
that may be in arrears or with respect to that portion of any other payment on
the Series E Preferred Stock that is in arrears which consist of accumulated or
accrued and unpaid dividends. Such accumulated or accrued and unpaid dividends
may be declared and paid at any time (subject to the rights of any Senior Stock
and, if applicable, to the concurrent satisfaction of any dividend arrearages
then existing with respect to any Parity Stock which ranks on a parity basis
with the Series E Preferred Stock as to the payment of dividends) without
reference to any regular Dividend Payment Date, to holders of record as of the
close of business on such date, not more than 45 days nor less than 10 days
preceding the payment date thereof, as may be fixed by the Board of Directors
(the "Special Record Date"). Notice of each Special Record Date shall be given,
not more than 45 days nor less than of days prior thereto, to the holders of
record of the shares of Series E Preferred Stock.
(c) METHOD OF PAYMENT. AlI dividends payable with
respect to the shares of Series E Preferred Stock shall be declared and paid in
cash. All dividends paid with respect to the shares of Series E Preferred Stock
pursuant to this paragraph 3 shall be paid pro rata to all the holders of
shares of Series E Preferred Stock outstanding on the applicable Record Date or
Special Record Date, as the case may be.
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4. Distributions Upon Liquidation Dissolution or Winding Up.
Subject to the prior payment in full of the preferential
amounts to which any Senior Stock is entitled, in the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary, or
involuntary, the holders of Series E Preferred Stock shall be entitled to
receive from the assets of the Corporation available for distribution to
stockholders, before any payment or distribution, shall be made to the holders
of any Junior Stock, an amount in cash or property, at its fair market value, as
determined by the Board of Directors in good faith, or a combination thereof,
per share, equal to the Liquidation Preference of a share of Series E Preferred
Stock as of the date of payment or distribution, which payment or distribution
shall be made pari passu with any such payment or distribution made to the
holders of any Parity Stock ranking on a parity basis with the Series E
Preferred Stock with respect to distributions upon liquidation, dissolution or
winding up of the Corporation. The holders of Series E Preferred Stock shall be
entitled to no other or further distribution of or participation in any
remaining assets of the Corporation after receiving the Liquidation Preference
per share. If, upon distribution of the Corporation's assets in liquidation,
dissolution or winding up, the assets of the Corporation to be distributed
among the holders of the Series E Preferred Stock and to all holders of any
Parity Stock ranking on a parity basis with the Series E Preferred Stock with
respect to distributions upon liquidation, dissolution or winding up shall be
insufficient to permit payment in full to such holders of the respective
preferential amounts to which they are entitled, then the entire assets of the
Corporation to be distributed to holders of the Series E Preferred Stock and
such Parity Stock shall be distributed pro rata to such holders based upon the
aggregate of the full preferential amounts to which the shares of Series E
Preferred Stock and such Parity Stock would otherwise respectively be entitled.
Neither the consolidation or merger of the Corporation with or into any other
corporation or corporations nor the sale, transfer or lease of all or
substantially all of the assets of the Corporation shall itself be deemed to be
a liquidation, dissolution or winding up of the Corporation within the meaning
of this paragraph 4. Notice of the liquidation, dissolution or winding up of
the Corporation shall be given, not less than 20 days prior to the date on
which such liquidation, dissolution or winding up is expected to take place or
become effective, to the holders of record of the shares of Series E Preferred
Stock.
5. Redemption.
(a) OPTIONAL REDEMPTION. Subject to the rights of any
Senior Stock and the provisions of paragraph 6, the shares of Series E
Preferred Stock may be redeemed, at the option of the Corporation by the action
of the Board of Directors, in whole or from time to time in part, on any
Business Day occurring after the Issue Date, at the Redemption Price on the
Redemption Date. If less than all outstanding shares of Series E Preferred
Stock are to be redeemed on any Redemption Date, the shares of Series E
Preferred Stock to be redeemed shall be chosen pro rata among all holders of
Series E Preferred Stock. The Corporation shall not be required to register a
transfer of (i) any shares of Series E Preferred Stock for a period of 15 days
next preceding any selection of shares of Series E Preferred Stock to be
redeemed or (ii) any shares of Series E Preferred Stock selected or called for
redemption.
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(b) NOTICE OF REDEMPTION. Notice of redemption shall be
given by or on behalf of the Corporation, not more than 60 days nor less than 30
days prior to the Redemption Date, to the holders of record of the shares of
Series E Preferred Stock to be redeemed; but no defect in such notice or in the
mailing thereof shall affect the validity of the proceedings for the redemption
of any shares of Series E Preferred Stock. In addition to any information
required by law or by the applicable rules of any national securities exchange
or national interdealer quotation system on which the Series E Preferred Stock
may be listed or admitted to trading or quoted, such notice shall set forth the
Redemption Price, the Redemption Date, the number of shares to be redeemed, the
portion of the Redemption Price, if any, which the Corporation has elected to
pay through the issuance of Class A Common Stock and the place which the shares
called for redemption will, upon presentation and surrender of the stock
certificates evidencing such shares, be redeemed. In the event that fewer than
the total number of shares of Series E Preferred Stock represented by a
certificate are redeemed, a new certificate representing the number of
unredeemed shares will be issued to the holder thereof without cost to such
holder.
(c) DEPOSIT OF REDEMPTION PRICE. If notice of any
redemption by the Corporation pursuant to this paragraph 5 shall have been
given as provided in paragraph 5(b) above, and if on or before the Redemption
Date specified in such notice an amount in cash sufficient to redeem in full on
the Redemption Date at the Redemption Price all shares of Series E Preferred
Stock called for redemption shall have been set apart so as to be available for
such purpose and only for such purpose, then effective as of the close of
business on the Redemption Date, the shares of Series E Preferred Stock called
for redemption, notwithstanding that any certificate therefor shall not have
been surrendered for cancellation, shall no longer be deemed outstanding, and
the holders thereof shall cease to be stockholders with respect to such shares
and all rights with respect to such shares shall forthwith cease and terminate,
except the right of the holders thereof to receive the Redemption Price of such
shares, without interest, upon the surrender of certificates representing the
same.
(d) REDEMPTION BY ISSUANCE OF CLASS A COMMON STOCK.
Subject to compliance with the conditions contained in this paragraph 5(d), the
Corporation may elect to pay the Redemption Price (or designated portion
thereof) of the shares of Series E Preferred Stock called for redemption by
issuing to the holder thereof, in respect of his shares to be redeemed, a number
of shares of Class A Common Stock equal to the aggregate Redemption Price (or
designated portion thereof) of such shares divided by the Average Quoted Price
of a share of Class A Common Stock. No fractional shares of Class A Common
Stock or scrip shall be issued upon such redemption. As to any final fraction
of a share of Class A Common Stock that would otherwise be issuable to a holder
upon redemption of his shares of Series E Preferred Stock (determined on the
basis of the total number of such holder's shares of Series E Preferred Stock
in respect of which shares of Class A Common Stock are issuable), the
Corporation shall pay an amount in cash or by its check equal to the same
fraction of the Average Quoted Price of a share of Class A Common Stock.
The Corporation's right to elect to pay the Redemption Price (or
designated portion thereof) of the shares of Series E preferred Stock through
the issuance of shares of Class A
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Common Stock shall be conditioned upon: (i) the Corporation's having timely
given a Redemption Notice setting forth such election as provided in paragraph
5(b), (ii) the Corporation's having obtained and filed, on or before the
Redemption Date, at the office of the redemption agent for the Series E
Preferred Stock (or with the books of the Corporation if there is no redemption
agent) an Opinion of Counsel to the effect that (A) the shares of Class A
Common Stock to be issued upon such redemption have been duly authorized and,
when issued and delivered in payment of the Redemption Price (or designated
portion thereof) of the shares of Series E Preferred Stock to be redeemed, will
be validly issued, fully paid and non-assessable and free from preemptive
rights, (B) that the issuance and delivery of such shares of Class A Common
Stock upon such redemption of shares of Series E Preferred Stock will not
violate the laws of the state of incorporation of the Corporation and (C),
unless at the time the Redemption Notice is given all shares of the Series E
Preferred Stock are owned by one or more TCI Holders, that the issuance and
delivery of the shares of Class A Common Stock upon such redemption of shares
of Series E Preferred Stock is exempt from the resignation or qualification
requirements of the 1933 Act and applicable state securities laws or, if no
such exemption is available, that the shares of Class A Common Stock to be
issued have been duly registered or qualified under the 1933 Act and such
applicable state securities laws, and (iii) the Corporation's having filed, on
or before the Redemption Date, at the office of such redemption agent (or with
the books of the Corporation if there is no redemption agent), an Officers'
Certificate setting forth the number of shares of Class A Common Stock to be
issued in payment of the Redemption Price (or designated portion thereof) of
each share of Series E Preferred Stock and the method of determining the same
(consistent with the provisions hereof). If the foregoing conditions have not
been satisfied prior to or on the Redemption Date, the Redemption Price for the
shares of Series E Preferred Stock (or portion thereof designated to be paid
in Class A Common Stock) shall be paid in cash.
(e) STATUS OF REDEEMED SHARES. All shares of Series E
Preferred Stock redeemed, exchanged, purchased or otherwise acquired by the
Corporation shall be retired and shall be restored to the status of authorized
and unissued shares of Series Preferred Stock (and may be reissued as part of
another series of the preferred stock of the Corporation, but such shares shall
not be reissued as Series E Preferred Stock).
6. Limitations on Dividends and Redemptions.
If at any time the Corporation shall have failed to pay, or
declare and set aside the consideration sufficient to pay, full cumulative
dividends for all prior dividend periods on any Parity Stock which by the terms
of the instrument creating or evidencing such Parity Stock is entitled to the
payment of such cumulative dividends prior to the redemption, exchange,
purchase or other acquisition of the Series E Preferred Stock, and until full
cumulative dividends on such Parity Stock for all prior dividend periods are
paid, or declared and the consideration sufficient to pay the same in full is
set aside so as to be available for such purpose and no other purpose, neither
the Corporation nor any Subsidiary thereof shall redeem, exchange, purchase or
otherwise acquire any shares of Series E Preferred Stock, Parity Stock or
Junior Stock, or set aside any money or assets for any such purpose pursuant to
paragraph 5 hereof. a sinking fund or otherwise, unless all then outstanding
shares of Series E Preferred Stock, of such Parity Stock
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and of any other class of series of Parity Stock that by the terms of the
instrument creating or evidencing such Parity Stock is required to be redeemed
under such circumstances are redeemed or exchanged pursuant to the terms hereof
and thereof.
If at any time the Corporation shall have failed to pay, or
declare and set aside the consideration sufficient to pay, full cumulative
dividends on the Series E Preferred Stock for all Dividend Periods ending on or
before the immediately preceding Dividend Payment Date, and until full
cumulative dividends on the Series E Preferred Stock for all Dividend Periods
ending on or before the immediately preceding Dividend Payment Date are paid,
or declared and the consideration sufficient to pay the same in full is set
aside so as to be available for such purpose and no other purpose, neither the
Corporation nor any Subsidiary thereof shall redeem, exchange, purchase or
otherwise acquire any shares of Series E Preferred Stock, Parity Stock or
Junior Stock, or set aside any money or assets for any such purpose, pursuant
to paragraph 5 hereof, a sinking fund or otherwise, unless all then outstanding
shares of Series E Preferred Stock and of any other class or series of Parity
Stock that by the terms of the instrument creating or evidencing such Parity
Stock is required to be redeemed under such circumstances are redeemed or
exchanged pursuant to the terms hereof and thereof.
If at any time the Corporation shall have failed to pay, or
declare and set aside the consideration sufficient to pay, full cumulative
dividends on the Series E Preferred Stock for all Dividend Periods ending on or
before the immediately preceding Dividend Payment Date, and until full
cumulative dividends on the Series E Preferred Stock for all Dividend Periods
ending on or before the immediately preceding Dividend Payment Date are paid,
or declared and the consideration sufficient to pay the same in full is set
aside for such purpose and no other purpose, the Corporation shall not declare
or pay any dividend on or make any distribution with respect to any Junior
Stock or Parity Stock or set aside any money or assets for any such purpose,
except that the Corporation may declare and pay a dividend on any Parity Stock
ranking on a parity basis with the Series E Preferred Stock with respect to
the right to receive dividend contemporaneously with the declaration and
payment of a dividend on the Series E Preferred Stock, provided that such
dividends are declared and paid pro rata so that the amount of dividends
declared and paid per share of the Series E Preferred Stock and such Parity
Stock shall in all cases bear to each other the same ratio that accumulated and
accrued and unpaid dividends per share on the Series E Preferred Stock and such
Parity Stock bear to each other.
If the Corporation shall fail to redeem on any date fixed for
redemption or exchange pursuant to paragraph 5 hereof any shares of Series E
Preferred Stock called for redemption on such date, and until such shares are
redeemed in full, the Corporation shall not redeem or exchange any Parity Stock
or Junior Stock or declare or pay any dividend on or make any distribution
with respect to any Junior Stock, or set aside any money or assets for any such
purpose, and neither the Corporation nor any Subsidiary thereof shall purchase
or otherwise acquire any Series E Preferred Stock, Parity Stock or Junior
Stock, or set aside any money or assets for any such purpose.
Neither the Corporation nor any Subsidiary thereof shall
redeem, exchange, purchase or otherwise acquire any Parity Stock or Junior
Stock, or set aside any money or assets
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for any such purpose, if after giving effect to such redemption, exchange,
purchase or other acquisition, the amount (as determined by the Board of
Directors in good faith) that would be available for distribution to the
holders of the Series E Preferred Stock upon liquidation, dissolution or
winding up of the Corporation if such liquidation, dissolution or winding up
were to occur on the date fixed for such redemption, exchange, purchase or
other acquisition of such Parity Stock or Junior Stock would be less than the
aggregate Liquidation Preference as of such date of all shares of Series E
Preferred Stock then outstanding.
Nothing contained in the first, fourth or fifth paragraph of
this paragraph 6 shall prevent (i) the payment of dividends on any Junior Stock
solely in shares of Junior Stock or the redemption, purchase or other
acquisition of Junior Stock solely in exchange for (together with a cash
adjustment for fractional shares, if any), or (but only in the case of the
first and fifth paragraphs hereof) through the application of the proceeds from
the sale of, shares of Junior Stock; or (ii) the payment of dividends on any
Parity Stock solely in shares of Parity Stock and/or Junior Stock or the
redemption, exchange, purchase or other acquisition of Series E Preferred Stock
or Parity Stock solely in exchange for (together with a cash adjustment for
fractional shares, if any), or (but only in the case of the first and fifth
paragraphs hereof) through the application of the proceeds from the sale of,
shares of Parity Stock and/or Junior Stock.
The provisions of the first paragraph of this paragraph 6 are
for the sole benefit of the holders of Series E Preferred Stock and Parity
Stock having the terms described therein and accordingly, at any time when
there are no shares of any such class or series of Parity Stock outstanding or
if the holders of each such class or series of Parity Stock have, by such vote
or consent of the holders thereof as may be provided for in the instrument
creating or evidencing such class or series, waived in whole or in part the
benefit of such provisions (either generally or in the specific instance), then
the provisions of the first paragraph of this paragraph 6 shall not (to the
extent waived, in the case of any partial waiver) restrict the redemption,
exchange, purchase or other acquisition of any shares of Series E Preferred
Stock, Parity Stock or Junior Stock. All other provisions of this paragraph 6
are for the sole benefit of the holders of Series E Preferred Stock and
accordingly, if the holders of shares of Series E Preferred Stock shall have
waived (as provided in paragraph 9) in whole or in part the benefit of the
applicable provisions, either generally or in the specific instance, such
provision shall not (to the extent of such waiver, in the case of a partial
waiver) restrict the redemption, exchange, purchase or other acquisition of or
declaration, payment or making of any dividends or distributions on the Series
E Preferred Stock, any Parity Stock or any Junior Stock.
7. Conversion.
(a) Unless previously called for redemption as provided
in Section 5 hereof, shares of Series E Preferred Stock shall be convertible,
at the option of the holder thereof, at any time subsequent to the Amendment
Date in such manner and upon such terms and conditions as hereinafter provided
in this paragraph 7, into fully paid and non-assessable full shares of Class A
Common Stock. No shares of Class A Common Stock shall be issued in respect of
the conversion of the Series E Preferred Stock after the fifteenth Business
Day (the "Cut-off Date") preceding the date fixed for redemption; provided that
the conversion of Shares
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surrendered for conversion in accordance with paragraph 7 after the Cut-off
Date shall be given effect as of the date of such surrender if the Redemption
Price to be paid, or to be irrevocably set apart in trust for the benefit of
the holders of Shares to be so redeemed, has not been paid or so set apart on
or before such date fixed for redemption. In case cash, securities or property
other than Class A Common Stock shall be payable, deliverable or issuable upon
conversion as provided herein, then all references to Class A Common Stock in
this paragraph 7 shall be deemed to apply, so far as appropriate and as nearly
as may be, to such cash, property or other securities.
(b) Subject to the provisions for adjustment hereinafter
set forth in this paragraph 7, the Series E Preferred Stock may be converted
into Class A Common Stock at the initial conversion rate of 1,000 fully paid
and non-assessable shares of Class A Common Stock for one share of the Series
E Preferred Stock. (This conversion rate as from time to time adjusted
cumulatively pursuant to the provisions of this paragraph is hereinafter
referred to as the "Conversion Rate").
(c) In case after the Issue Date the Corporation shall
(i) pay a dividend or make a distribution on its outstanding shares of Class A
Common Stock in shares of its capital block or capital stock of any Subsidiary,
(ii) subdivide the then outstanding shares of Class A Common Stock into a
greater number of shares of Class A Common Stock, (iii) combine the then
outstanding shares of Class A Common Stock into a smaller number of shares of
Class A Common Stock, or (iv) issue by reclassification of its shares of Class
A Common Stock any shares of any other class of capital stock of the
Corporation (including any such reclassification in connection with a merger in
which the Corporation is the continuing corporation), then the Conversation
Rate in effect immediately prior to the opening of business on the record date
for such dividend or distribution or the effective date of such subdivision,
combination or reclassification shall be adjusted so that the holder of each
share of the Series E Preferred Stock thereafter surrendered for conversion
shall be entitled to receive the number and kind of shares of capital stock of
the Corporation (or capital stock of a Subsidiary) that such holder would have
owned or been entitled to receive immediately following such action had such
shares of Series E Preferred Stock been converted immediately prior to such
time. An adjustment made pursuant to this paragraph 7(c) for a dividend or
distribution shall become effective immediately after the record date for the
dividend or distribution and an adjustment made pursuant to this paragraph 7(c)
for a subdivision, combination or classification shall become effective
immediately after the effective date of the subdivision, combination or
reclassification. Such adjustment shall be made successively whenever any action
listed above shall be taken.
(d) In case the Corporation shall after the Issue Date
issue any rights or warrants to all holders of shares of Class A Common Stock
entitling them (for a period expiring within 45 days after the record date for
the determination of stockholders entitled to receive such rights or warrants)
to subscribe for or purchase shares of Class A Common Stock (or Convertible
Securities) at a price per share of Class A Common Stock (or having an initial
exercise price or conversion price per share of Class A Common Stock) less than
the then current market price per share of Class A Common Stock (as determined
in accordance with the provisions of paragraph 7(f) below) on such record date,
the number of shares of Class A
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Common Stock into which each Share shall thereafter be convertible shall be
determined by multiplying the number of shares of Class A Common Stock into
which such Share was theretofore convertible immediately prior to such record
date by a fraction of which the numerator shall be the number of shares of
Class A Common Stock outstanding on such record date plus the number of
additional shares of Class A Common Stock offered for subscription or purchase
(or into which the Convertible Securities so offered are initially
convertible) and of which the denominator shall be the number of shares of
Class A Common Stock outstanding on such record date plus the number of shares
of Class A Common Stock which the aggregate offering price of the total number
of shares of Class A Common Stock so offered (or the aggregate initial
conversion or exercise price of the Convertible Securities so offered) would
purchase at the then current market price per share of Class A Common Stock (as
determined in accordance with the provisions of paragraph 7(f) below) on such
record date. Such adjustment shall be made successively whenever any such
rights or warrants are issued and shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
rights or warrants. In the event that all of the shares of Class A Common Stock
(or all of the Convertible Securities) subject to such rights or warrants have
not been issued when such rights or warrants expire (or, in the case of rights
or warrants to purchase Convertible Securities which have been exercised, all
of the shares of Class A Common Stock issuable upon conversion of such
Convertible Securities have not been issued prior to the expiration of the
conversion right thereof), then the Conversion Rate shall be readjusted
retroactively to be the Conversion Rate which would then be in effect had the
adjustment upon the issuance of such rights or warrants been made on the basis
of the actual number of shares of Class A Common Stock (or Convertible
Securities) issued upon the exercise of such right or warrants (or the
conversion of such Convertible Securities); but such subsequent adjustment
shall not affect the number of shares of Class A Common Stock issued upon the
conversion of any Share prior to the date such subsequent adjustment is made.
(e) In case the Corporation shall distribute after the
Issue Date to all holders of shares of Class A Common Stock (including any such
distribution made in connection with a merger in which the Corporation is the
continuing corporation, other than a merger to which paragraph 7(g) is
applicable) any securities, evidences of its indebtedness or assets (other than
cash dividends out of earnings since the Issue Date (determined without regard
to gains on the sale of significant capital assets) or capital stock in respect
of which an adjustment is made pursuant to paragraph 7(c) hereof) or rights or
warrants to purchase shares of Class A Common Stock or Class B Common Stock or
securities convertible into shares of Class A Common Stock or Class B Common
Stock (excluding those referred to in paragraph 7(d) above), then in each such
case the number of shares of Class A Common Stock into which each Share shall
thereafter be convertible shall be determined by multiplying the number of
shares of Class A Common Stock into which such Share was theretofore
convertible immediately prior to the record date for the determination of
stockholders entitled to receive the distribution by a fraction of which the
numerator shall be the then current market price per share of Class A Common
Stock (as determined accordance with the provisions of paragraph 7(f) below) on
such record date and of which the denominator shall be such current market
price per share of Class A Common Stock less the fair market value on such
record date (as determined by the Board of Directors of the Corporation whose
determination shall be conclusive) of the portion of the securities, assets or
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evidences of indebtedness or rights and warrants so to be distributed
applicable to one share of Class A Common Stock. Such adjustment shall be made
successively whenever any such distribution is made and shall become effective
immediately after the record date for the determination of stockholders
entitled to receive such distribution.
(f) For the purpose of any computation under paragraph
7(d), (e) or (k), the current market price per share of Class A Common Stock at
any date shall be deemed to be the average of the daily closing prices for a
share of Class A Common Stock for the ten (10) consecutive trading days before
the day in question. The closing price for each day shall be the last reported
sale price regular way or, in case no such reported sale takes place on such
day, the average of the reported closing bid and asked prices regular way, in
either case on the composite tape, or if the shares of Class A Common Stock are
not quoted on the composite tape, on the principal United States securities
exchange registered under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") on which the shares of Class A Common Stock are listed or
admitted to trading, or if they are not listed or admitted to trading on any
such exchange, the last reported sale price (or the average of the quoted
closing bid and asked prices if there were no reported sales) as reported by
the National Association of Securities Dealers Automated Quotation System
("NASDAQ") or any comparable system, or if the Class A Common Stock is not
quoted on NASDAQ or any comparable system, the average of the closing bid and
asked prices as furnished by any member of the National Association of
Securities Dealers, Inc. selected from time to time by the Corporation for that
purpose or, in the absence of such quotations, such other method of determining
market value as the Board of Directors shall from time to time deem to be fair.
(g) In case of any reclassification or change in the
Class A Common Stock (other than any reclassification or change referred to in
paragraph 7(c) and other than a change in par value) or in case of any
consolidation of the Corporation with any other corporation or any merger of
the Corporation into another corporation or of another corporation into the
Corporation (other than a merger in which the Corporation is the continuing
corporation and which does not result in any reclassification or change (other
than a change in par value or any reclassification or change to which paragraph
7(c) is applicable) in the outstanding Class A Common Stock), or in case of any
sale or transfer to another corporation or entity (other than by mortgage or
pledge) of all or substantially all of the properties and assets of the
Corporation, in any such case after the Issue Date, the Corporation (or its
successor in such consolidation or merger) or the purchaser of such properties
and assets shall make appropriate provision so that the holder of a Share shall
have the right thereafter to convert such Share into the kind and amount of
shares of stock and other securities and property that such holder would have
owned immediately after such reclassification, change, consolidation, merger,
sale or transfer if such holder had converted such Share into Class A Common
Stock immediately prior to the effective date of such reclassification, change,
consolidation, merger, sale or transfer (assuming for this purpose (to the
extent applicable) that such holder failed to exercise any, rights of election
and received per share of Class A Common Stock the kind and amount of shares of
stock and other securities and property received per share by a plurality of
the non-electing shares), and the holders of the Series E Preferred Stock shall
have no other conversion rights under these provisions; provided, that
effective provision shall be made, in the Articles or Certificate of
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Incorporation of the resulting or surviving corporation or otherwise or in any
contracts of sale or transfer, so that the provisions set forth herein for the
protection of the conversion rights of the Series E Preferred Stock shall
thereafter be made applicable, as nearly as reasonably may be to any such other
shares of stock and other securities and property deliverable upon conversion
of the Series E Preferred Stock remaining outstanding or other convertible
preferred stock or other Convertible Securities received by the holders of
Series E Preferred Stock in place thereof; and provided, further, that any such
resulting or surviving corporation or purchaser shall expressly assume the
obligation to deliver, upon the exercise of the conversion privilege, such
shares, securities or property as the holders of the Series E Preferred Stock
remaining outstanding or other convertible preferred stock or other
convertible securities received by the holders in place thereof, shall be
entitled to receive pursuant to the provisions hereof, and to make provisions
for the protection of the conversion rights as above provided.
(h) Whenever the Conversion Rate or the conversion
privilege shall be adjusted as provided in paragraphs 7(c), (d), (e) or (g),
the Corporation shall promptly cause a notice to be mailed to the holders of
record of the Series E Preferred Stock describing the nature of the event
requiring such adjustment, the Conversion Rate in effect immediately thereafter
and the kind and amount of stock or other securities or property into which the
Series E Preferred Stock shall be convertible after such event. Where
appropriate, such notice may be given in advance and included as a part of a
notice required to be mailed under the provisions of paragraph 7(j).
(i) The Corporation may, but shall not be required to,
make any adjustment of the Conversion Rate if such adjustment would require an
increase or decrease of less than 1% in such Conversion Rate; provided however,
that any adjustments which by reason of this paragraph 7(i) are not required to
be made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this paragraph 7 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be. In any case
in which this paragraph 7(i) shall require that an adjustment shall become
effective immediately after a record date for such event, the Corporation may
defer until the occurrence of such event (x) issuing to the holder of any
shares of Series E Preferred Stock converted after such record date and before
the occurrence of such event the additional shares of Class A Common Stock or
other capital stock issuable upon such conversion by reason of the adjustment
required by such event over and above the shares of Class A Common Stock, or
other capital stock issuable upon such conversion before giving effect to such
adjustment and (y) paying to such holder cash in lieu of any fractional
interest to which such holder is entitled pursuant to paragraph 7(n); provided,
however, that, if requested by such holder, the Corporation shall deliver to
such holder a due bill or other appropriate instrument evidencing such holder's
right to receive such additional shares of Class A Common Stock or other
capital stock, and such cash, upon the occurrence of the event requiring such
adjustment.
(j) In case at any time:
(i) the Corporation shall take any action which
would require an adjustment in the Conversion Rate pursuant to this
paragraph;
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(ii) there shall be any capital reorganization or
reclassification of the Class A Common Stock (other than a change in
par value), or any consolidation or merger to which the Corporation is
a party and for which approval of any shareholders of the Corporation
is required, or any sale, transfer or lease of all or substantially
all of the properties and assets of the Corporation, or a tender offer
for shares of Class A Common Stock representing, together with any
shares of Class B Common Stock tendered for in such tender offer, at
least a majority of the total voting power represented by the
outstanding shares of Class A Common Stock and Class B Common Stock
which has been recommended by the Board of Directors as being in the
best interests of the holders of Class A Common Stock; or
(iii) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Corporation;
then, in any such event, the Corporation shall give written notice, in the
manner provided in paragraph 5 hereof, to the holders of the Series E Preferred
Stock at their respective addresses as the same appear on the books of the
Corporation, at least twenty days (or ten days in the case of a recommended
tender offer as specified in clause (ii) above) prior to any record date for
such action, dividend or distribution or the date as of which it is expected
that holders of Class A Common Stock of record shall be entitled to exchange
their shares of Class A Common Stock for securities or other property, if any,
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, transfer, lease, tender offer, dissolution, liquidation or winding up;
provided, however, that any notice required by any event described in clause
(ii) of this paragraph 7(j) shall be given in the manner and at the time that
such notice is given to the holders of Class A Common Stock. Without limiting
the obligations of the Corporation to provide notice of corporate actions
hereunder, the failure to give the notice required by this paragraph 7(j) or
any defect therein shall not affect the legality or validity of any such
corporate action of the Corporation or the vote upon such action.
(k) Before any holder of Series E Preferred Stock shall
be entitled to convert the same in Class A Common Stock, such holder shall
surrender the certificate or certificates for such Series E Preferred Stock at
the office of the Corporation or at the office of the transfer agent for the
Series E Preferred Stock, which certificate or certificates, if the Corporation
shall so request, shall be duly endorsed to the Corporation or in blank or
accompanied by proper instruments of transfer to the Corporation or in blank
(such endorsements or instruments of transfer to be in form satisfactory to the
Corporation), and shall give written notice to the Corporation at said office
that such holder elects to convert all or a part of the Shares represented by
said certificate or certificates in accordance with the terms of this paragraph
7, and shall state in writing therein the name or names in which such holder
wishes the certificates for Class A Common Stock to be issued. Every such
notice of election to convert shall constitute a contract between the holder of
such Series E Preferred Stock and the Corporation, whereby the holder of such
Series E Preferred Stock shall be deemed to subscribe for the amount of Class A
Common Stock which such holder shall be entitled to receive upon
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conversion of the number of shares of Series E Preferred Stock to be converted,
and, in satisfaction of such subscription, to deposit the shares of Series E
Preferred Stock to be converted, and thereby the Corporation shall be deemed to
agree that the surrender of the shares of Series E Preferred Stock to be
converted shall constitute full payment of such subscription for Class A Common
Stock to be issued upon such conversion. The Corporation will as soon as
practicable after such deposit of a certificate or certificates for Series E
Preferred Stock, accompanied by the written notice and the statement above
prescribed, issue and deliver at the office of the Corporation or of said
transfer agent to the person for whose account such Series E Preferred Stock
was so surrendered, or to his nominee(s) or, subject to compliance with
applicable law, transferee(s), a certificate or certificates for the number of
full shares of Class A Common Stock to which such holder shall be entitled,
together with cash in lieu of any fraction of a share as hereinafter provided.
If surrendered certificates for Series E Preferred Stock are converted only in
part, the Corporation will issue and deliver to the holder, or to his
nominee(s), without charge therefor, a new certificate or certificates
representing the aggregate of the unconverted Shares. Such conversion shall be
deemed to have been made as of the date of such surrender of the Series E
Preferred Stock to be converted; and the person or persons entitled to receive
the Class A Common Stock issuable upon conversion of such Series E Preferred
Stock shall be treated for all purposes as the record holder or holders of such
Class A Common Stock on such date.
Upon the conversion of any Share, the Corporation shall pay,
to the holder of record of such Share on the immediately preceding Record Date,
all accrued but unpaid dividends on such Share to the date of the surrender of
such Share for conversion. Such payment shall be made in cash or, at the
election of the Corporation, the issuance of certificates representing such
number of shares of Class A Common Stock as have an aggregate current market
price (as determined in accordance with paragraph 7(f)) on the date of issuance
equal to the amount of such accrued but unpaid dividends. Upon the making of
such payment to the person entitled thereto as determined pursuant to the first
sentence of this paragraph, no further dividends shall accrue on such Share or
to be payable to any other person.
The issuance of certificates for shares of Class A Common
Stock upon conversion of shares of Series E Preferred Stock shall be made
without charge for any issue, stamp or other similar tax in respect of such
issuance, provided, however, if any such certificate is to be issued in a name
other than that of the registered holder of the share or shares of Series E
Preferred Stock converted, the person or persons requesting the issuance
thereof shall pay to the Corporation the amount of any tax which may be payable
in respect of any transfer involved in such issuance or shall establish to the
satisfaction of the Corporation that such tax has been paid.
The Corporation shall not be required to convert any shares of
Series E Preferred Stock, and no surrender of Series E Preferred Stock shall be
effective for that purpose, while the stock transfer books of the Corporation
are closed for any purpose; but the surrender of Series E Preferred Stock for
conversion during any period while such books are so closed shall become
effective for conversion immediately upon the reopening of such books, as if
the conversion had been made on the date such Series E Preferred Stock was
surrendered.
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(l) Promptly following the Amendment Date the Corporation
shall reserve and keep available at all times thereafter, solely for the
purpose of issuance upon conversion of the outstanding shares of Series E
Preferred Stock, such number of shares of Class A Common Stock as shall be
issuable upon the conversion of all outstanding Shares, provided that nothing
contained herein shall be construed to preclude the Corporation from satisfying
its obligations in respect of the conversion of the outstanding shares of
Series E Preferred Stock by delivery of shares of Class A Common Stock which
are held in the treasury of the Corporation. Promptly following the Amendment
Date, the Corporation shall take all such corporate and other actions as from
time to time may be necessary to insure that all shares of Class A Common
Stock issuable upon conversion of shares of Series E Preferred Stock at the
Conversion Rate in effect from time to time will, upon issue, be duly and
validly authorized and issued, fully paid and nonassessable and free of any
preemptive or similar rights.
(m) All shares of Series E Preferred Stock received by
the Corporation upon conversion thereof into Class A Common Stock shall be
retired and shall be restored to status of authorized and unissued shares of
preferred stock (and may be reissued as part of another series of the preferred
stock of the Corporation), but such shares shall not be reissued as Series E
Preferred Stock
(n) The Corporation shall not be required to issue
fractional shares of Class A Common Stock or scrip upon conversion of the
Series E Preferred Stock. As to any final fraction of a share of Class A Common
Stock which a holder of one or more Shares would otherwise be entitled to
receive upon conversion of such Shares in the same transaction, the Corporation
shall pay a cash adjustment in respect of such final fraction in an amount
equal to the same fraction of the market value of a full share of Class A
Common Stock. For purposes of this paragraph 7(n), the market value of a share
of Class A Common Stock shall be the last reported sale price regular way on
the business day immediately preceding the date of conversion, or, in case no
such reported sale takes place on such day, the average of the reported closing
bid and asked prices regular way on such day, in either case on the composite
tape, or if the shares of Class A Common Stock are not quoted on the composite
tape, on the principal United States securities exchange registered under the
Exchange Act on which the shares of Class A Common Stock are listed or admitted
to trading, or if the shares of Class A Common Stock are not listed or admitted
to trading on any such exchange, the last reported sale price (or the average of
the quoted last reported bid and asked prices if there were no reported sales)
as reported by NASDAQ or any comparable system, or if the Class A Common Stock
is not quoted on NASDAQ or any comparable system, the average of the closing
bid and asked prices as furnished by any member of the National Association of
Securities Dealers, Inc. selected from time to time by the Corporation for that
purpose or, in the absence of such quotations, such other method of determining
market value as the Board of Directors shall from time to time deem to be fair.
(o) If any shares of Class A Common Stock which would be
issuable upon conversion of Shares require registration with or approval of any
governmental authority before such shares may be issued upon conversion, the
Corporation will in good faith and as expeditiously as possible cause such
shares to be duly registered or approved, as the case may be. The Corporation
will endeavor to list the shares of Class A Common Stock required to be
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delivered upon conversion of Shares prior to such delivery upon the principal
national securities exchange upon which the outstanding, Class A Common Stock
is listed at the time of such delivery.
8. Voting
(a) VOTING RIGHTS. The holders of Series E Preferred
Stock shall have no voting rights whatsoever, except as required by law and
except for the voting rights described in this paragraph 8; provided, however,
that the number of authorized shares of Series E Preferred Stock may be
increased or decreased (but not below the number of shares of Series E
Preferred Stock then outstanding) by the affirmative vote of the holders of
at least 66 2/3 of the total voting power of the then outstanding Voting
Securities (as defined in Article V, Section C of the Corporation's Restated
Certificate of Incorporation), voting together as a single class as provided in
Article IX of the Certificate. Without limiting the generality of the
foregoing, no vote or consent of the holders of Series E Preferred Stock shall
be required for (a) the creation of any indebtedness of any kind of the
Corporation (b) the creation or designation of any class or series of Senior
Stock, Parity Stock or Junior Stock, or (c) any amendment to the Certificate
that would increase the number of authorized shares of Preferred Stock or the
number of authorized shares of Series E Preferred Stock or that would decrease
the number of authorized shares of Preferred Stock or the number of authorized
shares of Series E Preferred Stock (but not below the number of shares of
Preferred Stock or Series E Preferred Stock, as the case may be, then
outstanding).
(b) ELECTION OF DIRECTORS. The holders of the Series E
Preferred Stock shall have the right to vote at any annual or special meeting
of stockholders for the purpose of electing directors. Each share of Series E
Preferred Stock shall have one vote for such purpose, and shall vote as a
single class with any other class or series of capital stock of the Corporation
entitled to vote in any general election of directors, unless the instrument
creating or evidencing such class or series of capital stock otherwise
expressly provides.
9. Waiver.
Any provision which for the benefit of the holders of Series
E Preferred Stock, prohibits, limits or restricts actions by the Corporation,
or imposes obligations on the Corporation, may be waived in whole or in part,
or the application of all or any part of such provision in any particular
circumstance or generally may be waived, in each case with the consent of the
holders of at least a majority of the number of shares of Series E Preferred
Stock then outstanding (or such greater percentage thereof as may be required
by applicable law or any applicable rules of any national securities exchange
or national interdealer quotation system), either in writing or by vote at an
annual meeting or a meeting called for such purpose at which the holders of
Series E Preferred Stock shall vote as a separate class.
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80
10. Method of Giving Notices.
Any notice required or permitted hereby to be given to the
holders of shares of Series E Preferred Stock shall be deemed duly given if
deposited in the United States mail, first class mail, postage prepaid, and
addressed to each holder of record at his address appearing on the books of the
Corporation or supplied by him in writing to the Corporation for the purpose
of such notice.
11. Exclusion of Other Rights.
Except as may otherwise be required by law and except for the
equitable rights and remedies which may otherwise be available to holders of
Series E Preferred Stock, the shares of Series E Preferred Stock shall not have
any designations, preferences, limitations or relative rights other than those
specifically set forth herein.
12. Heading of Subdivisions.
The headings of the various subdivisions hereof are for
convenience of reference only and shall not affect the interpretation of any of
the provisions hereof.
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FURTHER RESOLVED, that the appropriate officers of the Corporation are
hereby authorized to execute and acknowledge a certificate setting forth these
resolutions and to cause such certificate to be filed and recorded, in
accordance with the requirements of Section 151(g) of the General Corporation
Law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned, duly authorized officer has
executed this certificate on this 11 day of October, 1994.
/s/ Larry Romrell
Name: Larry Romrell
Title: Executive Vice President
Attest: /s/ Stephen M. Brett
Name: Stephen M. Brett
Title: Secretary
82
STATE OF DELAWARE
PAGE 1
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
CORRECTION OF "TELE-COMMUNICATIONS, INC.", FILED IN THIS OFFICE ON THE
TWENTY-FOURTH DAY OF OCTOBER, A.D. 1994, AT 8:30 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT
COUNTY RECORDER OF DEEDS FOR RECORDING.
[Seal]
/s/ Edward J. Freel
Edward J. Freel, Secretary of State
AUTHENTICATION: 7278574
DATE: 10-24-94
83
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 08:30 AM 10/24/1994
944202081 - 2371729
CERTIFICATE OF CORRECTION
Filed pursuant to Section 103(f)
of the Delaware General Corporation Law
with respect to a
CERTIFICATE OF DESIGNATION
of
TELE-COMMUNICATIONS, INC.
Whereas, on October 11, 1994, Tele-Communications, Inc. (the
"Corporation") filed with the Delaware Secretary of State a Certificate of
Designation (the "Certificate of Designation") authorizing the issuance of a
series of preferred stock of the Corporation designated "Redeemable Convertible
Preferred Stock, Series E;"
Whereas, such Certificate of Designation inaccurately stated
that the par value of the Redeemable Convertible Preferred Stock, Series E, is
$1.00 per share, when in fact the par value of the Redeemable Convertible
Preferred Stock, Series E, is $.01 per share;
Therefore, the Certificate of Designation is hereby corrected
in accordance with the provisions of Section 103(f) of the Delaware General
Corporation Law as follows:
1. The words "par value $1.00 per share" shall be
deleted from paragraph number 1 of the Certificate of Designation and the words
"par value $.01 per share" shall be substituted in their place.
Executed on the date set forth below by the undersigned duly
authorized officer of the Corporation.
Date: October 21, 1994 Signature: /s/ Stephen M. Brett
Name: Stephen M. Brett
Title: Executive President
and General Counsel
84
STATE OF DELAWARE
PAGE 1
OFFICE OF THE SECRETARY OF STATE
-------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "TELE-COMMUNICATIONS, INC.", FILED IN THIS OFFICE ON THE
TWENTY-SIXTH DAY OF JANUARY, A.D. 1995, AT 10:55 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT
COUNTY RECORDER OF DEEDS FOR RECORDING.
[SEAL]
/s/ Edward J. Freel
Edward J. Freel, SECRETARY OF STATE
AUTHENTICATION: 7387640
DATE: 01-26-95
85
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED lO:55 AM 01/26/1995
950019173 - 2371729
TELE-COMMUNICATIONS, INC.
CERTIFICATE OF DESIGNATION
--------------------
SETTING FORTH A COPY OF A RESOLUTION
CREATING AND AUTHORIZING THE ISSUANCE
OF A SERIES OF PREFERRED STOCK DESIGNATED
AS "CONVERTIBLE PREFERRED STOCK,
SERIES D" ADOPTED BY THE BOARD OF DIRECTORS
OF TELE-COMMUNICATIONS, INC.
--------------------
The undersigned Executive Vice President of Tele-Communications, Inc.,
a Delaware corporation (the "Corporation"), hereby certifies that the Board of
Directors duly adopted the following resolutions creating a series of preferred
stock designated as "Convertible Preferred Stock, Series D":
"BE IT RESOLVED, that, pursuant to authority expressly granted by the
provisions of the Restated Certificate of Incorporation of this Corporation,
the Board of Directors hereby creates and authorizes the issuance of a series
of preferred stock, par value $.01 per share, of this Corporation, to consist
of 1,000,000 shares, and hereby fixes the designations, dividend rights, voting
powers, rights on liquidation and other preferences and relative,
participating, optional or other special rights and the qualifications,
limitations or restrictions of the shares of such series (in addition to the
designations, preferences and relative, participating, limitations or
restrictions thereof set forth in the Restated Certificate of Incorporation
that are applicable to preferred stock of all series) as follows:
1. Designation. The designation of the series of preferred stock,
par value $.01 per share, of this Corporation authorized hereby is "Convertible
Preferred Stock, Series D" (the "Convertible Preferred Stock").
2. Certain Definitions. Unless the context otherwise requires,
the terms defined this Section 2 shall have the meanings herein specified:
Affiliate: As to any person or, entity, any other person or entity
which. directly or indirectly, controls, or is under common control with, or is
controlled by, such person or entity. As
86
used in this definition, "control" (including, with its correlative meanings,
"controlling," "controlled by" and "under common control with") shall mean
possession, directly or indirectly, of the power to direct or cause the
direction of management or policies of a Person (whether through the ownership
of securities, or partnership or other ownership interest, by contract or
otherwise).
Board of Directors: The Board of Directors of this Corporation and any
authorized committee thereof.
Business Day: Any day other than a Saturday, Sunday, or holiday in
which banking institutions in Denver, Colorado, are closed for business.
Capital Stock: Any and all shares, interests, participations or other
equivalents (however designated) of corporate stock of this Corporation.
Class A Common Stock: The Class A Common Stock, par value $1.00 per
share, of this Corporation as such exists on the date of this Certificate of
Designation, and Capital Stock of any other class into which such Class A
Common Stock may thereafter have been changed.
Class B Common Stock: The Class B Common Stock, par value $1.00 per
share, of this Corporation as such exists on the date of this Certificate of
Designation, and Capital Stock of any other class into which such Class B
Common Stock may thereafter have been changed.
Class B Preferred Stock: The Class B 6% Cumulative Redeemable
Exchangeable Junior Preferred Stock, par value $.01 per share of the
Corporation.
Class C Preferred Stock: The Convertible Preferred Stock, Series C,
par value $.01 per share, of the Corporation.
Class E Preferred Stock: The Convertible Preferred Stock, Series E,
par value $.01 per share, of the Corporation.
Common Stock: The Class A Common Stock. Class B Common Stock and any
other class of Capital Stock of this Corporation designated as Common Stock.
Conversion Rate: As defined in Section 5(b).
Convertible Securities: Securities, other than the Class B Common
Stock, that are convertible into or exchangeable for Class A Common Stock.
Debt Instrument: Any bond, debenture, note, indenture, guarantee or
other instrument or agreement evidencing any Indebtedness of this Corporation,
whether existing at the Issue Date or thereafter created, incurred, assumed or
guaranteed.
2
87
Dividend Payment Date: As defined in Section 3(b).
Dividend Period: The period from but excluding the First Accrual Date
to and including the first Dividend Payment Date and each six-month period from
but excluding the Dividend Payment Date for the preceding Dividend Period to
and including the Dividend Payment Date for such Dividend Period.
Exchange Option. As defined in Section 7(a).
Expiration Date. As defined in Section 7(d).
First Accrual Date: The Issue Date.
Indebtedness: Any (i) liability, contingent or otherwise, of this
Corporation (x) for borrowed money whether or not the recourse of the lender is
to the whole of the assets of this Corporation or only to a portion thereof),
(y) evidenced by a note, debenture or similar instrument (including a purchase
money obligation) given other than in connection with the acquisition of
inventory or similar property in the ordinary course of business, or (z) for
the payment of money relating to an obligation under a lease that is required
to be capitalized for financial accounting purposes in accordance with
generally accepted accounting principles; (ii) liability of others described in
the preceeding clause (i) which this Corporation has guaranteed or which is
otherwise its legal liability; (iii) obligations secured by a mortgage, pledge,
lien, charge or other encumbrance to which the property or assets of this
Corporation are subject whether or not the obligations secured thereby shall
have been assumed by or shall otherwise be this Corporation's legal liability;
and (iv) any amendment, renewal, extension or refunding of any liability of the
types referred to in clauses (i), (il) and (iii) above.
Issue Date: The first date on which any shares of the Convertible
Preferred Stock are first issued or deemed to have been issued.
Junior Securities: All shares of Common Stock, Class B Preferred Stock
and any other class or series of stock of this Corporation not entitled to
receive any dividends unless all dividends required to have been paid or
declared and set apart for payment on the Convertible Preferred Stock shall
have been so paid or declared and set apart for payment and, for purposes of
Section 4 hereof, any class or series of stock of this Corporation not entitled
to receive any assets upon liquidation, dissolution or winding up of the
affairs of this Corporation until the Convertible Preferred Stock shall have
received the entire amount to which such stock is entitled upon such
liquidation, dissolution or winding up.
Liquidation Value: Measured per Share of the Convertible Preferred
Stock as of any particular date, the sum of (i) S300 plus (ii) an amount equal
to all dividends accrued on such Share through the Dividend Payment Date
immediately preceding the date on which the Liquidation Value is being
determined, which pursuant to Section 3(c) or (d) have been added to and remain
a part of
3
88
the Liquidation Value as of such date, plus (iii), for purposes of determining
amounts payable pursuant to Sections 4 and 6 hereof, an amount equal to all
unpaid dividends accrued on the sum of the amounts specified in clauses (i) and
(ii) above to the date as of which the Liquidation Value is being determined.
Merger Agreement: The Agreement and Plan of Merger, dated as of August
8, 1994 among this Corporation, TCI Communications, Inc. and TeleCable
Corporation.
Mirror Preferred Stock. As defined in Section 7(c).
Option Notice. As defined in Section 7(d).
Parity Securities: Any class or series of stock of this Corporation
entitled to receive payment of dividends on a parity with the Convertible
Preferred Stock or entitled to receive assets upon liquidation, dissolution or
winding up of the affairs of this Corporation on a parity with the Convertible
Preferred Stock. The Class A Preferred Stock, the Class C Preferred Stock and
Class E Preferred Stock rank on a parity basis with the Convertible Preferred
Stock.
Record Date: For dividends payable on any Dividend Payment Date, the
fifteenth day of the month preceding the month during which such Dividend
Payment Date shall occur.
Redemption Date: As to any Share, the date fixed for redemption of
such Share as specified in the notice of redemption given in accordance with
Section 6(d), provided that no such date will be a Redemption Date unless the
applicable Redemption Price is actually paid on such date or the consideration
sufficient for the payment thereof, and for no other purpose, has been
irrevocably set apart in trust for the benefit of the holders of Shares to be
redeemed, and if the Redemption Price is not so paid in full or the
consideration sufficient therefor so irrevocably set apart in trust for the
benefit of the holders of Shares to be redeemed, then the Redemption Date will
be the date on which such Redemption Price is fully paid or the consideration
sufficient for the payment thereof, and for no other purpose, has been
irrevocably set apart in trust for the benefit of the holders of Shares to be
redeemed; and provided, further that for purposes of Section 6(c) hereof, the
date fixed for redemption of Shares which are required to be redeemed pursuant
to such Section shall be the Business Day which is 20 Business Days after the
date this Corporation receives the notice referred to in such Section from the
holder of Shares therein specified.
Redemption Price: As to any Share that is to be redeemed on any
Redemption Date, the Liquidation Value as in effect on such Redemption Date;
provided, however, that for purposes of Section 5(p) hereof (but not Section
5(a) as it may refer to Section 5(p)) and this definition, the date otherwise
fixed for redemption of such Shares shall be deemed the Redemption Date in
respect of such Shares.
Rights. As defined in Section 7(a).
4
89
Senior Securities: Any class or series of stock of this Corporation
ranking senior to the Convertible Preferred Stock in respect of the right to
receive payment of dividends or the right to participate in any distribution
upon liquidation, dissolution or winding up of the affairs of this Corporation.
Share: As defined in Section 3(a).
Special Liquidation Value: In respect of any Dividend Payment Date and
Shares, all accrued dividends not paid or irrevocably set apart in trust for
the benefit of the holders of Shares on or before such date.
Special Securities: Capital Stock (other than Class A Common Stock or
Class B Common Stock) of this Corporation or a Subsidiary thereof which (a) is
common stock of the issuer thereof or (b) participates in one or more business
operations of the issuer thereof in such a manner that if such operations were
owned by a corporation and such Capital Stock were issued thereby such Capital
Stock would be common stock of such corporation.
Special Record Date: As defined in Section 3(c).
Subsidiary: With respect to any person or entity, any corporation or
partnership more than 50% of whose outstanding voting securities or partnership
interests, as the case may be, are directly or indirectly owned by such person
or entity.
Successor Interest: As defined in Section S(g).
3. Dividends.
(a) Subject to the rights of any Parity Securities with respect to
dividends, the holders of the Convertible Preferred Stock shall be entitled to
receive, and, subject to any prohibition or restriction contained in any Debt
Instrument, this Corporation shall be obligated to pay, but only out of funds
legally available therefor, preferential cumulative cash dividends which shall
accrue as provided herein. Except as otherwise provided in Sections 3(c) or
3(d) hereof, dividends on each share of Convertible Preferred Stock
(hereinafter referred to as a "Share") shall accrue on a daily basis at the
rate of 51/2% per annum of the Liquidation Value to and including the date of
conversion thereof pursuant to Section 5 or the date on which the Liquidation
Value or Redemption Price of such Share is made available pursuant to Section 4
or 6 hereof, respectively. Dividends on the Convertible Preferred Stock shall
accrue as provided herein, whether or not such dividends have been declared and
whether or not there are profits, surplus or other funds of the Corporation
legally or contractually available for the payment of dividends and regardless
of the provisions of any Parity Securities or Debt Instrument.
(b) Accrued dividends on the Convertible Preferred Stock shall be
payable semiannually on the first day of each January and July or the
immediately succeeding Business Day.
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if such first day is not a Business Day (each such payment date being
hereinafter referred to as a "Dividend Payment Date"), commencing on July I,
1995 to the holders of record of the Convertible Preferred Stock as of the
close of business on the applicable Record Date. For purposes of determining
the amount of dividends "accrued" as of any date that is not a Dividend Payment
Date, such amount shall be calculated on the basis of the rate per annum
specified in Section 3(a) for actual days elapsed from but excluding the First
Accrual Date (in the case of any date prior to the first Dividend Payment Date)
or the last preceding Dividend Payment Date in respect of which dividends were
fully paid or irrevocably set apart in trust for the benefit of the holders of
Shares (or shares of Class A Common Stock were issued in respect of the Special
Liquidation Value as provided in Section 5(o) hereof), in the case of any other
date, to and including the date as of which such determination is to be made,
based on a 365-day year.
(c) If on any Dividend Payment Date this Corporation pursuant to
applicable law or the terms of any Debt Instrument shall be prohibited or
restricted from paying in cash the full dividends to which holders of the
Convertible Preferred Stock and any Parity Securities shall be entitled, the
amount available for such payment pursuant to applicable law and which is not
restricted by the terms of any Debt Instrument shall be distributed among the
holders of the Convertible Preferred Stock and such Parity Securities ratably
in proportion to the full amounts to which they would otherwise be entitled
except for the issuance of the Class A Common Stock issued in respect of the
partial conversion of Shares pursuant to Section 5(o) hereof. To the extent not
paid on each Dividend Payment Date, all dividends which have accrued on each
Share during the Dividend Period ending on such Dividend Payment Date will be
added cumulatively to the Liquidation Value of such Share and will remain a
part thereof until such dividends are paid. In the event that dividends are
not paid in full on two consecutive Dividend Payment Dates, dividends on that
portion of the Liquidation Value of each Share which consists of accrued
dividends that have theretofore been or thereafter are added to, and remain a
part of, the Liquidation Value in accordance with the preceding sentence shall
accrue cumulatively on a daily basis at the rate of ten percent (10%) per
annum, from and after such second consecutive Dividend Payment Date to and
including the date of conversion of such Share pursuant to Section 5 or the
date on which the Liquidation Value or Redemption Price of such Share is made
available pursuant to Section 4 or 6 hereof, respectively, unless such portion
of the Liquidation Value that consists of accrued unpaid dividends shall be
earlier paid in full. Such portion of the Liquidation Value as consists of
accrued unpaid dividends, may be declared and paid at any time on any Business
Day without reference to any regular Dividend Payment Date, to holders of
record as of the close of business on such date, not more than 50 days nor less
than 10 days preceding the payment date thereof, as may be fixed by the Board
of Directors of this Corporation (the "Special Record Date").
(d) In the event that on any date fixed for redemption of Shares
pursuant to Section 6 this Corporation shall fail to pay the Redemption Price
due and payable upon presentation and surrender of the stock certificates
evidencing Shares to be redeemed, then dividends on such Shares shall accrue
cumulatively on a daily basis at the rate of ten percent (10%) per annum of the
Liquidation Value thereof from and after such date fixed for redemption to and
including the date
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of conversion of such Shares pursuant to Section 5 or the date on which the
Liquidation Value or Redemption Price of such Shares is made available pursuant
to Section 4 or 6 hereof, respectively.
(e) Notice of each Special Record Date shall be mailed, in the
manner provided in Section 6(d), to the holders of record of the Convertible
Preferred Stock not less than 15 days prior thereto.
(f) As long as any Convertible Preferred Stock shall be
outstanding, no dividend, whether in cash or property, shall be paid or
declared, nor shall any other distribution be made, on any Junior Security, nor
shall any shares of any Junior Security be purchased, redeemed, or otherwise
acquired for value by this Corporation, unless the holders of the Convertible
Preferred Stock shall have received all dividends to which they are entitled
pursuant to Section 3(a) hereof for all the Dividend Periods preceding the date
on which such dividend on the Junior Securities is to occur, or such dividends
shall have been declared and the consideration sufficient for the payment
thereof irrevocably set apart in trust for the benefit of the holders of Shares
so as to be available for the payment in full thereof and for no other purpose.
The provisions of this Section 3(f) shall not apply (i) to a dividend payable
in any junior Security, or (ii) to the repurchase, redemption or other
acquisition of shares of any Junior Security solely through the issuance of
Junior Securities (together with a cash adjustment for fractional shares, if
any) or through the application of the proceeds from the sale of Junior
Securities. This Corporation shall not permit a Subsidiary thereof to take any
action which this Corporation is prohibited by this Section 3(f) from taking.
4. Liquidation. Upon any liquidation, dissolution or winding up of
this Corporation, whether voluntary or involuntary, the holders of Convertible
Preferred Stock shall be entitled to be paid an amount in cash equal to the
aggregate Liquidation Value at the date fixed for liquidation of all Shares
outstanding before any distribution or payment is made upon any Junior
Securities, which payment shall be made pari passu with any such payment made
to the holders of any Parity Securities. The holders of Convertible Preferred
Stock shall be entitled to no other or further distribution of or participation
in any remaining assets of this Corporation after receiving the Liquidation
Value per Share. If upon such liquidation, dissolution or winding up, the
assets of this Corporation to be distributed among the holders of Convertible
Preferred Stock and to all holders of Parity Securities are insufficient to
permit payment in full to such holders of the aggregate preferential amounts
which they are entitled to be paid, then the entire assets of this Corporation
to be distributed to such holders shall be distributed ratably among them based
upon the full preferential amounts to which the shares of Convertible Preferred
Stock and such Parity Securities would otherwise respectively be entitled. Upon
any such liquidation, dissolution or winding up, after the holders of
Convertible Preferred Stock and Parity Securities have been paid in full the
amounts to which they are entitled, the remaining assets of this Corporation
may be distributed to holders of Junior Securities. This Corporation shall mail
written notice of such liquidation, dissolution or winding up to each record
holder of Convertible Preferred Stock not less than 30 days prior to the
payment date stated in such written notice. Neither the consolidation or merger
of this Corporation into or with any other corporation or corporations, nor the
sale, transfer or lease by this
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Corporation of all or any part of its assets, shall be deemed to be a
liquidation, dissolution or winding up of this Corporation within the meaning
of this Section 4.
5. Conversion.
(a) Unless previously called for, or otherwise subject to,
redemption as provided in Section 6 hereof, the Convertible Preferred Stock may
be converted at any time or from time to time, in such manner and upon such
terms and conditions as hereinafter provided in this Section 5 into fully paid
and non-assessable full shares of Class A Common Stock. No Share of Class A
Common Stock shall be issued in respect of the conversion of the Convertible
Preferred Stock (other than pursuant to Section 5(o) or 5(p) hereof) after the
fifteenth Business Day (the "Cut-off Date") preceding the date fixed for
redemption; provided that the conversion of Shares surrendered for conversion
in accordance with Section 5 after the Cut-off Date shall be given effect as of
the date of such surrender if the Redemption Price to be paid, or to be
irrevocably set apart in trust for the benefit of the holders of Shares to be
so redeemed, has not been paid or so set apart on or before such date fixed for
redemption. In case cash, securities or property other than Class A Common
Stock shall be payable, deliverable or issuable upon conversion as provided
herein, then all references to Class A Common Stock in this Section 5 shall be
deemed to apply, so far as appropriate and as nearly as may be, to such cash,
property or other securities.
(b) Subject to the provisions for adjustment hereinafter set forth
in this Section 5, the Convertible Preferred Stock may be converted into Class
A Common Stock at the initial conversion rate of 10 fully paid and
non-assessable shares of Class A Common Stock for one share of the Convertible
Preferred Stock. (This conversion rate as from time to time adjusted
cumulatively pursuant to the provisions of this Section is hereinafter referred
to as the "Conversion Rate").
(c) In case after August 8, 1994 this Corporation shall (i) pay a
dividend or make a distribution on its outstanding shares of Class A Common
Stock in shares of its Capital Stock or capital stock of any Subsidiary, (ii)
subdivide the then outstanding shares of Class A Common Stock into a greater
number of shares of Class A Common Stock, (iii) combine the then outstanding
shares of Class A Common Stock into a smaller number of shares of Class A
Common Stock, or (iv) issue by reclassification of its shares of Class A Common
Stock any shares of any other class of Capital Stock of this Corporation
(including any such reclassification in connection with a merger in which this
Corporation is the continuing corporation), then the Conversion Rate in effect
immediately prior to the opening of business on the record date for such
dividend or distribution or the effective date of such subdivision, combination
or reclassification shall be adjusted so that the holder of each share of the
Convertible Preferred Stock thereafter surrendered for conversion shall be
entitled to receive the number and kind of shares of Capital Stock of this
Corporation (or capital stock of a Subsidiary) that such holder would have
owned or been entitled to receive immediately following such action had such
shares of Convertible Preferred Stock been converted immediately prior to such
time. An adjustment made pursuant to this Section 5(c) for a dividend or
distribution shall become effective immediately after the record date for the
dividend or distribution and an adjustment made pursuant
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to this Section 5(c) for a subdivision, combination or reclassification shall
become effective immediately after the effective date of the subdivision,
combination or reclassification. Such adjustment shall be made successively
whenever any action listed above shall be taken.
(d) In case this Corporation shall after August 8, 1994 issue any
rights or warrants to all holders of shares of Class A Common Stock entitling
them (for a period expiring within 45 days after the record date for the
determination of stockholders entitled to receive such rights or warrants) to
subscribe for or purchase shares of Class A Common Stock (or Convertible
Securities) at a price per share of Class A Common Stock (or having an initial
exercise price or conversion price per share of Class A Common Stock) less than
the then current market price per share of Class A Common Stock (as determined
in accordance with the provisions of Section 5(f) below) on such record date,
the number of shares of Class A Common Stock into which each Share shall
thereafter be convertible shall be determined by multiplying the number of
shares of Class A Common Stock into which such Share was theretofore
convertible immediately prior to such record date by a fraction of which the
numerator shall be the number of shares of Class A Common Stock outstanding on
such record date plus the number of additional shares of Class A Common Stock
offered for subscription or purchase (or into which the Convertible Securities
so offered are initially convertible) and of which the denominator shall be the
number of shares of Class A Common Stock outstanding on such record date plus
the number of shares of Class A Common Stock which the aggregate offering price
of the total number of shares of Class A Common Stock so offered (or the
aggregate initial conversion or exercise price of the Convertible Securities so
offered) would purchase at the then current market price per share of Class A
Common Stock (as determined in accordance with the provisions of Section 5(f)
below) on such record date. Such adjustment shall be made successively whenever
any such rights or warrants are issued and shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such rights or warrants. In the event that all of the shares of Class A Common
Stock (or all of the Convertible Securities) subject to such rights or warrants
have not been issued when such rights or warrants expire (or, in the case of
rights or warrants to purchase Convertible Securities which have been
exercised, all of the shares of Class A Common Stock issuable upon conversion
of such Convertible Securities have not been issued prior to the expiration of
the conversion right thereof), then the Conversion Rate shall be readjusted
retroactively to be the Conversion Rate which would then be in effect had the
adjustment upon the issuance of such rights or warrants been made on the basis
of the actual number of shares of Class A Common Stock (or Convertible
Securities) issued upon the exercise of such rights or warrants (or the
conversion of such Convertible Securities); but such subsequent adjustment
shall not affect the number of shares of Class A Common Stock issued upon the
conversion of any Share prior to the date such subsequent adjustment is made.
(e) In case this Corporation shall distribute after August 8, 1994
to all holders of shares of Class A Common Stock (including any such
distribution made in connection with a merger in which this Corporation is the
continuing corporation, other than a merger to which Section 5(g) is
applicable) any securities, evidences of its indebtedness or assets (other than
cash dividends out of earnings since July 1, 1994 (determined without regard to
gains on the sale of significant capital assets) or Capital Stock in respect of
which an adjustment is made pursuant to Section 5(c) hereof)
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or rights or warrants to purchase shares of Class A Common Stock or Class B
Common Stock or securities convertible into shares of Class A Common Stock or
Class B Common Stock (excluding those referred to in Section 5(d) above), then
in each such case the number of shares of Class A Common Stock into which each
Share shall thereafter be convertible shall be determined by multiplying the
number of shares of Class A Common Stock into which such Share was theretofore
convertible immediately prior to the record date for the determination of
stockholders entitled to receive the distribution by a fraction of which the
numerator shall be the then current market price per share of Class A Common
Stock (as determined in accordance with the provisions of Section 5(f) below)
on such record date and of which the denominator shall be such current market
price per share of Class A Common Stock less the fair market value on such
record date (as determined by the Board of Directors of this Corporation, whose
determination shall be conclusive) of the portion of the securities, assets or
evidences of indebtedness or rights and warrants so to be distributed
applicable to one share of Class A Common Stock. Such adjustment shall be made
successively whenever any such distribution is made and shall become effective
immediately after the record date for the determination of stockholders
entitled to receive such distribution.
(f) For the purpose of any computation under Section 5(d), (e),
(k), (o) or (p) or Section 7, the current market price per share of Class A
Common Stock at any date shall be deemed to be the average of the daily closing
prices for a share of Class A Common Stock for the ten (10) consecutive
trading days before the day in question. The closing price for each day shall
be the last reported sale price regular way or, in case no such reported sale
takes place on such day, the average of the reported closing bid and asked
prices regular way, in either case on the composite tape, or if the shares of
Class A Common Stock are not quoted on the composite tape, on the principal
United States securities exchange registered under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), on which the shares of Class A Common
Stock are listed or admitted to trading, or if they are not listed or admitted
to trading on any such exchange, the last reported sale price (or the average
of the quoted closing bid and asked prices if there were no reported sales) as
reported by the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") or any comparable system, or if the Class A Common Stock is
not quoted on NASDAQ or any comparable system, the average of the closing bid
and asked prices as furnished by any member of the National Association of
Securities Dealers, Inc. selected from time to time by this Corporation for
that purpose or, in the absence of such quotations, such other method of
determining market value as the Board of Directors shall from time to time deem
to be fair.
(g) In case of any reclassification or change in the Class A
Common Stock (other than any reclassification or change referred to in Section
5(c) and other than a change in par value) or in case of any consolidation of
this Corporation with any other corporation or any merger of this Corporation
into another corporation or of another corporation into this Corporation (other
than a merger in which this Corporation is the continuing corporation and which
does not result in any reclassificaiion or change (other than a change in par
value or any reclassification or change to which Section 5(c) is applicable) in
the outstanding Class A Common Stock), or in case of any sale or transfer to
another corporation or entity (other than by mortgage or pledge) of all or
substantially all of the properties and assets of this Corporation, in any
such case after August 8, 1994, this
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Corporation (or its successor in such consolidation or merger) or the purchaser
of such properties and assets shall make appropriate provision so that the
holder of a Share shall have the right thereafter to convert such Share into
the kind and amount of shares of stock and other securities and property (a
"Successor Interest") that such holder would have owned immediately after such
reclassification, change, consolidation, merger, sale or transfer if such
holder had converted such Share into Class A Common Stock immediately prior to
the effective date of such reclassification, change, consolidation, merger,
sale or transfer (assuming for this purpose (to the extent applicable) that
such holder failed to exercise any rights of election and received per share of
Class A Common Stock the kind and amount of shares of stock and other
securities and property received per share by a plurality of the non-electing
shares), and the holders of the Convertible Preferred Stock shall have no other
conversion rights under these provisions (other than pursuant to Section 5(o)
or 5(p) hereof, provided that upon any conversion effected pursuant to Section
5(o) or 5(p) after any event to which this Section 5(g) is applicable,
references in Section 5(o) and 5(o) to Class A Common Stock shall be deemed to
be references to Successor Interests); provided, that effective provision shall
be made, in the Articles or Certificate of Incorporation of the resulting or
surviving corporation or otherwise or in any contracts of sale or transfer, so
that the provisions set forth herein for the protection of the conversion
rights of the Convertible Preferred Stock shall thereafter be made applicable,
as nearly as reasonably may be to any such other shares of stock and other
securities and property deliverable upon conversion of the Convertible
Preferred Stock remaining outstanding or other convertible preferred stock or
other Convertible Securities received by the holders of Convertible Preferred
Stock in place thereof; and provided, further, that any such resulting or
surviving corporation or purchaser shall expressly assume the obligation to
deliver, upon the exercise of the conversion privilege, such shares, securities
or property as the holders of the Convertible Preferred Stock remaining
outstanding, or other convertible preferred stock or other convertible
securities received by the holders in place thereof, shall be entitled to
receive pursuant to the provisions hereof, and to make provisions for the
protection of the conversion rights as above provided.
(h) Whenever the Conversion Rate or the conversion privilege shall
be adjusted as provided in Sections 5(c), (d), (e) or (g), this Corporation
shall promptly cause a notice to be mailed to the holders of record of the
Convertible Preferred Stock describing the nature of the event requiring such
adjustment, the Conversion Rate in effect immediately thereafter and the kind
and amount of stock or other securities or property into which the Convcrtible
Preferred Stock shall be convertible after such event. Where appropriate, such
notice may be given in advance and included as a part of a notice required to
be mailed under the provisions of Section 5(j).
(i) This Corporation may, but shall not be required to, make any
adjustment of the Conversion Rate if such adjustment would require an increase
or decrease of less than 1% in such Conversion Rate; provided, however, that
any adjustments which by reason of this Section 5(i) are not required to be
made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 5 shall be made to the nearest
cent or the nearest 1/100th of share, as the case may be. In any case in which
this Section 5(i) shall require that an adjustment shall become effective
immediately after a record date for such event, the Corporation
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may defer until the occurrence of such event (x) issuing to the holder of any
shares of Convertible Preferred Stock converted after such record date and
before the occurrence of such event the additional shares of Class A Common
Stock or other Capital Stock issuable upon such conversion by reason of the
adjustment required by such event over and above the shares of Class A Common
Stock, or other Capital Stock issuable upon such conversion before giving
effect to such adjustment and (y) paying to such holder cash in lieu of any
fractional interest to which such holder is entitled pursuant to Section 5(n);
provided, however, that, if requested by such holder, this Corporation shall
deliver to such holder a due bill or other appropriate instrument evidencing
such holder's right to receive such additional shares of Class A Common Stock
or other Capita] Stock, and such cash, upon the occurrence of the event
requiring such adjustment.
(j) In case at any time:
(i) this Corporation shall take any action which would
require an adjustment in the Conversion Rate pursuant to this Section;
(ii) there shall be any capital reorganization or
reclassification of the Class A Common Stock (other than a change in
par value), or any consolidation or merger to which the Corporation is
a party and for which approval of any shareholders of this Corporation
is required, or any sale, transfer or lease of all or substantially
all of the properties and assets of the Corporation, or a tender offer
for shares of Class A Common Stock representing, together with any
shares of Class B Common Stock tendered for in such tender offer, at
least a majority of the total voting power represented by the
outstanding shares of Class A Common Stock and Class B Common Stock
which has been recommended by the Board of Directors as being in the
best interests of the holders of Class A Common Stock; or
(iii) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of this Corporation;
then, in any such event, this Corporation shall give written notice, in the
manner provided in Section 6(d) hereof, to the holders of the Convertible
Preferred Stock at their respective addresses as the same appear on the books
of the Corporation, at least twenty days (or ten days in the case of a
recommended tender offer as specified in clause (ii) above) prior to any record
date for such action, dividend or distribution or the date as of which it is
expected that holders of Class A Common Stock of record shall be entitled to
exchange their shares of Class A Common Stock for securities or other property,
if any, deliverable upon such reorganization, reclassification, consolidation,
merger, sale, transfer, lease, tender offer, dissolution, liquidation or
winding up; provided, however, that any notice required by any event described
in clause (ii) of this Section 5(j) shall be given in the manner and at the
time that such notice is given to the holders of Class A Common Stock. Without
limiting
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the obligations of this Corporation to provide notice of corporate actions
hereunder, the failure to give the notice required by this Section 5(j) or any
defect therein shall not affect the legality or validity of any such corporate
action of the Corporation or the vote upon such action.
(k) Before any holder of Convertible Preferred Stock shall be
entitled to convert the same into Class A Common Stock (other than pursuant to
Section 5(o) hereof but including pursuant to Section 5(p) hereof), such holder
shall surrender the certificate or certificates for such Convertible Preferred
Stock at the office of this Corporation or at the office of the transfer agent
for the Convertible Preferred Stock, which certificate or certificates, if this
Corporation shall so request, shall be duly endorsed to this Corporation or in
blank or accompanied by proper instruments of transfer to this Corporation or
in blank (such endorsements or instruments of transfer to be in form
satisfactory to this Corporation), and shall give written notice to this
Corporation at said office that such holder elects to convert all or a part of
the Shares represented by said certificate or certificates in accordance with
the terms of this Section 5 (and in the case of a conversion pursuant to
Section 5(p) hereof, specifying that such conversion is made pursuant to
Section 5(p) hereof), and shall state in writing therein the name or names in
which such holder wishes the certificates for Class A Common Stock to be
issued. Every such notice of election to convert shall constitute a contract
between the holder of such Convertible Preferred Stock and this Corporation,
whereby the holder of such Convertible Preferred Stock shall be deemed to
subscribe for the amount of Class A Common Stock which such holder shall be
entitled to receive upon conversion of the number of shares of Convertible
Preferred Stock to be converted, and, in satisfaction of such subscription, to
deposit the shares of Convertible Preferred Stock to be converted, and thereby
this Corporation shall be deemed to agree that the surrender of the shares of
Convertible Preferred Stock to be converted shall constitute full payment of
such subscription for Class A Common Stock to be issued upon such conversion.
This Corporation will as soon as practicable after such deposit of a
certificate or certificates for Convertible Preferred Stock, accompanied by the
written notice and the statement above prescribed, or on the Dividend Payment
Date described in Section 5(o) hereof as contemplated in such Section, issue and
deliver at the office of this Corporation or of said transfer agent to the
person for whose account such Convertible Preferred Stock was so surrendered,
or to his nominee(s) or, subject to compliance with applicable law,
transferee(s), or the holders of Convertible Preferred Stock on the Record Date
in respect of the Dividend Payment Date described in Section 5(o) hereof, a
certificate or certificates for the number of full shares of Class A Common
Stock to which such holder shall be entitled, together with cash in lieu of any
fraction of a share as hereinafter provided. If surrendered certificates for
Convertible Preferred Stock are converted only in part, this Corporation will
issue and deliver to the holder, or to his nominee(s), without charge therefor,
a new certificate or certificates representing the aggregate of the unconverted
Shares. Such conversion shall be deemed to have been made as of the date of
such surrender of the Convertible Preferred Stock to be converted or on such
Dividend Payment Date described in Section 5(o) hereof, as the case may be; and
the person or persons entitled to receive the Class A Common Stock issuable
upon conversion of such Convertible Preferred Stock shall be treated for all
purposes as the record holder or holders of such Class A Common Stock on such
date.
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Upon the conversion of any Share (other than pursuant to Section 5(o)
or 5(p) hereof), this Corporation shall pay, to the holder of record of such
Share on the immediately preceding Record Date, if such date is after the most
recent Dividend Payment Date, or otherwise to the holder of record of such
Share as of the date of conversion, all accrued but unpaid dividends on such
Share to the date of the surrender of such Share for conversion. Such payment
shall be made in cash or, at the election of this Corporation, the issuance of
certificates representing such number of shares of Class A Common Stock as have
an aggregate current market price (as determined in accordance with Section
5(f)) on the date of issuance equal to the amount of such accrued but unpaid
dividends. Upon the making of such payment to the person entitled thereto as
determined pursuant to the first sentence of this paragraph, no further
dividends shall accrue on such Share or be payable to any other person.
The issuance of certificates for shares of Class A Common Stock upon
conversion of shares of Convertible Preferred Stock shall be made without
charge for any issue, stamp or other similar tax in respect of such issuance,
provided, however, if any such certificate is to be issued in a name other than
that of the registered holder of the share or shares of Converuble Preferred
Stock converted, the person or persons requesting the issuance thereof shall
pay to this Corporation the amount of any tax which may be payable in respect
of any transfer involved in such issuance or shall establish to the
satisfaction of this Corporation that such tax has been paid.
Except for conversion pursuant to Section 5(o) or 5(p) hereof, this
Corporation shall not be required to convert any shares of Convertible
Preferred Stock, and no surrender of Convertible Preferred Stock shall be
effective for that purpose, while the stock transfer books of this Corporation
are closed for any purpose; but the surrender of Convertible Preferred Stock
for conversion during any period while such books are so closed shall become
effective for conversion immediately upon the reopening of such books, as if
the conversion had been made on the date such Convertible Preferred Stock was
surrendered.
(l) This Corporation shall at all times reserve and keep
available, solely for the purpose of issuance upon conversion of the
outstanding shares of Convertible Preferred Stock, such number of shares of
Class A Common Stock as shall be issuable upon the conversion of all
outstanding Shares, provided that nothing contained herein shall be construed
to preclude this Corporation from satisfying its obligations in respect of the
conversion of the outstanding shares of Convertible Preferred Stock by delivery
of shares of Class A Common Stock which are held in the treasury of this
Corporation. This Corporation shall take all such corporate and other actions
as from time to time may be necessary to insure that aII shares of Class A
Common Stock issuable upon conversion of shares of Convertible Preferred Stock
al the Conversion Rate in effect from time to time will, upon issue, be duly
and validly authorized and issued, fully paid and nonassessable and free of any
preemptive or similar rights.
(m) All shares of Convertible Preferred Stock received by this
Corporation upon conversion thereof into Class A Common Stock shall be retired
and shall be restored to the status of authorized and unissued shares of
preferred stock (and may be reissued as part of another series
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of the preferred stock of this Corporation, but such shares shall not be
reissued as Convertible Preferred Stock).
(n) This Corporation shall not be required to issue fractional
shares of Class A Common Stock or scrip upon conversion of the Convertible
Preferred Stock. As to any final fraction of a share of Class A Common Stock
which a holder of one or more Shares would otherwise be entitled to receive
upon conversion of such Shares in the same transaction, this Corporation shall
pay a cash adjustment in respect of such final fraction in an amount equal to
the same fraction of the market value of a full share of Class A Common Stock.
For purposes of this Section 5(n), the market value of a share of Class A
Common Stock shall be the last reported sale price regular way on the business
day immediately preceding the date of conversion, or, in case no such reported
sale takes place on such day, the average of the reported closing bid and asked
prices regular way on such day, in either case on the composite tape, or if the
shares of Class A Common Stock are not quoted on the composite tape, on the
principal United States securities exchange registered under the Exchange Act
on which the shares of Class A Common Stock are listed or admitted to trading,
or if the shares of Class A Common Stock are not listed or admitted to trading
on any such exchange, the last reported sale price (or the average of the
quoted last reported bid and asked prices if there were no reported sales) as
reported by NASDAQ or any comparable system, or if the Class A Common Stock is
not quoted on NASDAQ or any comparable system, the average of the closing bid
and asked prices as funfished by any member of the National Association
of Securities Dealers, Inc. selected from time to time by this Corporation for
that purpose or, in the absence of such quotations, such other method of
determining market value as the Board of Directors shall from time to time deem
to be fair.
(o) To the extent all cash dividends on the Convertible Preferred
Stock which have accrued on any Dividend Payment Date are not paid, or are not
irrevocably set apart in trust for the benefit of the holder of such Shares, on
such date, then each Share shall be deemed to be automatically partially
converted into a number of duly authorized, fully paid and non-assessable
shares of Class A Common Stock equal to the quotient obtained by dividing the
Special Liquidation Value in respect of such Share on such Dividend Payment
Date by 95% of the current market price of the Class A Common Stock on such
date (as determined in accordance with Section 5(f) hereof) and this
Corporation shall issue and deliver to the holder of record of such Share on
the Record Date in respect of such Dividend Payment Date a certificate
evidencing such number of shares of Class A Common Stock and payment in respect
of fractional shares as provided in Section 5(n) hereof. Upon the issuance of
such Class A Common Stock the dividend otherwise accrued on such Dividend
Payment Date shall for all purposes be deemed paid. Partial conversion of
Shares pursuant to this Section 5(o) shall not reduce Liquidation Value (except
for Special Liquidation Value to the extent included in Liquidation Value), or
(except as provided in the immediately preceding sentence) otherwise affect the
right of the holder of such Shares to convert the same pursuant to the other
provisions of this Section 5.
(p) If this Corporation fails on any Redemption Date to pay the
Redemption Price in respect of Shares otherwise called for redemption pursuant
to Section 6(a) or (b) hereof or which
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a holder elects to cause to be redeemed pursuant to Section 6(c) hereof, the
holder of such Shares may, in addition to any other right of conversion herein
contained, convert such Shares into a number of shares of Class A Common Stock
equal to the quotient obtained by dividing such Redemption Price by 95% of the
current market price (determined in accordance with Section 5(f) hereof) on
such Redemption Date. The holder's rights in this Section 5(p) shall be in
addition to any other rights such holder may have in respect of such failure.
(q) If any shares of Class A Common Stock which would be issuable
upon conversion of Shares require registration with or approval of any
governmental authority before such shares may be issued upon conversion
(whether or not, in the case of Section 5(o) or 5(p) hereof, any event giving
rise to such issuance has occurred or is likely to occur), this Corporation
will in good faith and as expeditiously as possible cause such shares to be
duly registered or approved, as the case may be. This Corporation will endeavor
to list the shares of Class A Common Stock required to be delivered upon
conversion of Shares prior to such delivery upon the principal national
securities exchange upon which the outstanding Common Stock is listed at the
time of such delivery.
6. Redemption.
(a) Subject to the provisions of Section 6(g), if at any time
after the third anniversary of the Issue Date the market value per share (as
defined below) of the Class A Common Stock shall have equaled or exceeded
$37.50 (as adjusted for dividends on Class A Common Stock payable in Class A
Common Stock, stock splits and reverse stock splits in respect of the Class A
Common Stock occurring after August 8, 1994) on any 20 out of a period of 30
consecutive Business Days ending within five days prior to the giving of a
notice of redemption pursuant to this Section, the shares of Convertible
Preferred Stock may be redeemed out of funds legally available therefor, at the
option of this Corporation by action of the Board of Directors, in whole or in
part, at the Redemption Price per Share as of the applicable Redemption Date.
If less than all Shares are to be redeemed, Shares shall be redeemed ratably
among the holders thereof. For purposes of this Section, the market values of
the Class A Common Stock shall be the last reported sale price of the Class A
Common Stock on the NASDAQ National Market System (or, if not quoted on the
NASDAQ National Market System, then on such exchange on which the Class A
Common Stock is listed as the Corporation may designate) on each such Business
Day or if there shall not have been a sale on any such Business Day, the market
value for that Business Day shall be the average of the bid and asked
quotations on the NASDAQ National Market System on that Business Day, or, if
the Class A Common Stock shall not then be quoted on the NASDAQ National Market
System or listed on any exchange, the market value shall be the highest bid
quotation in the over-the-counter market on such Business Day as reported by
National Quotation Bureau, Inc. or its successor or such other generally
accepted source of publicly reported bid and asked quotations as the
Corporation may reasonably designate.
(b) Subject to the provisions of Section 6(g), the shares of
Convertible Preferred Stock may be redeemed out of funds legally available
therefor, at the option of this Corporation by action of the Board of
Directors, in whole or from time to time in part, at any time after the
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fifth anniversary of the Issue Date at the Redemption Price per Share as of the
applicable Redemption Date. If less than all outstanding Shares are to be
redeemed, Shares shall be redeemed ratably among the holders thereof.
(c) Subject to the rights of any Parity Securities and subject to
any prohibitions or restrictions contained in any Debt Instrument, at any time
on or after the tenth anniversary of the Issue Date, any holder of Shares shall
have the right, at such holder's option, to require redemption by this
Corporation at the Redemption Price per Share as of the applicable Redemption
Date of all or any portion of such holder's Shares having an aggregate
Liquidation Value in excess of $50,000 (or, if all of the Shares held by such
holder have an aggregate Liquidation Value of less than $50,000, all but not
less than all of such Shares) by written notice to this Corporation stating the
number of Shares to be redeemed. This Corporadon shall redeem, out of funds
legally available therefor, the Shares so requested to be redeemed on such date
within 20 Business Days following this Corporation's receipt of such notice;
provided, however, that notwithstanding the provisions of Section 5(p) hereof,
if this Corporation fails on the Redemption Date to pay the Redemption Price in
respect of Shares otherwise subject to redemption pursuant to this Section 6(c)
and fails irrevocably to set apart such Redemption Price in trust for the
benefit of the holders of such Shares, the holder of such Shares shall not
exercise the conversion rights provided for in Section 5(p) for a period of one
year from such date fixed for redemption (the "One-Year Period"); provided,
further, that nothing contained in this Section 6(c) shall (i) affect any other
rights of such holder, including, without limitation, the accrual of dividends
as provided in Section 3 hereof with respect to any Shares in respect of which
the Redemption Price has not been paid or funds irrevocably set apart in trust
for the benefit of the holders of such Shares, (ii) otherwise affect the right
of the holder to convert Shares or (iii) otherwise affect the right of the
holder of any Shares in respect of which the Redemption Price has not been paid
or funds irrevocably set apart in trust for the benefit of the holders of such
Shares to convert the same pursuant to the provisions of Section 5 following the
expiration of the One-Year Period. At any time during the One-Year-Period, this
Corporation may pay, out of funds legally available therefor, ratably among the
holders who have required Shares to be redeemed under this Section 6(c), the
Redemption Price for all or part of such Shares. If the funds of this
Corporation legally available for redemption of Shares are insufficient to
redeem the total number of shares required to be redeemed pursuant to this
Section 6(c), those funds which are legally available for redemption of such
Shares will be used to redeem the maximum possible number of such Shares ratably
among the holders who have required Shares to be redeemed under this Section
6(c). Without limiting the holders' rights pursuant to Section 5(p) hereof. at
any time thereafter when additional funds of this Corporation are legally
available and not so restricted for such purpose, such funds will immediately
be used to redeem the Shares this Corporation failed to redeem on such
Redemption Date (to the extent not previously converted) until the balance of
such Shares are redeemed.
(d) Notice of any redemption pursuant to Section 6(a) or 6(b)
shall be mailed, first class, postage prepaid, not less than 30 days nor more
than 60 days prior to the Redemption Date, to the holders of record of the
shares of Convertible Preferred Stock to be redeemed, at their respective
addresses as the same appear upon the books of this Corporation or are supplied
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by them in writing to this Corporation for the purpose of such notice; but no
failure to mail such notice or any defect therein or in the mailing thereof
shall affect the validity of the proceedings for the redemption of any shares
of the Convertible Preferred Stock; provided that this sentence shall not
prejudice the right of any holder to receive such damages which may result from
any such defective notice. Such notice shall set forth the Redemption Price, the
Redemption Date, the number of Shares to be redeemed and the place at which the
Shares called for redemption will, upon presentation and surrender of the stock
certificates evidencing such Shares. be redeemed. In case fewer than the total
number of shares of Convertible Preferred Stock represented by any certificate
are redeemed, a new certificate representing the number of unredeemed Shares
will be issued to the holder thereof without cost to such holder.
(e) If notice of any redemption by this Corporation pursuant to
this Section 6 shall have been mailed as provided in Section 6(d) and if on or
before the Redemption Date specified in such notice the consideration
necessary for such redemption shall have been irrevocably set apart in trust
for the benefit of the holders of Shares to be so redeemed so as to be
available therefor and only therefor, then on and after the close of business
on the Redemption Date, the Shares called for redemption, notwithstanding that
any certificate therefor shall not have been surrendered for cancellation,
shall no longer be deemed outstanding, and all rights with respect to such
Shares shall forthwith cease and terminate, except the right of the holders
thereof to receive upon surrender of their certificates the consideration
payable upon redemption thereof.
(f) All shares of Convertible Preferred Stock redeemed, retired,
purchased or otherwise acquired by this Corporation shall be retired and shall
be restored to the status of authorized and unissued shares of preferred stock
(and may be reissued as part of another series of the preferred stock of this
Corporation, but such shares shall not be reissued as Convertible Preferred
Stock).
(g) If at any time this Corporation shall have failed to pay, or
declare and irrevocably set apart in trust for the benefit of the holders of
Shares the consideration sufficient to pay, all dividends accrued up to and
including the immediately preceding Dividend Payment Date on the Convertible
Preferred Stock, and until all dividends accrued up to and including the
immediately preceding Dividend Payment Date on the Convertible Preferred Stock
shall have been paid or declared and irrevocably set apart in trust for the
benefit of the holders of Shares so as to be available for the payment in full
thereof and for no other purpose, this Corporation shall not redeem, pursuant
to a sinking fund or otherwise, any shares of Convertible Preferred Stock,
Parity, Securities or Junior Securities, unless all then outstanding shares of
Convertible Preferred Stock are redeemed, and shall not purchase or otherwise
acquire any shares of Convertible Preferred Stock, Parity Securities or Junior
Securities. If and so long as this Corporation shall fail to redeem on a
Redemption Date pursuant to Section 6(a), (b) and (c) all shares of Convertible
Preferred Stock required to be redeemed on such date, this Corporation shall
not redeem, or discharge any sinking fund obligation with respect to, any
Junior Securities, unless all then outstanding shares of Convertible Preferred
Stock are redeemed, and shall not purchase or otherwise acquire any shares of
Convertible Preferred Stock (other than by way of redemption or
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conversion) or Junior Securities. Nothing contained in this Section 6(g) shall
prevent the purchase or acquisition of shares of Convertible Preferred Stock
pursuant to a purchase or exchange offer or offers made to holders of all
outstanding shares of Convertible Preferred Stock, provided that as to holders
of all outstanding shares of Convertible Preferred Stock, the terms of the
purchase or exchange offer for all such shares are identical and all accrued
dividends on all Shares have been paid or shall have been paid or declared and
irrevocably set apart in trust for the benefit of holders of Shares so as to be
available for the payment in full thereof and for no other purpose. The
provisions of this Section 6(g) are for the benefit of holders of Convertible
Preferred Stock and accordingly the provisions of this Section 6(g) shall not
restrict any redemption by this Corporation of Shares held by any holder,
provided that all other holders of Shares shall have waived in writing the
benefits of this provision with respect to such redemption. This Corporation
shall not permit any Subsidiary thereof to take any action which this
Corporation is prohibited from taking pursuant to this Section 6(g).
7. Exchange Option.
(a) In case this Corporation shall at any time distribute to all
holders of the Class A Common Stock any rights or warrants ("Rights") to
subscribe for or purchase Special Securities, each holder of Shares shall have
the option (the "Exchange Option"), in lieu of any adjustment to the Conversion
Rate pursuant to Section 5, to exchange shares of Convertible Preferred Stock
for shaes of Mirror Preferred Stock (as defined below) which shall have an
initial aggregate liquidation value determined as follows:
(i) in the case of Rights exercisable upon payment, in
whole or in part, of cash or property other than Class A Common Stock,
the maximum aggregate liquidation value of shares of Mirror Preferred
Stock issuable to a holder of Convertible Preferred Stock upon
exercise of the Exchange Option shall be equal to the product of (x)
the number shares of Special Securities issuable upon exercise of the
Rights which this Corporation would have distributed to such holder of
Convertible Preferred Stock had such holder's Shares been converted
immediately prior to the record date for the distribution of such
Rights, and (y) the amount of cash, or the fair market value of such
other property (as reasonably determined by the Board of Directors;
with respect to any Class A Common Stock that is included in such
property, the fair market value thereof shall be the current market
price as determined pursuant to Section 5(f) as of such record date),
payable by a holder of Class A Common Stock in respect of the purchase
of any such shares upon exercise of a Right; or
(ii) in the case of Rights exercisable upon the surrender
of Class A Common Stock without payment of additional
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consideration, the maximum aggregate liquidation value of shares of
Mirror Preferred Stock issuable upon exercise of the Exchange Option
by the holder thereof shall be equal to the product of (x) the
Conversion Rate expressed in dollars of Liquidation Value per share of
Class A Common Stock as in effect on the record date for distribution
of the Rights, and (y) the maximum number of shares of Class A Common
Stock that would have been surrendered by such holder upon exercise of
Rights that would have been distributed to such holder had such holder
converted his Shares immediately prior to the record date for
distribution of the Rights.
(b) The exercise price of the Exchange Option shall be one
dollar in Liquidation Value of Shares of Convertible Preferred Stock for each
dollar of liquidation value of shares of Minor Preferred Stock to be purchased
upon exercise of the Exchange Option.
(c) "Mirror Preferred Stock" means convertible preferred stock
issued by the issuer of the Special Securities, such Mirror Preferred Stock to
have terms, conditions, designations, dividend rights, voting powers, rights on
liquidation and other preferences and relative, participating, optional or
other special rights, and qualifications, limitations, or restrictions thereof
which are identical, or as nearly so as is practicable in the reasonable
judgment of the Board of Directors, to those of the Convertible Preferred
Stock, except that the running of any time periods pursuant to the terms of
the Convertible Preferred Stock shall be tacked to such time periods in the
Mirror Preferred Stock and except that Mirror Preferred Stock shall be
convertible into shares of the Special Security in respect of which such Mirror
Preferred Stock is issued pursuant to the terms hereof in lieu of Class A
Common Stock. The rate at which Mirror Preferred Stock shall be convertible into
Special Securities, expressed in shares of the Special Security per dollar of
liquidation value of the Mirror Preferred Stock, shall:
(i) in the case of Mirror Preferred Stock issued in
respect of Rights exercisable upon payment, in whole or in part, of
cash or property other than Class A Common Stock, be determined by a
quotient, the numerator of which shall be the number of shares of
Special Securities issuable upon exercise of the Rights which this
Corporation would have distributed to all holders of Convertible
Preferred Stock had all of the Shares been converted immediately prior
to the record date for the distribution of such Rights and the
denominator of which shall be equal to the aggregate liquidation value
of Mirror Preferred Stock issuable (assuming exercise of all the
Exchange Options) to all holders of Convertible Preferred Stock in
respect of such Rights pursuant to Section 7(a)(i) above; or
(ii) in the case of Mirror Preferred Stock issued in
respect of Rights exercisable upon surrender of shares of Class A
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Common Stock without payment of additional consideration, be
determined by the inverse of the product of (x) the Conversion Rate of
the Convertible Preferred Stock expressed in dollars of Liquidation
Value per share of Class A Common Stock as in effect immediately prior
to the record date for distribution of the Rights (without giving
effect to any antidilution adjustment pursuant to Section 6 in respect
of such Rights) and (y) the number of shares of Class A Common Stock
required to be surrendered upon the exercise of each Right.
(d) If this Corporation distributes Rights in respect of
which the holders of Convertible Preferred Stock are required to be granted an
Exchange Option hereunder, this Corporation shall, concurrently with the
distribution of such Rights to holders of Class A Common Stock, provide each
holder of Convertible Preferred Stock a notice (the "Option Notice") stating
that such holder may, on or before the date of expiration of the Rights (the
"Expiration Date"), exercise the Exchange Option in accordance herewith, and
setting forth a description of the Rights, the Special Securities, and the
Mirror Preferred Stock. Such notice shall be accompamed by any prospectus or
similar document provided to holders of Class A Common Stock in respect of the
distribution of the Rights and a copy of the certificate of designations (or
similar document) proposed to be filed by this Corporation or any Subsidiary
with the appropriate government official in order to establish the Mirror
Preferred Stock.
(e) If a transaction described in this Section 7 occurs
before the Issue Date, holders of the Convertible Preferred Stock may exercise
the rights in this Section 7 within 45 days after the Issue Date or, if later,
the date related Rights expire.
(f) Upon the exchange of any Share, this Corporation
shall pay, to the holder of record of such Share on the immediately preceding
Record Date, if such date is after the most recent Dividend Payment Date, or
otherwise, to the holder of record of such Share as of the date of exercise of
the Exchange Option, all accrued but unpaid dividends on such Share to the date
of the surrender of such Share for exchange. Such payment shall be made in cash
or, at the election of this Corporation, the issuance of certificates
representing such number of shares of Class A Common Stock as have an aggregate
current market price (as determined in accordance with Section 5(f)) on the
date of issuance equal to the amount of such accrued but unpaid dividends. Upon
the making of such payment to the person entitled thereto as determined
pursuant to the first sentence of this paragraph, no further dividends shall
accrue on such Share or be payable to any other person.
8. No Voting Rights. Except as required by law and Sections 9 and 11
hereof, the holders of the Convertible Preferred Stock shall not be entitled to
vote on any matters submitted to a vote of the holders of the Capital Stock of
this Corporation.
9. Amendment. No amendment or modification of the designation,
rights, preferences, and limitations of the Shares set forth herein shall be
binding or effective without the prior consent of the holders of record of
Shares representing 66 2/3 % of the liquidation Value
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of all Shares outstanding (excluding, for this purpose, Shares owned by this
Corporation or any of its Affiliates) at the time such action is taken.
10. Preemptive Rights. The holders of the Convertible Preferred Stock
will not have any preemptive right to subscribe for or purchase any shares of
stock or any other securities which may be issued by this Corporation, provided
that this Section 10 shall not limit the rights of holders of the Convertible
Preferred Stock pursuant to Sections 5 or 7 hereof.
11. Senior Securities. The Convertible Preferred Stock shall not rank
junior to any other classes or series of stock of this Corporation in respect
of the right to receive dividends or the right to participate in any
distribution upon liquidation, dissolution or winding up of this Corporation.
Without the prior consent of the holders of record of Shares representing
66 2/3% of the Liquidation Value of all Shares then outstanding (excluding, for
this purpose, Shares owned by this Corporation or any of its Affiliates), this
Corporation shall not issue any Senior Securities.
12. Exclusion of Other Rights. Except as may otherwise be required by
law and for the equitable rights and remedies that may otherwise be available
to holders of Convertible Preferred Stock, the shares of Convertible Preferred
Stock shall not have any designations, preferences, limitations or relative
rights, other than those specifically set forth in these resolutions (as such
resolutions may, subject to Section 9, be amended from time to time) and in the
Restated Certificate of Incorporation of this Corporation.
13. Headings. The headings of the various sections and subsections
hereof are for convenience of reference only and shall not affect the
interpretation of any of the provisions hereof.
FURTHER RESOLVED, that the appropriate officers of this Corporation are
hereby authorized to execute and acknowledge a certificate setting forth these
resolutions and to cause such certificate to be filed and recorded, in
accordance with the requirements of Section 151(g) of the General Corporation
Law of the State of Delaware."
/s/ STEPHEN M. BRETT
Stephen M. Brett
President
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EX-3.2
3
BYLAWS AS ADOPTED 6/16/94
1
Exhibit (3.2)
BYLAWS
of
TCI/Liberty Holding Company
As adopted June 16, 1994
2
TCI/Liberty Holding Company
A Delaware Corporation
BYLAWS
____________
ARTICLE I
STOCKHOLDERS
Section 1.1 Annual Meeting.
An annual meeting of stockholders for the purpose of electing
directors and of transacting such other business as may come before it shall be
held each year at such date, time, and place, either within or without the
State of Delaware, as may be specified by the Board of Directors in the notice
of meeting.
Section 1.2 Special Meetings.
Except as otherwise provided in the terms of any class or series of
preferred stock or unless otherwise provided by law or by the Certificate of
Incorporation, special meetings of stockholders of the Corporation, for any
purpose or purposes, shall be called by the Secretary of the Corporation (i)
upon written request of the holders of not less than 66 2/3% of the total
voting power of the outstanding capital stock of the Corporation entitled to
vote at such meeting or (ii) at the request of not less than 75% of the members
of the Board of Directors then in office.
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Section 1.3 Notice of Meetings.
Written notice of stockholders meetings, stating the place, date, and
hour thereof, and, in the case of a special meeting, the purpose or purposes
for which the meeting is called, shall be given by the Chairman of the Board,
the President, any Vice President, the Secretary, or an Assistant Secretary, to
each stockholder entitled to vote thereat at least ten days but not more than
sixty days before the date of the meeting, unless a different period is
prescribed by law.
Section 1.4 Notice of Nominations for the Election of Directors.
(a) Subject to the rights of any class or series of preferred
stock, nominations for the election of directors may be made by the Board of
Directors or a committee appointed by the Board of Directors or by any
stockholder entitled to vote in the election of directors generally; provided,
however, that any stockholder entitled to vote generally in the election of
directors may nominate one or more persons for election as directors only if
written notice of such stockholder's intent to make such nomination(s) has been
received by the Secretary at the Corporation's principal executive office not
later than (i) with respect to any election to be held at an annual meeting of
stockholders, ninety (90) days in advance of such meeting, and (ii) with
respect to an election to be held at a special meeting of stockholders for
election of directors, the close of business on the seventh day following the
day on which notice of such meeting is communicated to stockholders. Such
notice must contain:
(1) the name and address of the stockholder who intends to make
the nomination(s) and of the person(s) to be nominated;
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(2) a representation that the stockholder intending to make
such nomination(s) is the holder of record of the capital stock entitled to
vote at the meeting and intends to appear in person or by proxy at the meeting
to nominate the person(s) specified in the notice;
(3) a description of all arrangements or understandings
relating to such election of directors between such stockholder, each person
proposed to be nominated and any other person or persons (naming such
person or persons);
(4) such other information regarding the person(s) proposed
to be nominated for election as would have been required to be included in a
proxy statement filed pursuant to the proxy rules promulgated by the Securities
and Exchange Commission, had such person(s) been nominated, or intended to be
nominated, by the Board of Directors; and
(5) the consent of each person proposed to be nominated to
serve as a director of the Corporation if so elected.
(b) In the event that a person is validly designated as a nominee
in accordance with paragraph (a) above and thereafter becomes unable or
unwilling to stand for election to the Board of Directors, the stockholder
proposing to nominate such person may designate a substitute nominee by
delivering, not fewer than thirty days prior to the date of the meeting for the
election of directors, a written notice to the Secretary proposing a substitute
nominee and setting forth such information regarding such substitute nominee as
would have been required to be delivered to the Secretary pursuant to paragraph
(a) above had such substitute nominee been initially proposed as a nominee.
Such notice shall include a signed consent to serve as a director of the
Corporation, if elected, of such substitute nominee.
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(c) If the chairman of any meeting of stockholders for the
election of directors determines that the nomination of any candidate for
election as a director at such meeting was not made in accordance with the
applicable provisions of this Section 1.4, such nomination shall be void.
(d) The provisions of this Section 1.4 shall not apply to the
nomination or election of any directors to be elected by the holders of any
class or series of preferred stock.
Section 1.5 Quorum.
Subject to the rights of the holders of any class or series of
preferred stock and except as otherwise provided by law or in the Certificate
of Incorporation or these Bylaws, at any meeting of stockholders, the holders
of a majority in total voting power of the outstanding shares of stock entitled
to vote at the meeting shall be present or represented by proxy in order to
constitute a quorum for the transaction of any business. In the absence of a
quorum, the holders of a majority in total voting power of the shares that are
present in person or by proxy or the chairman of the meeting may adjourn the
meeting from time to time in the manner provided in Section 1.6 of these
Bylaws until a quorum shall attend.
Section 1.6 Adjournment.
Any meeting of stockholders, annual or special, may adjourn from time
to time to reconvene at the same or some other place, and notice need not be
given of any such adjourned meeting if the time and place thereof are announced
at the meeting at which the adjournment is taken. At the adjourned meeting, the
Corporation may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than thirty days, or if after
the adjournment a new record date is fixed for the adjourned
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meeting, a notice of the adjourned meeting shall be given to each stockholder
of record entitled to vote at the meeting.
Section 1.7 Organization.
The Chairman of the Board, or in his absence the President, or in
their absence any Vice President, shall call to order meetings of stockholders
and shall act as chairman of such meetings. The Board of Directors or, if the
Board fails to act the stockholders, may appoint any stockholder, director, or
officer of the Corporation to act as chairman of any meeting in the absence of
the Chairman of the Board, the President, and all Vice Presidents.
The Secretary shall act as secretary of all meetings of stockholders,
but, in the absence of the Secretary, the chairman of the meeting may appoint
any other person to act as secretary of the meeting.
Subject to the provisions of this Section and to the rights of the
holders of any class or series of preferred stock, meetings of stockholders
shall generally follow accepted rules of parliamentary procedure:
i. Except when overruled by a majority of the voting power
represented by the shares held by stockholders present in person or by
proxy at the meeting, the chairman of the meeting shall have absolute
authority over matters of procedure and to state the rules under which
the voting shall be conducted.
ii. If disorder shall arise which prevents continuation
of the legitimate business of the meeting, the chairman may quit the
chair and
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announce the adjournment of the meeting; and upon his so doing, the
meeting shall be deemed immediately adjourned.
iii. The chairman may ask or require that anyone not a bona
fide stockholder or proxy leave the meeting.
iv. A resolution or motion shall be considered for a vote
only if proposed by a stockholder or duly authorized proxy, and
seconded by an individual who is a stockholder or a duly authorized
proxy, other than the individual who proposed the resolution on
motion.
Section 1.8 Voting.
Subject to the rights of the holders of any class or series of
preferred stock and except as otherwise provided by law, the Certificate of
Incorporation or these Bylaws and except for the election of directors, at any
meeting duly called and held at which a quorum is present, the affirmative vote
of the majority in voting power of shares present in person or represented by
proxy at the meeting and entitled to vote on the subject matter shall be the
act of the stockholders. At any meeting duly called and held for the election
of directors at which a quorum is present, directors shall be elected by a
plurality of the votes of the shares present in person or represented by proxy
at the meeting and entitled to vote on the election of directors.
Section 1.9 Voting List.
(a) A complete list of the stockholders of the Corporation
entitled to vote at the meeting, arranged in alphabetical order, and showing
the address of each stockholder and the number and class of shares registered
in the name of each stockholder shall be prepared
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by the officer who has charge of the stock ledger of the Corporation at least
10 days before every meeting of stockholders. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least 10 days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at
the place where the meeting is to be held. The list shall also be produced and
kept at the time and place of the meeting during the whole time thereof, and
may be inspected by any stockholder who is present.
(b) Upon the willful neglect or refusal of the directors to
produce such a list at any meeting for the election of directors, they shall be
ineligible for election to any office at such meeting.
(c) The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the corporation or to vote in person or by proxy at any
meeting of stockholders.
Section 1.10 Stockholder Action Without a Meeting.
Subject to the rights of the holders of any class or series of
preferred stock, stockholder action may be taken only at an annual or special
meeting. Except as otherwise provided in the terms of any class or series of
preferred stock, no action required to be taken or which may be taken at any
annual meeting or special meeting of stockholders may be taken without a
meeting, and the power of stockholders to consent in writing, without a
meeting, is specifically denied.
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ARTICLE II
BOARD OF DIRECTORS
Section 2.1 Number and Term of Office.
(a) The governing body of this Corporation shall be a Board of
Directors. Subject to any rights of the holders of any class or series of
preferred stock to elect additional directors, the number of directors shall be
comprised of not less than three (3) members. The Board of Directors, by
resolution adopted by vote of a majority of the then authorized number of
directors, may increase or decrease the number of directors. Directors need not
be stockholders of the Corporation.
(b) Except as otherwise fixed by the Certificate of Incorporation
relating to the rights of the holders of any class or series of preferred stock
to separately elect additional directors, which additional directors are not
required to be classified pursuant to the terms of such class or series of
preferred stock, the Board of Directors shall be divided into three classes:
Class I, Class II and Class III. Each class shall consist, as nearly as
possible, of a number of directors equal to one-third (33 1/3%) of the then
authorized number of members of the Board of Directors. The term of office of
the initial Class I directors shall expire at the annual meeting of
stockholders in 1995; the term of office of the initial Class II directors
shall expire at the annual meeting of stockholders in 1996; and the term of
office of the initial Class III directors shall expire at the annual meeting of
stockholders in 1997. At each annual meeting of stockholders of the Corporation
the successors of that class of directors whose term expires at that meeting
shall be elected to hold office for a term expiring at the annual meeting of
stockholders
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held in the third year following the year of their election. The directors of
each class will serve until their respective successors are elected and
qualified.
Section 2.2 Resignations.
Any director of the Corporation, or any member of any committee, may
resign at any time by giving written notice to the Board of Directors, the
Chairman of the Board or the President or Secretary of the Corporation. Any
such resignation shall take effect at the time specified therein or, if the
time be not specified therein, then upon receipt thereof. The acceptance of
such resignation shall not be necessary to make it effective.
Section 2.3 Removal of Directors.
Subject to the rights of the holders of any class or series of
preferred stock, directors may be removed from office only for cause (as
hereinafter defined), but not without cause, upon the affirmative vote of the
holders of not less than 66 2/3% of the total voting power of the then
outstanding capital stock of the Corporation entitled to vote thereon, voting
together as a single class. Except as may otherwise be provided by law, "cause"
for removal, for purposes of this Section, shall exist only if: (i) the
director whose removal is proposed has been convicted of a felony, or has been
granted immunity to testify in an action where another has been convicted of a
felony, by a court of competent jurisdiction and such conviction is no longer
subject to direct appeal; (ii) such director has became mentally incompetent,
whether or not so adjudicated, which mental incompetence directly affects his
ability as a director of the Corporation, as determined by not less than
66 2/3% of the members of the Board then in office (other than such director);
or (iii) such director's actions or failure to act have been determined
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by not less than 66 2/3% of the members of the Board of Directors then in
office (other than such director) to be in derogation of the director's duties.
Section 2.4 Newly Created Directorships and Vacancies.
Subject to the rights of the holders of any class or series of
preferred stock, vacancies on the Board of Directors resulting from death,
resignation, removal, disqualification or other cause, and newly created
directorships resulting from any increase in the number of directors on the
Board of Directors, shall be filled by the affirmative vote of a majority of
the remaining directors then in office (even though less than a quorum) or by
the sole remaining director. Any director elected in accordance with the
preceding sentence shall hold office for the remainder of the full term of the
class of directors in which the vacancy occurred or to which the new
directorship is apportioned, and until such director's successor shall have
been elected and qualified. No decrease in the number of directors constituting
the Board of Directors shall shorten the term of any incumbent director, except
as may be provided in the terms of any class or series of preferred stock with
respect to any additional director elected by the holders of such class or
series of preferred stock.
Section 2.5 Chairman of the Board.
The directors shall elect one of their members to be Chairman of the
Board of Directors. The Chairman shall be subject to the control of and may be
removed by the Board of Directors. He shall perform such duties as may from
time to time be assigned to him by the Board of Directors.
Section 2.6 Meetings.
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The annual meeting of the Board of Directors, for the election of
officers and the transaction of such other business as may come before the
meeting, shall be held without notice at the same place as, and immediately
following, the annual meeting of the stockholders. Meetings (regular or
special) of the Board of Directors shall be held not less often than four times
a year.
Notice of each regular meeting shall be furnishing in writing to each
member of the Board of Directors not less than five days in advance of said
meeting, unless such notice requirement is waived in writing by each member. No
notice need be given of the meeting following an Annual Meeting of
Stockholders.
Special meetings of the Board of Directors shall be held at such time
and place as shall be designated in the notice of the meeting. Special Meetings
of the Board of Directors may be called by the Chairman of the Board, and shall
be called by the President or Secretary of the Corporation upon the written
request of not less than 75% of the members of the Board of Directors then in
office.
Section 2.7 Notice of Special Meetings.
The Secretary, or in his absence any other officer of the Corporation,
shall give each director notice of the time and place of holding of special
meetings of the Board of Directors by mail at least 10 days before the meeting,
or by telegram, cable, radiogram, or personal service at least 3 days before
the meeting unless such notice requirement is waived in writing by each member.
Unless otherwise stated in the notice thereof, any and all business may be
transacted at any meeting without specification of such business in the notice.
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Section 2.8 Quorum and Organization of Meetings.
A majority of the total number of members of the Board of Directors as
constituted from time to time shall constitute a quorum for the transaction of
business, but, if at any meeting of the Board of Directors (whether or not
adjourned from a previous meeting) there shall be less than a quorum present, a
majority of those present may adjourn the meeting to another time and place,
and the meeting may be held as adjourned without further notice or waiver.
Except as otherwise provided by law, the Certificate of Incorporation or these
Bylaws, a majority of the directors present at any meeting at which a quorum is
present may decide any question brought before such meeting. Meetings shall be
presided over by the Chairman of the Board or in his absence by such other
person as the directors may select. The Board of Directors shall keep written
minutes of its meetings. The Secretary of the Corporation shall act as
secretary of the meeting, but in his absence the chairman of the meeting may
appoint any person to act as secretary of the meeting.
Section 2.9 Indemnification.
The Corporation shall indemnify members of the Board of Directors and
officers of the Corporation and their respective heirs, personal
representatives and successors in interest for or on account of any action
performed on behalf of the Corporation, to the fullest extent provided by the
laws of the State of Delaware and the Corporation's Certificate of
Incorporation, as now or hereafter in effect.
Section 2.10 Executive Committee of the Board of Directors.
The Board of Directors, by the affirmative vote of not less than 75%
of the members of the Board of Directors then in office, may designate an
executive committee, all of
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whose members shall be directors, to manage and operate the affairs of the
Corporation or particular properties or enterprises of the Corporation. Subject
to the limitations of the law of the State of Delaware and the Certificate of
Incorporation, such executive committee shall exercise all powers and authority
of the Board of Directors in the management of the business and affairs of the
Corporation including, but not limited to, the power and authority to authorize
the issuance of shares of common stock in an amount not in excess of such
number of shares as shall be specifically authorized from time to time by the
Board of Directors in respect of a particular transaction. The executive
committee shall keep minutes of its meetings and report to the Board of
Directors not less often than quarterly on its activities and shall be
responsible to the Board of Directors for the conduct of the enterprises and
affairs entrusted to it.
Section 2.11 Other Committees of the Board of Directors.
The Board of Directors may by resolution establish committees other
than an executive committee and shall specify with particularity the powers
and duties of any such committee. Subject to the limitations of the laws of the
State of Delaware and the Certificate of Incorporation, any such committee
shall exercise all powers and authority specifically granted to it by the Board
of Directors, which powers may include the authority to authorize the issuance
of shares of common stock in an amount not to excess of such number of shares
as shall be specifically authorized from time to time by the Board of Directors
in respect of a particular transaction. Such committees shall serve at the
pleasure of the Board; keep minutes of their meetings; and have such names as
the Board of Directors by resolution may determine and shall be responsible to
the Board of Directors for the conduct of the enterprises and affairs entrusted
to them.
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Section 2.12 Committees Generally.
The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member of any meeting of such committee. In the absence or disqualification of
a member of a committee, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in place of any such absent or disqualified member. Each committee
which may be established by the Board of Directors pursuant to these Bylaws may
fix its own rules and procedures. Notice of meetings of committees, other than
of regular meetings provided for by such rules, shall be given to committee
members.
Section 2.13 Directors' Compensation.
Directors shall receive such compensation for attendance at any
meetings of the Board and any expenses incidental to the performance of their
duties as the Board of Directors shall determine by resolution. Such
compensation may be in addition to any compensation received by the members of
the Board of Directors in any other capacity.
Section 2.14 Action Without Meeting.
Nothing contained in these Bylaws shall be deemed to restrict the
power of members of the Board of Directors or any committee designated by the
Board to take any action required or permitted to be taken by them without a
meeting.
Section 2.15 Telephone Meetings.
Nothing contained in these Bylaws shall be deemed to restrict the
power of members of the Board of Directors, or any committee designated by the
Board of Directors, to
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participate in a meeting of the Board of Directors, or committee, by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other.
ARTICLE III
OFFICERS
Section 3.1 Executive Officers.
The Board of Directors shall elect from its own number, at its first
meeting after each annual meeting of stockholders, a Chairman of the Board and
a President. The Board of Directors may also elect such Vice Presidents as in
the opinion of the Board of Directors the business of the Corporation requires,
a Treasurer and a Secretary, any of whom may or may not be directors. The Board
of Directors may also elect, from time to time, such other or additional
officers as in its opinion are desirable for the conduct of business of the
Corporation. Each officer shall hold office until the first meeting of the
Board of Directors following the next annual meeting of stockholders following
their respective election. Any person may hold at one time two or more offices;
provided, however, that the President shall not hold any other office except
that of Chairman of the Board.
Section 3.2 Powers and Duties of Officers.
The Chairman of the Board shall have overall responsibility for the
management and direction of the business and affairs of the Corporation and
shall exercise such duties as customarily pertain to the office of Chairman of
the Board and such other duties as may be prescribed from time to time by the
Board of Directors. He shall be the senior officer of the
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Corporation and in case of the inability or failure of the President to perform
his duties, he shall perform the duties of the President. He may appoint and
terminate the appointment or election of officers, agents, or employees other
than those appointed or elected by the Board of Directors. He may sign, execute
and deliver, in the name of the Corporation, powers of attorney, contracts,
bonds and other obligations which implement policies established by the Board
of Directors. The Chairman shall preside at all meetings of stockholders and of
the Board of Directors, and shall perform such other duties as may be
prescribed from time to time by the Board of Directors or these Bylaws.
The President of the Corporation shall be responsible for the active
direction of the daily business of the Corporation and shall exercise such
duties as customarily pertain to the office of President and such other duties
as may be prescribed from time to time by the Board of Directors. The President
may sign, execute and deliver, in the name of the Corporation, powers of
attorney, contracts, bonds and other obligations which implement policies
established by the Board of Directors. In the absence or disability of the
Chairman of the Board the President shall perform the duties and exercise the
powers of the Chairman of the Board.
Vice Presidents shall have such powers and perform such duties as may
be assigned to them by the Chairman of the Board, the President, the executive
committee, if any, or the Board of Directors. A Vice President may sign and
execute contracts and other obligations pertaining to the regular course of his
duties which implement policies established by the Board of Directors.
The Treasurer shall be the chief financial officer of the Corporation.
Unless the Board of Directors otherwise declares by resolution, the Treasurer
shall have general custody of
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all the funds and securities of the Corporation and general supervision of the
collection and disbursement of funds of the Corporation. He shall endorse for
collection on behalf of the Corporation checks notes and other obligations, and
shall deposit the same to the credit of the Corporation in such bank or banks
or depository as the Board of Directors may designate. He may sign, with the
Chairman of the Board, President, or such other person or persons as may be
designated for the purpose by the Board of Directors, all bills of exchange or
promissory notes of the Corporation. He shall enter or cause to be entered
regularly in the books of the Corporation a full and accurate account of all
moneys received and paid by him on account of the Corporation; shall at all
reasonable times exhibit his books and accounts to any director of the
Corporation upon application at the office of the Corporation during business
hours; and, whenever required by the Board of Directors or the President, shall
render a statement of his accounts. He shall perform such other duties as may
be prescribed from time to time by the Board of Directors or by these Bylaws.
He may be required to give bond for the faithful performance of his duties in
such sum and with such surety as shall be approved by the Board of Directors.
Any Assistant Treasurer shall, in the absence or disability of the Treasurer,
perform the duties and exercise the powers of the Treasurer and shall perform
such other duties and have such other powers as the Board of Directors may from
time to time prescribe.
The Secretary shall keep the minutes of all meetings of the
stockholders and of the Board of Directors. The Secretary shall cause notice to
be given of meetings of stockholders, of the Board of Directors, and of any
committee appointed by the Board of Directors. He shall have custody of the
corporate seal, minutes and records relating to the conduct and acts of the
stockholders and Board of Directors, which shall, at all reasonable times, be
open to the examina-
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tion of any director. The Secretary or any Assistant Secretary may certify the
record of proceedings of the meetings of the stockholders or of the Board of
Directors or resolutions adopted at such meetings; may sign or attest
certificates, statements or reports required to be filed with governmental
bodies or officials; may sign acknowledgments of instruments; may give notices
of meetings; and shall perform such other duties and have such other powers as
the Board of Directors may from time to time prescribe.
Section 3.3 Bank Accounts.
In addition to such bank accounts as may be authorized in the usual
manner by resolution of the Board of Directors, the Treasurer, with approval of
the Chairman of the Board or the President, may authorize such bank accounts to
be opened or maintained in the name and on behalf of the Corporation as he may
deem necessary or appropriate, provided payments from such bank accounts are to
be made upon and according to the check of the Corporation, which may be signed
jointly or singularly by either the manual or facsimile signature or signatures
of such officers or bonded employees of the Corporation as shall be specified
in the written instructions of the Treasurer or Assistant Treasurer of the
Corporation with the approval of the Chairman of the Board or the President of
the Corporation.
Section 3.4 Proxies.
Unless otherwise provided in the Certificate of Incorporation or
directed by the Board of Directors, the Chairman of the Board or the President
or their designees shall have full power and authority on behalf of the
Corporation to attend and to vote upon all matters and resolutions at any
meeting of stockholders of any corporation in which this Corporation may hold
stock, and may exercise on behalf of this Corporation any and all of the rights
and powers
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incident to the ownership of such stock at any such meeting, whether regular or
special, and at all adjournments thereof, and shall have power and authority to
execute and deliver proxies and consents on behalf of this Corporation in
connection with the exercise by this Corporation of the rights and powers
incident to the ownership of such stock, with full power of substitution or
revocation.
ARTICLE IV
CAPITAL STOCK
Section 4.1 Stock Certificates.
The interest of each stockholder of the Corporation shall be evidenced
by certificates for shares of stock, certifying the class and number of shares
represented thereby and in such form, not inconsistent with the law of the
State of Delaware or the Certificate of Incorporation of the Corporation, as
the Board of Directors may from time to time prescribe.
The certificates of stock shall be signed by the Chairman of the Board
of Directors or the President and by the Secretary or the Treasurer, and sealed
with the seal of the Corporation. Such seal may be a facsimile, engraved or
printed. Where any certificate is manually signed by a transfer agent or by a
registrar, the signatures of any officers upon such certificate may be
facsimiles, engraved or printed. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon any
certificate shall have ceased to be such before the certificate is issued, it
may be issued by the Corporation with the same effect as if such officer,
transfer agent or registrar had not ceased to be such at the time of its issue.
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Section 4.2 Transfer of Shares.
(a) Shares of the capital stock of the Corporation may be
transferred on the books of the Corporation only by the holder of such shares
or by his duly authorized attorney, upon the surrender to the Corporation or
its transfer agent of the certificate representing such stock properly
endorsed.
(b) The person in whose name shares of stock stand on the books of
the Corporation shall be deemed by the Corporation to be the owner thereof for
all purposes, and the Corporation shall not be bound to recognize any equitable
or other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of the state of Delaware.
Section 4.3 Fixing Record Date.
In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion, or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date,
which, unless otherwise provided by law, shall not be more than sixty nor less
than ten days before the date of such meeting, nor more than sixty days prior
to any other action.
Section 4.4 Lost Certificates.
The Board of Directors or any transfer agent of the Corporation may
direct a new certificate or certificates representing stock of the Corporation
to be issued in place of any certificate or certificates theretofore issued by
the Corporation, alleged to have been lost,
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stolen, or destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate to be lost, stolen, or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors (or any transfer agent of the Corporation authorized to do so by a
resolution of the Board of Directors) may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen, or
destroyed certificate or certificates, or his legal representative, to give the
Corporation a bond in such sum as the Board of Directors (or any transfer
agent so authorized) shall direct to indemnify the Corporation against any
claim that may be made against the Corporation with respect to the certificate
alleged to have been lost, stolen, or destroyed or the issuance of such new
certificates, and such requirement may be general or confined to specific
instances.
Section 4.5 Transfer Agent and Registrar.
The Board of Directors may appoint one or more transfer agents and one
or more registrars, any may require all certificates for shares to bear the
manual or facsimile signature or signatures of any of them.
Section 4.6 Regulations.
The Board of Directors shall have power and authority to make all such
rules and regulations as it may deem expedient concerning the issue, transfer,
registration, cancellation, and replacement of certificates representing stock
of the Corporation.
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ARTICLE V
GENERAL PROVISIONS
Section 5.1 Offices.
The Corporation shall maintain a registered office in the State of
Delaware as required by law. The Corporation may also have offices in such
other places, either within or without the State of Delaware, as the Board of
Directors may from time to time designate or as the business of the Corporation
may require.
Section 5.2 Corporate Seal.
The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization, and the words "Corporate Seal" and
"Delaware".
Section 5.3 Fiscal Year.
The fiscal year of the Corporation shall be determined by resolution
of the Board of Directors.
Section 5.4 Notices and Waivers Thereof.
Whenever any notice whatever is required by law, the Certificate of
Incorporation, or these Bylaws to be given to any stockholder, director or
officer, such notice, except as otherwise provided by law, may be given
personally, or by mail, or, in the case of directors or officers, by telegram,
cable or facsimile transmission, addressed to such address as appears on the
books of the Corporation. Any notice given by telegram, cable or facsimile
transmission shall be deemed to have been given when it shall have been
delivered for transmission and any notice given by mail shall be deemed to have
been given three business days after it shall have been deposited in the United
States mail with postage thereon prepaid.
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Whenever any notice is required to be given by law, the Certificate of
Incorporation, or these Bylaws, a written waiver thereof, signed by the person
entitled to such notice, whether before or after the meeting or the time stated
therein, shall be deemed equivalent in all respects to such notice to the full
extent permitted by law.
Section 5.5 Saving Clause.
These Bylaws are subject to the provisions of the Certificate of
Incorporation and applicable law. In the event any provision of these Bylaws is
inconsistent with the Certificate of Incorporation or the corporate laws of the
State of Delaware, such provision shall be invalid to the extent only of such
conflict, and such conflict shall not affect the validity of all other
provisions of these Bylaws.
Section 5.6 Amendments.
In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware, the Board of Directors, by action taken by the
affirmative vote of not less than 75% of the members of the Board of Directors
then in office, is hereby expressly authorized and empowered to adopt, amend or
repeal any provision of the Bylaws of this Corporation.
Subject to the rights of the holders of any class or series of
preferred stock, these Bylaws may be adopted, amended or repealed by the
affirmative vote of the holders of not less than 66 2/3% of the total voting
power of the then outstanding capital stock of the Corporation entitled to vote
thereon; provided, however, that this paragraph shall not apply to, and no vote
of the stockholders of the Corporation shall be required to authorize, the
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adoption, amendment or repeal of any provision of the Bylaws by the Board of
Directors in accordance with the preceding paragraph.
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EX-3.3
4
RESTATED CERTIFICATE OF INCORPORATION
1
EXHIBIT 3.3
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED CERTIFICATE OF
"TELE-COMMUNICATIONS, INC.", CHANGING ITS NAME FROM "TELE-COMMUNICATIONS, INC."
TO "TCI COMMUNICATIONS, INC.", FILED IN THIS OFFICE ON THE FOURTH DAY OF
AUGUST, A.D. 1994, AT 4:17 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT COUNTY
RECORDER OF DEEDS FOR RECORDING.
[OFFICE OF THE /s/ EDWARD J. FREEL
SECRETARY OF STATE --------------------------
SEAL] Edward J. Freel,
Secretary of State
AUTHENTICATION: 7202380
DATE: 08-04-94
2
RESTATED CERTIFICATE OF INCORPORATION
OF
TELE-COMMUNICATIONS, INC.
TELE-COMMUNICATIONS, INC., a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), hereby certifies as follows:
(1) The name of the corporation is Tele-Communications, Inc. The
original Certificate of Incorporation of the Corporation was filed on
August 20, 1968. The name under which the Corporation was originally
incorporated is American Tele-Communications, Inc. The Certificate of
Incorporation of the Corporation was heretofore restated and a Restated
Certificate of Incorporation was filed on July 19, 1979.
(2) This Restated Certificate of Incorporation further amends and
restates the Certificate of Incorporation of the Corporation.
(3) Pursuant to Sections 242 and 245 of the General Corporation Law
of the State of Delaware, the text of the Certificate of Incorporation as
heretofore amended is hereby restated to read in its entirety as follows:
FIRST. The name of the corporation is TCI Communications, Inc. (the
"Corporation").
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SECOND. The address of the Corporation's registered office in the State of
Delaware is The Prentice-Hall Corporation System, Inc., 32 Loockerman Square,
Suite L-100, Dover, Kent County, Delaware 19904. The name of its registered
agent at such address is The Prentice-Hall Corporation System, Inc.
THIRD. The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware General
Corporation Law.
FOURTH. The total number of shares of stock which the Corporation shall
have authority to issue is 1,000,000 shares of Common Stock, par value $1.00
per share ("Common Stock"). Said shares of Common Stock shall be divided into
the following classes: 905,553 shares of Common Stock shall be designated as
Class A Common Stock with a par value of $1.00 per share ("Class A Common
Stock"); and 94,447 shares of Common Stock shall be designated as Class B
Common Stock with a par value of $1.00 per share ("Class B Common Stock").
Upon this Restated Certificate of Incorporation becoming effective in
accordance with the General Corporation Law of the State of Delaware (the
"Effective Time"):
(i) each 500.3735 shares of Class A Common Stock ("Old Class A Common
Stock") issued and outstanding immediately prior to the Effective Time shall be
reclassified and changed into one (1) validly issued, fully paid and
nonassessable share of Class A Common Stock ("New Class A Common Stock").
Stockholders who, immediately prior to the Effective Time, own a number of
shares of Old Class A Common Stock which is not evenly divisible by 500.3735
shall, with respect to such fractional interest, be entitled to receive from
the Corporation in lieu of fractions of shares of New Class A Common Stock an
amount in cash
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equal to the product obtained by multiplying the market price of a share of Old
Class A Common Stock immediately prior to the Effective Time by the number of
shares of Old Class A Common Stock held by such stockholder which is not evenly
divisible by 500.3735. Each certificate that theretofore represented shares of
Old Class A Common Stock shall thereafter represent the number of shares of New
Class A Common Stock into which the shares of Old Class A Common Stock
represented by such certificate shall have been reclassified; provided,
however, that each person holding of record a stock certificate or
certificates that represented shares of Old Class A Common Stock shall receive,
upon surrender of such certificate or certificates, a new certificate or
certificates evidencing and representing the number of shares of New Class A
Common Stock to which such person is entitled; and
(ii) upon this Restated Certificate of Incorporation becoming effective in
accordance with the General Corporation Law of the State of Delaware (the
"Effective Time"), each 500.3735 shares of Class B Common Stock ("Old Class B
Common Stock") issued and outstanding immediately prior to the Effective Time
shall be reclassified and changed into one (1) validly issued, fully paid and
nonassessable share of Class B Common Stock ("New class B Common Stock").
Stockholders who, immediately prior to the Effective Time, own a number of
shares of Old Class B Common Stock which is not evenly divisible by 500.3735
shall, with respect to such fractional interest, be entitled to receive from the
Corporation in lieu of fractions of shares of New Class B Common Stock an
amount in cash equal to the product obtained by multiplying the market price of
a share of Old Class B Common Stock immediately prior to the Effective Time by
the number of shares of Old Class B Common Stock held by such stockholder which
is not evenly divisible by 500.3735. Each certificate that
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theretofore represented shares of Old Class B Common Stock shall thereafter
represent the number of New Class B Common Stock into which the shares of Old
Class B Common Stock represented by such certificate shall have been
reclassified; provided, however, that each person holding of record a stock
certificate or certificates that represented shares of Old Class B Common Stock
shall receive, upon surrender of such certificate or certificates, a new
certificate or certificates evidencing and representing the number of shares of
New Class B Common Stock to which such person is entitled.
Each share of the Class A Common Stock and each share of the Class B
Common Stock of the Corporation shall, except as otherwise provided in this
Paragraph FOURTH, be identical in all respects and shall have equal rights and
privileges.
1. Voting Rights.
Holders of Class A Common Stock shall be entitled to one vote for each
share of such stock held, and holders of Class B Common Stock shall be entitled
to ten votes for each share of such stock held, on all matters presented to
such stockholders. Except as may otherwise be required by the laws of the State
of Delaware, the holders of Class A Common Stock and the holders of shares of
Class B Common Stock shall vote as one class with respect to the election of
directors and with respect to all other matters to be voted on by stockholders
of the Corporation (including, without limitation, any proposed amendment to
this Certificate that would increase the number of authorized shares of Class A
Common Stock or of Class B Common Stock or decrease the number of authorized
shares of any such class of stock (but not below the number of shares thereof
then outstanding)), and no separate vote or
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consent of the holders of shares of Class A Common Stock or the holders of
shares of Class B Common Stock shall be required for the approval of any such
matter.
2. Conversion Rights.
Each share of Class B Common Stock shall be convertible, at the option
of the holder thereof, into one share of Class A Common Stock. Any such
conversion may be effected by any holder of Class B Common Stock by
surrendering such holder's certificate or certificates for the Class B Common
Stock to be converted, duly endorsed, at the office of the Corporation or any
transfer agent for the Class B Common Stock, together with a written notice to
the Corporation at such office that such holder elects to convert all or a
specified number of shares of Class B Common Stock represented by such
certificate and stating the name or names in which such holder desires the
certificate for Class A Common Stock to be issued. If so required by the
Corporation, any certificate for shares surrendered for conversion shall be
accompanied by instruments of transfer, in form satisfactory to the
Corporation, duly executed by the holder of such shares or the duly authorized
representative of such holder. Promptly thereafter, the Corporation shall issue
and deliver to such holder or such holder's nominee or nominees, a certificate
or certificates for the number of shares of Class A Common Stock to which such
holder shall be entitled as herein provided. Such conversion shall be deemed to
have been made at the close of business on the date of receipt by the
Corporation or any such transfer agent of the certificate or certificates,
notice and, if required, instruments of transfer referred to above, and the
person or persons entitled to receive the Class A Common Stock issuable on such
conversion shall be treated for all purposes as the record holder or holders of
such Class A Common Stock on that date. A number of shares of Class A
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Common Stock equal to the number of shares of Class B Common Stock outstanding
from time to time shall be set aside and reserved for issuance upon conversion
of shares of Class B Common Stock. Shares of Class B Common Stock that have
been converted hereunder shall remain treasury shares to be disposed of by
resolution of the Board of Directors. Shares of Class A Common Stock shall not
be convertible into shares of Class B Common Stock.
3. Dividends. Subject to subparagraph 4 of this Paragraph FOURTH,
whenever a dividend is paid to the holders of Class A Common Stock, the
Corporation also shall pay to the holders of Class B Common Stock a dividend
per share at least equal to the dividend per share paid to the holders of the
Class A Common Stock. Subject to subparagraph 4 of this Paragraph FOURTH,
whenever a dividend is paid to the holders of Class B Common Stock, the
Corporation shall also pay to the holders of the Class A Common Stock a
dividend per share at least equal to the dividend per share paid to the holders
of the Class B Common Stock. Dividends shall be payable only as and when
declared by the Board of Directors.
4. Share Distributions. If at any time a distribution on the Class A
Common Stock or Class B Common Stock is to be paid in Class A Common Stock,
Class B Common Stock or any other securities of the Corporation (hereinafter
sometimes called a "share distribution"), such share distribution may be
declared and paid only as follows:
(a) a share distribution consisting of Class A Common Stock to
holders of Class A Common Stock and Class B Common Stock, on an equal per share
basis; or to holders of Class A Common Stock only, but in such event there
shall also be a simultaneous share distribution to holders of Class B Common
Stock consisting of shares of Class B Common Stock on an equal per share basis;
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(b) a share distribution consisting of Class B Common Stock to holders of
Class B Common Stock and Class A Common Stock, on an equal per share basis; or
to holders of Class B Common Stock only, but in such event there shall also be
a simultaneous share distribution to holders of Class A Common Stock consisting
of shares of Class A Common Stock on an equal per share basis; and
(c) a share distribution consisting of any other class of securities of
the Corporation other than Common Stock, to the holders of Class A Common Stock
and the holders of Class B Common Stock on an equal per share basis.
The Corportion shall not reclassify, subdivide or combine one class of
its Common Stock without reclassifying, subdividing or combining the other
class of Common Stock, on an equal per share basis.
5. Liquidtion and Mergers. The holders of Class A Common Stock and the
holders of Class B Common Stock shall share equally, on a share for share
basis, in any distribution of the Corporation's assets upon any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
after payment or provisions for payment of the debts and other liabilities of
the Corporation. Neither the consolidation or merger of the Corporation with or
into any other corporation or corporations nor the sale, transfer or lease of
all or substantially all of the assets of the Corporation shall itself be
deemed to be a liquidation, dissolution or winding up of the Corporation within
the meaning of this subparagraph 5.
FIFTH. Elections of directors need not be by written ballot, excpet and to
the extent provided in the bylaws of the Corporation.
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SIXTH: The board of directors of the Corporation is authorized to adopt,
amend, or repeal the bylaws of the Corporation except as and to the extent
provided in the bylaws.
SEVENTH: Any person who was or is a party or is threatened to be made a
party to any threatened, pending, or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (whether or not by or
in the right of the corporation) by reason of the fact that he is or was a
director, officer, incorporator, employee, or agent of the Corporation, or is
or was serving at the request of the Corporation as a director, officer,
incorporator, employee, partner, trustee, or agent of another corporation,
partnership, joint venture, trust or other enterprise (including an employee
benefit plan), shall be entitled to be indemnified by the Corporation to the
full extent then permitted by law against expenses (including attorneys' fees),
judgments, fines (including excise taxes assessed on a person with respect to
an employee benefit plan), and amounts paid in settlement incurred by him in
connection with such action, suit, or proceeding. Such right of indemnification
shall inure whether or not the claim asserted is based on matters which
antedate the adoption of this Article SEVENTH. Such right of indemnification
shall continue as to a person who has ceased to be a director, officer,
incorporator, employee, partner, trustee, or agent and shall inure to the
benefit of the heirs and personal representatives of such a person. The
indemnification provided by this Article SEVENTH shall not be deemed exclusive
of any other rights which may be provided now or in the future under any
provision currently in effect or hereafter adopted of the bylaws, by any
agreement, by vote of stockholders, by resolution of disinterested directors,
by provision of law, or otherwise.
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EIGHTH. No director of the Corporation shall be liable to the
Corporation or any of its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts of omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transactions from which the director derived
an improper personal benefit.
NINTH. Whenever a compromise or arrangement is porposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for this Corporation under the provisions of Section 279 of Title 8
of the Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this Corporation, as the
case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three-fourths in value of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been
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made, be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may
be, and also on this Corporation.
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IN WITNESS WHEREOF, said TELE-COMMUNICATIONS, INC. has caused this
certificate to be signed by its president or executive vice president this 4th
day of August, 1994.
TELE-COMMUNICATIONS, INC.
By: /s/ FRED PIERRA
Title: Executive Vice President
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EX-3.4
5
BYLAWS AS ADOPTED 8/4/94
1
EXHIBIT 3.4
BYLAWS
of
TCI COMMUNICATIONS, INC.
As adopted August 4, 1994
2
TCI COMMUNICATIONS, INC.
A Delaware Corporation
BYLAWS
--------------------
ARTICLE I
STOCKHOLDERS
Section 1.1 Annual Meeting.
An annual meeting of stockholders for the purpose of electing directors
and of transacting such other business as may come before it shall be held each
year at such date, time, and place, either within or without the State of
Delaware, as may be specified by the Board of Directors.
Section 1.2 Special Meetings.
Special meetings of stockholders for any purpose or purposes may be held
at any time upon call of the Chairman of the Board, if any, the President, the
Secretary, or a majority of the Board of Directors, at such time and place
either within or without the State of Delaware as may be stated in the notice.
A special meeting of stockholders shall be called by the President or the
Secretary upon the written request, stating time, place, and the purpose or
purposes of the meeting, of stockholders who together own of record not less
than 25% of the outstanding stock of all classes entitled to vote at such
meeting.
Section 1.3 Notice of Meetings.
Written notice of stockholders meetings, stating the place, date, and hour
thereof, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called, shall be given by the Chairman of the Board, if
any, the President, the Secretary, or any other
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officer, to each stockholder entitled to vote thereat at least ten days but not
more than sixty days before the date of the meeting, unless a different period
is prescribed by law.
Section 1.4 Quorum.
Except as otherwise provided by law or in the Certificate of
Incorporation or these Bylaws, at any meeting of stockholders, the holders of a
majority of the outstanding shares of each class of stock entitled to vote at
the meeting shall be present or represented by proxy in order to constitute a
quorum for the transaction of any busiess. In the absence of a quorum, a
majority in interest of the stockholders present or the chairman of the meeting
may adjourn the meeting from time to time in the manner provided in Section 1.5
of these Bylaws until a quorum shall attend.
Section 1.5 Adjournment.
Any meeting of stockholders, annual or special, may adjourn from time
to time to reconvene at the same or some other place, and notice need not be
given of any such adjourned meeting if the time and place thereof are announced
at the meeting at which the adjournment is taken. At the adjourned meeting, the
Corporation may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than thirty days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting.
Section 1.6 Organization.
The Chairman of the Board, if any, or in his absence the President,
shall call to order meetings of stockholders and shall act as chairman of such
meetings. The Board of
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Directors or, if the Board of Directors fails to act, the stockholders may
appoint any stockholder, director, or officer of the Corporation to act as
chairman of any meeting in the absence of the Chairman of the Board or the
President.
The Secretary of the Corporation shall act as secretary of all meetings of
stockholders, but, in the absence of the Secretary, the chairman of the meeting
may appoint any other person to act as secretary of the meeting.
Section 1.7 Voting.
Except as otherwise provided by law or in the Certificate of Incorporation
or these Bylaws and except for the election of directors, at any meeting duly
called and held at which a quorum is present, a majority of the votes cast at
such meeting upon a given question by the holders of all outstanding shares of
stock of the Corporation entitled to vote thereon who are present in person or
by proxy shall decide such question. At any meeting duly called and held for
the election of directors at which a quorum is present, directors shall be
elected by a plurality of the votes cast by the holders (acting as such) of all
shares of stock of the Corporation entitled to elect such directors.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1 Number and Term of Office.
The business, property, and affairs of the Corporation shall be managed by
or under the direction of a Board of Directors consisting of at least one
director; provided, however, that the Board of Directors, by resolution adopted
by vote of a majority of the then authorized number of directors, may increase
or decrease the number of directors. The directors
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shall be elected by the holders of shares entitled to vote thereon at the
annual meeting of stockholders, and each shall serve (subject to provisions of
Article IV) until the next succeeding annual meeting of stockholders and until
his respective successor has been elected and qualified.
Section 2.2 Chairman of the Board.
The directors may elect one of their members to be Chairman of the Board
of Directors. The Chairman shall be subject to the control of and may be
removed by the Board of Directors. He shall perform such duties as may from
time to time be assigned to him by the Board of Directors.
Section 2.3 Meetings.
The annual meeting of the Board of Directors, for the election of officers
and the transaction of such other business as may come before the meeting,
shall be held without notice at the same place as, and immediately following,
the annual meeting of the stockholders.
Regular meetings of the Board of Directors may be held without notice at
such time and place as shall from time to time be determined by the Board of
Directors.
Special meetings of the Board of Directors shall be held at such time and
place as shall be designated in the notice of the meeting whenever called by
the Chairman of the Board, if any, the President or by a majority of the
directors then in office.
Section 2.4 Notice of Special Meetings.
The Secretary, or in his absence any other officer of the Corporation,
shall give each director notice of the time and place of holding of special
meetings of the Board of Directors by mail at least 10 days before the meeting,
or by telegram, cable, facsimile
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transmission or personal service at least 3 days before the meeting. Unless
otherwise stated in the notice thereof, any and all business may be transacted
at any meeting without specification of such business in the notice.
Section 2.5 Quorum and Organization of Meetings.
A majority of the total number of members of the Board of Directors as
constituted from time to time shall constitute a quorum for the transaction of
business, but if at any meeting of the Board of Directors (whether or not
adjourned from a previous meeting) there shall be less than a quorum present, a
majority of those present may adjourn the meeting to another time and place,
and the meeting may be held as adjourned without further notice or waiver.
Except as otherwise provided by law or in the Certificate of Incorporation or
these Bylaws, a majority of the directors present at any meeting at which a
quorum is present may decide any question brought before such meeting. Meetings
shall be presided over by the Chairman of the Board, if any, or in his absence
by the President or in the absence of both by such other person as the
directors may select. The Secretary of the Corporation shall act as secretary
of the meeting, but in his absence the chairman of the meeting may appoint any
person to act as secretary of the meeting.
Section 2.6 Committees.
The Board of Directors may, by resolution passed by a majority of the
whole Board of Directors, designate one or more committees, each committee to
consist of one or more of the directors of the Corporation. The Board of
Directors may designate one or more directos as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence of disqualification of a member of a committee,
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the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in place of any
such absent or disqualified member. Any such committee, to the extent provided
in the resolution of the Board of Directors, shall have and may exercise all
the powers and authority of the Board of Directors in the management of the
business, property, and affairs of the Corporation, and may authorize the seal
of the Corporation to be affixed to all papers which may require it; but no
such committee shall have power or authority in reference to amending the
Certificate of Incorporation of the Corporation (except that a committee may,
to the extent authorized in the resolution or resolutions providing for the
issuance of shares of stock adopted by the Board of Directors pursuant to
authority expressly granted to the Board of Directors by the Corporation's
Certificate of Incorporation, fix any of the preferences or rights of such
shares relating to dividends, redemption, dissolution, any distribution of
assets of the Corporation, or conversion into, or the exchange of such shares
for, shares of any other class or classes or any other series of the same or
any other class or classes of stock of the Corporation), adopting an agreement
of merger or consolidation under Section 251 or 252 of the General Corporation
Law of the State of Delaware, recommending to the stockholders the sale, lease,
or exchange of all or substantially all of the Corporation's property and
assets, recommending to the stockholders a dissolution of the Corporation or a
revocation of dissolution, or amending these Bylaws; and, unless the resolution
expressly so provided, no such committee shall have the power or authority to
declare a dividend, to authorize the issuance of stock, or to adopt a
certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of the State of Delaware. Each committee which
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may be established by the Board of Directors pursuant to these Bylaws may fix
its own rules and procedures. Notice of meetings of committees, other than of
regular meetings provided for by such rules, shall be given to committee
members. All action taken by committees shall be recorded in minutes of the
meetings.
Section 2.7 Action Without Meeting.
Nothing contained in these Bylaws shall be deemed to restrict the
power of members of the Board of Directors or any committee designated by the
Board of Directors to take any action required or permitted to be taken by them
without a meeting.
Section 2.8 Telephone Meetings.
Nothing contained in these Bylaws shall be deemed to restrict the
power of members of the Board of Directors, or any committee designated by the
Board of Directors, to participate in a meeting of the Board of Directors, or
committee, by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other.
ARTICLE III
OFFICERS
Section 3.1 Executive Officers.
The executive officers of the Corporation shall be a Chairman, a
President and a Secretary, each of whom shall be elected by the Board of
Directors. The Board of Directors may elect or appoint such other officers
(including a Treasurer and one or more Assistant Secretaries) as it may deem
necessary or desirable. Each officer shall hold office for such term
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as may be prescribed by the Board of Directors from time to time. Any person
may hold at one time two or more offices.
Section 3.2 Powers and Duties.
The Chairman of the Board, if any, or in his absence, the President
shall preside at all meetings of the stockholders and of the Board of
Directors. The President shall be the chief executive officer of the
Corporation. In the absence of the President, an officer appointed by the
President, or if the President fails to make such appointment, by the Board of
Directors, shall perform all the duties of the President. The officers and
agents of the Corporation shall each have such powers and authority and shall
perform such duties in the management of the business, property, and affairs of
the Corporation as generally pertain to their respective offices, as well as
such powers and authorities and such duties as from time to time may be
prescribed by the Board of Directors.
ARTICLE IV
RESIGNATIONS, REMOVALS AND VACANCIES
Section 4.1 Resignations.
Any director or officer of the corporation, or any member of any
committee, may resign at any time by giving written notice to the Board of
Directors, the Chairman, the President, or the Secretary of the Corporation.
Any such resignation shall take effect at the time specified therein or, if the
time be not specified therein, then upon receipt thereof. The acceptance of
such resignation shall not be necessary to make it effective.
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Section 4.2 Removals.
The Board of Directors, by a vote of not less than a majority of the
entire Board of Directors, at any meeting thereof, or by written consent, at
any time, may, to the extent permitted by law, remove with or without cause
from office or terminate the employment of any officer or member of any
committee and may, with or without cause, disband any committee.
Any director or the entire Board of Directors may be removed, with or
without cause, by the holders of a majority of the shares entitled at the time
to vote at any election of directors.
Section 4.3 Vacancies.
Any vacancy in the office of any director of officer through death,
resignation, removal, disqualification, or other cause, and any additional
directorship resulting from increase in the number of directors, may be filled
at any time by a majority of the directors then in office (even though less
than a quorum remains) or, in the case of any vacancy in the officer of any
director, by the stockholders, and, subject to the provisions of this Article
IV, the person so chosen shall hold office until his successor shall have been
elected and qualified; or, if the person so chosen is a director elected to
fill a vacancy, he shall (subject to the provisions of this Article IV) hold
office for the unexpired term of his predecessor.
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ARTICLE V
CAPITAL STOCK
Section 5.1 Stock Certificates.
The certificates for shares of the capital stock of the Corporation
shall be in such form as shall be prescribed by law and approved, from time to
time, by the Board of Directors.
Section 5.2 Transfer of Shares.
Shares of the capital stock of the Corporation may be transferred on
the books of the Corporation only by the holder of such shares or by his duly
authorized attorney, upon the surrender to the Corporation or its transfer
agent of the certificate representing such stock properly endorsed.
Section 5.3 Fixing Record Date.
In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or to express consent to corporate action in writing without a
meeting, or entitled to receive payment of any dividend or other distribution
or allotment of any rights, or entitled to exercise any rights in respect of
any change, conversion, or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date,
which, unless otherwise provided by law, shall not be more than sixty nor less
than ten days before the date of such meeting, nor more than sixty days prior
to any other action.
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Section 5.4 Lost Certificates
The Board of Directors or any transfer agent of the corporation may
direct a new certificate or certificates representing stock of the Corporation
to be issued in place of any certificate or certificates theretofore issued by
the Corporation, alleged to have been lost, stolen, or destroyed, upon the
making of an affidavit of that fact by the person claiming the certificate to
be lost, stolen, or destroyed. When authorizing such issue of a new
certificate or certificates, the Board of Directors (or any transfer agent of
the Corporation authorized to do so by a resolution of the Board of Directors)
may, in its discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen, or destroyed certificate or
certificates, or his legal representative, to give the Corporation a bond in
such sum as the Board of Directors (or any transfer agent so authorized) shall
direct to indemnify the Corporation against any claim that may be made against
the Corporation with respect to the certificate alleged to have been lost,
stolen, or destroyed or the issuance of such new certificates, and such
requirement may be general or confined to specific instances.
Section 5.5 Regulations.
The Board of Directors shall have power and authority to make all such
rules and regulations as it may deem expedient concerning the issue, transfer,
registration, cancellation, and replacement of certificates representing stock
of the Corporation.
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ARTICLE VI
MISCELLANEOUS
Section 6.1. Corporate Seal.
The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization, and the words "Corporate Seal" and
"Delaware".
Section 6.2 Fiscal Year.
The fiscal year of the Corporation shall be determined by resolution
of the Board of Directors.
Section 6.3 Notices and Waivers Thereof.
Whenever any notice whatever is required by law, the Certificate of
Incorporation, or these Bylaws to be given to any stockholder, director, or
officer, such notice, except as otherwise provided by law, may be given
personally, or by mail, or, in the case of directors or officers, by telegram,
cable or facsimile transmission, addressed to such address as appears on the
books of the Corporation. Any notice given by telegram, cable or facsimile
transmission shall be deemed to have been given when it shall have been
delivered for transmission and any notice given by mail shall be deemed to have
been given when it shall have been deposited in the United States mail with
postage thereon prepaid.
Whenever any notice is required to be given by law, the Certificate of
Incorporation, or these Bylaws, a written waiver thereof, signed by the person
entitled to such notice, whether before or after the meeting or the time stated
therein, shall be deemed equivalent in all respects to such notice to the full
extent permitted by law.
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Section 6.4 Stock of Other Corporation or Other Interests.
Unless otherwise ordered by the Board of Directors, the President, the
Secretary, and such attorneys or agents of the Corporation as may be from time
to time authorized by the Board of Directors or the President, shall have full
power and authority on behalf of this Corporation to attend and to act and vote
in person or by proxy at any meeting of the holders of securities of any
corporation or other entity in which this Corporation may own or hold shares or
other securities, and at such meetings shall possess and may exercise all the
rights and powers incident to the ownership of such shares or other securities
which this Corporation, as the owner or holder thereof, might have possessed
and exercised if present. The President, the Secretary, or such attorneys or
agents, may also execute and deliver on behalf of this Corporation powers of
attorney, proxies, consents, waivers, and other instruments relating to the
shares or securities owned or held by this Corporation.
ARTICLE VII
AMENDMENTS
The holders of shares entitled at the time to vote for the election of
directors shall have power to adopt, amend, or repeal the Bylaws of the
Corporation by vote of not less than a majority of such shares, and except as
otherwise provided by law, the Board of Directors shall have power equal in all
respects to that of the stockholders to adopt, amend, or repeal the Bylaws by
vote of not less than a majority of the entire Board. However, any Bylaw
adopted by the Board may be amended or repealed by vote of the holders of a
majority of the shares entitled at the time to vote for the election of
directors.
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EX-10.1
6
ASSIGNMENT & ASSUMPTION BETWEEN BOB MAGNESS
1
Exhibit 10.1
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT is dated as of August 4, 1994
and is among TCI/LIBERTY HOLDING COMPANY ("Holding Company"),
TELECOMMUNICATIONS, INC. ("TCI"), and BOB MAGNESS, who resides at 4725 South
Holly, Englewood, Colorado 80111 ("Executive").
WHEREAS, TCI and Executive are parties to that certain Restated and
Amended Employment Agreement, dated as of November 1, 1992 (the "Existing
Agreement");
WHEREAS, TCI and Liberty Media Corporation ("Liberty") will consummate
a proposed business combination on August 4, 1994 (the "Closing Date") wherein
TCI and Liberty will become wholly owned subsidiaries of Holding Company; and
WHEREAS, the parties to this Agreement desire that Holding Company
assume the benefits and obligations of the Existing Agreement on the Closing
Date.
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained and for other good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, the parties, intending to be
legally bound, do hereby agree as follows:
1. Assignment and Assumption.
(a) Effective as of the Closing Date, TCI hereby assigns to Holding
Company, and Holding Company hereby assumes, all of the payment, performance
and other obligations of TCI under the Existing Agreement. Holding Company
further agrees to be bound by the Existing Agreement as though it had been an
original party to the Existing Agreement.
(b) Executive consents to the assignment and assumption described in
Section 1(a) hereof and agrees to render his employment services as provided
in the Existing Agreement. Executive agrees that, pursuant to this Agreement,
Holding Company shall receive the full benefit of TCI's rights under the
Existing Agreement.
2
2. Miscellaneous.
(a) This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof. This Agreement may
not be changed nor may any provision hereof be waived except by an instrument
in writing duly signed by the party to be charged. This Agreement shall be
interpreted, governed and controlled by the law of the State of Colorado,
without reference to principles of conflict of laws.
(b) Except as expressly otherwise stated herein, the terms and
provisions of the Existing Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, this Assignment and Assumption Agreement has been
duly executed as of the day and year first above written.
TCI/LIBERTY HOLDING COMPANY
/s/ STEPHEN M. BRETT
Stephen M. Brett
Executive Vice President
TELE-COMMUNICATIONS, INC.
/s/ STEPHEN M. BRETT
Stephen M. Brett
Senior Vice President and General Counsel
/s/ BOB MAGNESS
Bob Magness
-2-
EX-10.2
7
ASSIGNMENT & ASSUMPTION BETWEEN JOHN C. MALONE
1
Exhibit 10.2
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT is dated as of August 4, 1994
and is among TCI/LIBERTY HOLDING COMPANY ("Holding Company"),
TELECOMMUNICATIONS, INC. ("TCI"), and JOHN C. MALONE, who resides at 12415 Lost
Canyon Trail, Parker, Colorado 80134 ("Executive").
WHEREAS, TCI and Executive are parties to that certain Restated and
Amended Employment Agreement, dated as of November 1, 1992 (the "Existing
Agreement");
WHEREAS, TCI and Liberty Media Corporation ("Liberty") will consummate
a proposed business combination on August 4, 1994 (the "Closing Date") wherein
TCI and Liberty will become wholly owned subsidiaries of Holding Company; and
WHEREAS, the parties to this Agreement desire that Holding Company
assume the benefits and obligations of the Existing Agreement on the Closing
Date.
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained and for other good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, the parties, intending to be
legally bound, do hereby agree as follows:
1. Assignment and Assumption.
(a) Effective as of the Closing Date, TCI hereby assigns to Holding
Company, and Holding Company hereby assumes, all of the payment, performance
and other obligations of TCI under the Existing Agreement. Holding Company
further agrees to be bound by the Existing Agreement as though it had been an
original party to the Existing Agreement.
(b) Executive consents to the assignment and assumption described in
Section 1(a) hereof and agrees to render his employment services as provided in
the Existing Agreement. Executive agrees that, pursuant to this Agreement,
Holding Company shall receive the full benefit of TCI's rights under the
Existing Agreement.
2
2. Miscellaneous.
(a) This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof. This Agreement may
not be changed nor may any provision hereof be waived except by an instrument
in writing duly signed by the party to be charged. This Agreement shall be
interpreted, governed and controlled by the law of the State of Colorado,
without reference to principles of conflict of laws.
(b) Except as expressly otherwise stated herein, the terms and
provisions of the Existing Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, this Assignment and Assumption Agreement has been
duly executed as of the day and year first above written.
TCI/LIBERTY HOLDING COMPANY
/s/ STEPHEN M. BRETT
Stephen M. Brett
Executive Vice President
TELE-COMMUNICATIONS, INC.
/s/ STEPHEN M. BRETT
Stephen M. Brett
Senior Vice President and General Counsel
/s/ JOHN C. MALONE
John C. Malone
-2-
EX-10.3
8
ASSIGNMENT & ASSUMPTION BETWEEN J.C. SPARKMAN
1
Exhibit 10.3
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT is dated as of August 4, 1994
and is among TCI/LIBERTY HOLDING COMPANY ("Holding Company"), TELE-
COMMUNICATIONS, INC. ("TCI"), and J.C. SPARKMAN, who resides at 2530 South
Dudley Street, Lakewood, Colorado 80227 ("Executive").
WHEREAS, TCI and Executive are parties to that certain Employment
Agreement, dated as of November 1, 1992 (the "Existing Agreement");
WHEREAS, TCI and Liberty Media Corporation ("Liberty") will consummate
a proposed business combination on August 4, 1994 (the "Closing Date") wherein
TCI and Liberty will become wholly owned subsidiaries of Holding Company; and
WHEREAS, the parties to this Agreement desire that Holding Company
assume the benefits and obligations of the Existing Agreement on the Closing
Date.
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained and for other good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, the parties, intending to be
legally bound, do hereby agree as follows:
1. Assignment and Assumption.
(a) Effective as of the Closing Date, TCI hereby assigns to Holding
Company, and Holding Company hereby assumes, all of the payment, performance
and other obligations of TCI under the Existing Agreement. Holding Company
further agrees to be bound by the Existing Agreement as though it had been an
original party to the Existing Agreement.
(b) Executive consents to the assignment and assumption described in
Section l(a) hereof and agrees to render his employment services as provided in
the Existing Agreement. Executive agrees that, pursuant to tiffs Agreement,
Holding Company shall receive the full benefit of TCI's rights under the
Existing Agreement.
2
2. Miscellaneous.
(a) This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof. This Agreement may
not be changed nor may any provision hereof be waived except by an instrument
in writing duly signed by the party to be charged. This Agreement shall be
interpreted, governed and controlled by the law of the State of Colorado,
without reference to principles of conflict of laws.
(b) Except as expressly otherwise stated herein, the terms and
provisions of the Existing Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, this Assignment and Assumption Agreement has been
duly executed as of the day and year first above written.
TCI/LIBERTY HOLDING COMPANY
/s/ STEPHEN M. BRETT
Stephen M. Brett
Executive Vice President
TELE-COMMUNICATIONS, INC.
/s/ STEPHEN M. BRETT
Stephen M. Brett
Senior Vice President and General Counsel
/s/ J. C. SPARKMAN
J. C. SPARKMAN
-2-
EX-10.4
9
ASSIGNMENT & ASSUMPTION BETWEEN DONNE F. FISHER
1
Exhibit 10.4
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT is dated as of August 4, 1994
and is among TCI/LIBERTY HOLDING COMPANY ("Holding Company"), TELE-
COMMUNICATIONS, INC. ("TCI"), and DONNE F. FISHER, who resides at 9513 Pinyon
Trail, Littleton, Colorado 80124 ("Executive").
WHEREAS, TCI and Executive are parties to that certain Employment
Agreement, dated as of January 1, 1992 (the "Existing Agreement");
WHEREAS, TCI and Liberty Media Corporation ("Liberty") will consummate
a proposed business combination on August 4, 1994 (the "Closing Date") wherein
TCI and Liberty, will become wholly owned subsidiaries of Holding Company; and
WHEREAS, the parties to this Agreement desire that Holding Company
assume the benefits and obligations of the Existing Agreement on the Closing
Date.
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained and for other good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, the parties, intending to be
legally bound, do hereby agree as follows:
1. Assignment and Assumption.
(a) Effective as of the Closing Date, TCI hereby assigns to Holding
Company, and Holding Company hereby assumes, all of the payment, performance
and other obligations of TCI under the Existing Agreement. Holding Company
further agrees to be bound by the Existing Agreement as though it had been an
original party to the Existing Agreement.
(b) Executive consents to the assignment and assumption described in
Section 1(a) hereof and agrees to render his employment services as provided in
the Existing Agreement. Executive agrees that, pursuant to this Agreement,
Holding Company shall receive the full benefit of TCI's rights under the
Existing Agreement.
2
2. Miscellaneous.
(a) This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof. This Agreement may
not be changed nor may any provision hereof be waived except by an instrument
in writing duly signed by the party to be charged. This Agreement shall be
interpreted, governed and controlled by the law of the State of Colorado,
without reference to principles of conflict of laws.
(b) Except as expressly otherwise stated herein, the terms and
provisions of the Existing Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, this Assignment and Assumption Agreement has been
duly executed as o/the day and year first above written.
TCI/LIBERTY HOLDING COMPANY
/s/ STEPHEN M. BRETT
Stephen M. Brett
Executive Vice President
TELE-COMMUNICATIONS, INC.
/s/ STEPHEN M. BRETT
Stephen M. Brett
Senior Vice President and General Counsel
/s/ DONNE F. FISHER
Donne F. Fisher
-2-
EX-10.5
10
ASSIGNMENT & ASSUMPTION BETWEEN FRED A. VIERRA
1
Exhibit 10.5
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT is dated as of August 4, 1994
and is among TCI/LIBERTY HOLDING COMPANY ("Holding Company"), TELE-
COMMUNICATIONS, INC. ("TCI"), and FRED A. VIERRA, who resides at 77 Glenmoor
Drive, Englewood, Colorado 80110 ("Executive").
WHEREAS, TCI and Executive are parties to that certain Employment
Agreement, dated as of November 1, 1992 (the "Existing Agreement");
WHEREAS, TCI and Liberty Media Corporation ("Liberty") will consummate
a proposed business combination on August 4, 1994 (the "Closing Date") wherein
TCI and Liberty, will become wholly owned subsidiaries of Holding Company; and
WHEREAS, the parties to this Agreement desire that Holding Company
assume the benefits and obligations of the Existing Agreement on the Closing
Date.
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained and for other good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, the parties, intending to be
legally bound, do hereby agree as follows:
1. Assignment and Assumption.
(a) Effective as of the Closing Date, TCI hereby assigns to Holding
Company, and Holding Company hereby assumes, all of the payment, performance
and other obligations of TCI under the Existing Agreement. Holding Company
further agrees to be bound by the Existing Agreement as though it had been an
original party to the Existing Agreement.
(b) Executive consents to the assignment and assumption described in
Section l(a) hereof and agrees to render his employment services as provided in
the Existing Agreement. Executive agrees that, pursuant to this Agreement,
Holding Company shall receive the full benefit of TCI's rights under the
Existing Agreement.
2
2. Miscellaneous.
(a) This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof. This Agreement may
not be changed nor may any provision hereof be waived except by an instrument
in writing duly signed by the party to be charged. This Agreement shall be
interpreted, governed and controlled by the law of the State of Colorado,
without reference to principles of conflict of laws.
(b) Except as expressly otherwise stated herein, the terms and
provisions of the Existing Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, this Assignment and Assumption Agreement has been
duly executed as of the day and year first above written.
TCI/LIBERTY HOLDING COMPANY
/s/ STEPHEN M. BRETT
Stephen M. Brett
Executive Vice President
TELE-COMMUNICATIONS, INC.
/s/ STEPHEN M. BRETT
Stephen M. Brett
Senior Vice President and General Counsel
/s/ FRED A. VIERRA
Fred A. Vierra
-2-
EX-10.6
11
EMPLOYMENT AGREEMENT BETWEEN LARRY E. ROMRELL
1
Exhibit 10.6
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of January 1, 1993 between
TELE-COMMUNICATIONS, INC., a Delaware corporation (the "Company"), and LARRY E.
ROMRELL, now residing at 5823 South Kearney Street, Englewood, Colorado 80111
("Executive").
Executive and the Company were parties to an employment agreement
dated as of December 31, 1987 (the "Prior Agreement"). This Agreement is
intended to set forth the terms and conditions of the employment by the Company
of Executive from and after January 1, 1993 and is intended to supersede the
Prior Agreement.
In consideration of the mutual covenants and agreements herein
contained and for other good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, the parties, intending to be
legally bound, do hereby agree as follows:
1. Term and Termination.
(a) Term. The term of Executive's employment under this Agreement
(the "Employment Term") shall commence on the date hereof and end on
December 31, 1999 (the "Term"). During the Employment Term, the Company
agrees to employ Executive and Executive agrees to serve the Company upon
and subject to the terms and conditions set forth in this Agreement. The
Company acknowledges that its obligations under Sections 4 and 7 hereof
shall survive any termination of Executive's employment and will survive the
Employment Term.
(b) Termination by the Company. Executive's employment by the Company
may be terminated by the Company only as provided in clauses (i), (ii),
(iii) and (iv) below.
(i) Upon the death of Executive.
(ii) Upon six (6) months' prior written notice from the
Company to Executive (the "Notice Period"), in the event of an illness
or other disability which has incapacitated Executive from performing
his duties hereunder, as determined in good faith by the Board of
Directors of the Company, for an aggregate of one hundred eighty (180)
consecutive days during the twelve calendar months preceding the month
in which such notice is given; provided, however, that in the event
that prior to the end of the Notice Period, Executive recovers from
such illness or other disability to an extent permitting him to perform
his duties hereunder, the notice of termination pursuant to this clause
(ii) shall be of no further force and effect.
-1-
2
(iii) Effective as of December 31 of any year, upon giving
written notice of such termination to Executive six (6) months prior to
the effective date thereof and by paying to Executive in a lump sum in
cash upon such termination all remaining compensation (other than
compensation the payment of which was deferred by Executive prior to
such termination) that would have been payable under Section 4 hereof
if this Agreement remained in full force and effect for the balance of
the Employment Term.
(iv) At any time for "cause", which for purposes of this
Agreement shall be deemed to have occurred only on the happening of any
of the following:
(A) the plea of guilty to, or conviction for, the
commission of a felony offense by Executive: provided,
however, that after indictment, the Company may suspend
Executive from the rendition of services but without limiting
or modifying in any other way the Company's obligations under
this Agreement:
(B) a material breach by Executive of a material
fiduciary duty owed to the Company;
(C) a material breach by Executive of the covenants
made by him in Sections 8 and 9 hereof; or
(D) the willful and gross neglect by Executive of the
material duties specifically and expressly required by this
Agreement;
provided, however, that any claim that "cause", within the
meaning of clause (B), (C) or (D) above, exists for the termination of
Executive's employment may be asserted on behalf of the Company only by
a duly adopted resolution of the Board of Directors of the Company and
only after 30 days prior written notice to Executive during which
period he may cure the breach or neglect that is the basis of any such
claim, if curable: provided, further, that no state of facts that, with
or without notice to Executive or the passage of time or both, would
give rise to the right of the Company to terminate Executive's
employment pursuant to clause (ii) of this Section I(b) may, directly
or indirectly, in whole or in part, be the basis for a claim that
"cause", within the meaning of clause (D) above, exists for the
termination of Executive's employment; provided, further, that during
the period of twelve (12) months following a change in control of the
Company (as defined below), "cause" shall be deemed to have occurred
only upon the happening of an event referred to in clause (A) above;
and provided, further, that the term "material" as used in clauses (B),
(C) and (D) above and in Section 12 hereof shall be construed by
reference to the effect of the relevant action or omission on the
Company taken as a whole. For purposes of the foregoing, a change in
control of the Company will be considered to have
-2-
3
occurred if the group in control of the Company shall no longer
include at least one of the following: (x) Bob Magness, members of his
family or representatives thereof, (y) John C. Malone, members of his
family or representatives thereof, or (z) representatives of
Kearns-Tribune Corporation (but only if the present shareholders remain
in control of Such corporation). The term "family" as used herein means
the named person's estate, spouse and lineal descendants and any trust
or other investment vehicle for the primary benefit of such named
person or members of his family and the term "representatives" includes
executors and trustees.
(c) Effect of Termination by the Company. If Executive's employment
by the Company is terminated by the Company pursuant to Section 1(b)
hereof, all compensation under Section 4 of this Agreement (other than
compensation the payment of which was deferred by Executive prior to such
termination) that has accrued in favor of Executive as of the date of such
termination, to the extent unpaid or delivered, shall be paid or delivered
in cash to Executive on the date of termination. Upon such termination of
Executive's employment and payment of such amount (and, if applicable,
the full amount payable pursuant to clause (iii) of Section 1(b)), the
Company's obligations under this Agreement shall terminate, except as
provided in the last three sentences of this Section 1(c) (if and to the
extent applicable), Section 5 (as it relates to expenses incurred prior to
such termination) and Section 7 of this Agreement. Executive acknowledges
that his obligations under Sections 8, 9, 10 and 11 hereof will survive
any such termination. If Executive dies while employed by the Company or
during the period that he is receiving payments pursuant to the
immediately succeeding sentence and, in either case, prior to December 31,
1999, the Company shall, as promptly as practicable following Executive's
death, pay to Executive's designated beneficiary or beneficiaries in a
lump sum in cash an amount equal to the lesser of (i) the compensation
that would have been payable to Executive under Section 4(a) of this
Agreement had his employment by the Company continued until December 31,
1999 and (ii) one year's compensation under Section 4(a) of this
Agreement, in each case calculated at the annual rate in effect at the
time of Executive's death and without regard to the deferral provisions of
said Section 4. If Executive's employment is terminated pursuant to
Section 1(b)(ii) of this Agreement, the Company shall continue to pay to
Executive his annual salary. (at the rate in effect at the time of
termination of his employment) as and when the same would otherwise be due
in accordance with Section 4 of this Agreement thereof until the first to
occur of December 31, 1999 and the date of Executive's death. The phrase
"designated beneficiary or beneficiaries" shall mean the person or persons
named from time to time by Executive in a signed instrument filed with the
Company; provided. however, that if a designation made in any such
instrument shall for any reason be ineffective, or if no such designation
has been made, the phrase "designated beneficiary or beneficiaries" shall
mean the Executive's estate.
-3-
4
2. Services to be Rendered by Executive. Executive agrees to serve
the Company as a senior technical officer of the Company providing such
services as described by the CEO or Chief Operating Officer of the Company;
provided, however, that Executive's position shall correspond in rank,
responsibility, authority and access to information as Executive's position
with the Company during the three-year period immediately preceding January 1,
1993. In such capacity, Executive shall discharge such senior executive
responsibilities as are designated by the Company's Chief Operating Officer or
Chief Executive Officer. Executive shall report directly to and only to the
Company's Chairman of the Board, its Chief Executive Officer and its Chief
Operating Officer and, if requested by the Company's Board of Directors, to
the Board of Directors and/or Executive Committee of the Board of Directors. If
Executive is elected a director of the Company or a director or an officer of
any of the Company's subsidiaries or affiliates, Executive will serve in any
such capacities without further compensation except as may be decided by the
Company at the Company's sole election. Executive shall discharge his
responsibilities, and shall in all other respects serve the Company, faithfully
and to the best of his ability. The Company agrees that Executive shall,
during the Employment Term, be based at the Company's principal executive
office, which shall be located in the Denver area, with the understanding that
Executive will travel as reasonably required in the performance of his duties
hereunder.
3. Time to be Devoted by Executive. Executive agrees to devote
substantially all of his business time, attention, efforts and abilities to
the business of the Company. Executive confirms that he has no business
interests of any kind which will require a substantial portion of his business
time other than his employment by the Company, but nothing herein contained is
intended nor shall be construed as preventing Executive from spending an
insubstantial amount of time as a director of, or otherwise in connection with
investments he may have in, or other entities or business organizations.
4. Compensation Payable to Executive.
(a) During the Employment Term, the Company shall pay to
Executive a salary, at the rate of $350,000 per annum, such rate to be
increased annually by the amount of $25,000 per annum in each
succeeding year of the Employment Term, commencing January 1, 1994.
The Board of Directors shall review Executive's compensation annually
to determine, in its sole discretion, whether any additional increase
in the Executive's salary is appropriate.
(b) Executive's annual compensation shall be paid to
Executive in accordance with the Company's regular policy but not less
frequently than once a month.
5. Expenses. The Company shall reimburse Executive for the
reasonable amount of dining, hotel, traveling, entertainment and other expenses
necessarily incurred by Executive in the discharge of his duties hereunder.
-4-
5
6. Executive Benefit Plans. While he is employed by the Company
pursuant to this Agreement, Executive shall be entitled to participate in and
to be accorded all rights and benefits under all formal incentive compensation
plans, stock incentive plans, employee stock purchase plans, retirement plans,
disability insurance, life insurance, health and major medical insurance policy
or policies, and other plans or benefits (including, without limitation, any
insurance covering Officers or Directors against errors or omissions) now in
existence or that may hereafter be adopted by the Company for the benefit of
its executive officers or key employees generally or for the benefit of its
employees generally, provided that Executive is eligible by the terms thereof
to participate therein. Executive shall be entitled to 4 weeks of paid
vacation per year, or, if greater, the maximum amount of paid vacation per year
to which any other employee of the Company of comparable rank and
responsibility is entitled.
7. Indemnification. The Company will indemnify, and hold harmless
Executive, to the fullest extent permitted by applicable law, in respect of any
liability, damage, cost or expense (including reasonable counsel fees) incurred
in connection with the defense of any claim, action, suit or proceeding to
which he is a party, or threat thereof, by reason of his being or having been
an officer, director, employee or agent of the Company or any subsidiary, of
the Company, or his serving or having served at the request of the Company as a
director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust, business organization, enterprise or other
entity, including service with respect to employee benefit plans. Without
limiting the generality of the foregoing, the Company will pay the expenses
(including reasonable counsel fees) of defending any such claim, action, suit
or proceeding in advance of its final disposition, upon receipt of an
undertaking by Executive to repay all amounts advanced if it should ultimately
be determined that Executive is not entitled to be indemnified under this
Section.
8. Noncompetition. Executive agrees that while in the employ of the
Company and for the Applicable Period (as defined below) following the
termination of his employment, he will not, directly or indirectly, as
principal or agent, or in any other capacity, own, manage, operate, participate
in or be employed by or otherwise be interested in, or connected in any manner
with, any person, firm, corporation or other enterprise which directly competes
in a material respect with the business of the Company or any of its
majority-owned subsidiaries as it is conducted while Executive is employed by
the Company. Nothing herein contained shall be construed as denying Executive
the right to own securities of any such corporation which is listed on a
national securities exchange or quoted in the NASDAQ System to the extent of an
aggregate of 5% of the amount of such securities outstanding. For purposes
hereof, the term "Applicable Period" means the applicable of the following:
(a) the period beginning on the effective date of the
termination of Executive's employment with the Company (the "Effective
Date") and ending on the second anniversary of the Effective Date; or
(b) if Executive terminates his employment with the Company
prior to the expiration of the Term in breach of his obligations
hereunder or if the Company
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6
terminates Executive's employment for cause pursuant to Section
l(b)(iv) hereof prior to the expiration of the Term, then the longer of
the period referred to in clause (a) above and the period beginning on
the Effective Date and ending on and including December 31, 1999,
9, Confidentiality, Executive agrees that while in the employ of
the Company (otherwise than in the performance of his duties hereunder) and
thereafter, not to, directly or indirectly, make use of, or divulge to any
person, firm, corporation, entity or business organization and he
shall use his best efforts to prevent the publication or disclosure of, any
confidential or proprietary information concerning the business, accounts or
finances of, or any of the methods of doing business used by the Company or of
the dealings, transactions or affairs of the Company or any of its customers
which have or which may have come to his knowledge during his employment with
the Company, but this Section 9 shall not prevent Executive from responding to
any subpoena, court order or threat of other legal duress, provided Executive
notifies the Company thereof with reasonable promptness so that the Company may
seek a protective order or other appropriate relief, The following use of or
disclosure of information shall not be considered a breach of Executive's
obligations under this Section 9:
(a) response to any subpoena, court order or threat or other
legal duress, provided Executive notifies the Company thereof with
reasonable promptness so that the Company may seek a protective order
or other appropriate relief; or
(b) use of or disclosure of such information to a person,
firm, corporation, entity or business organization who or which is an
employee, officer, director, agent, subsidiary or affiliate of the
Company; or
(c) use of or disclosure of such information which Executive
reasonably believes is in the best interest of the Company,
10, Delivery of Materials, Executive agrees that upon the
termination of his employment he will deliver to the Company all documents,
papers, materials and other property of the Company relating to its affairs,
which may then be in his possession or under his control,
11, Noninterference, Executive agrees that he will not, while in the
employ of the Company and for the Applicable Period following the termination
of his employment, solicit the employment of any employee of the Company on
behalf of any other person, firm, corporation, entity or business
organization, or otherwise materially interfere with the employment
relationship between any employee or officer of the Company and the Company,
12, Remedies of the Company, Executive agrees that, in the event of
a material breach by Executive of this Agreement, in addition to any other
rights that the Company may have pursuant to this Agreement, the Company shall
be entitled, if it so elects, to institute and
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7
prosecute proceedings AT LAW or in equity to obtain damages with
respect to such breach or to enforce the specific performance of this Agreement
by Executive or to enjoin Executive from engaging in any activity in violation
hereof. Executive agrees that because Executive's services to the Company are
of such a unique and extraordinary character, a suit at law may be an
inadequate remedy with respect to a breach by Executive of Sections 8, 9, 10
and 11 hereof, and that upon any such breach or threatened breach by him of
such Sections the Company shall be entitled, in addition to any other lawful
remedies that may be available to it, to injunctive relief.
13. Notices. All notices to be given hereunder shall be deemed duly
given when delivered personally in writing or mailed, certified mail, return
receipt requested, postage prepaid and addressed as follows:
(a) If to be given to the Company:
Tele-Communications, Inc.
5619 DTC Parkway
Englewood, Colorado 80111
Attention: Dr. John C. Malone
with a copy similarly addressed
and marked to the attention of
the Legal Department
(b) If to be given to Executive:
Mr. Larry E. Romrell
5823 South Kearney Street
Englewood, Colorado 80111
or to such other address as a party may request by notice given in
accordance with this Section 13.
14. Assignment. The fights and obligations of Company under this
Agreement may, without the consent of Executive, be assigned by Company,
in its sole discretion, to any other corporation, partnership or venture
provided that Executive continues to have executive level responsibilities as
a senior technical officer and is not required to relocate to another city.
15. Miscellaneous. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and replaces and
supersedes as of the date hereof any and all prior agreements and
understandings with respect to Executive's employment by the Company, whether
oral or written, between the parties hereto, including, without limitation, the
Prior Agreement. This Agreement may not be changed nor may any provision
hereof be waived except by an instrument in writing duly signed by the party to
be
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8
charged. This Agreement shall be interpreted, governed and controlled by the
law of the State of Colorado, without reference to principles of conflict of
laws.
IN WITNESS WHEREOF, this Agreement has been executed as of the day and
year first above written.
TELE-COMMUNICATIONS, INC.
By: /s/ JOHN C. MALONE
John C. Malone, President
/s/ LARRY E. ROMRELL
Larry E. Romrell
ATTEST:
/s/ STEPHEN M. BRETT
Stephen M. Brett
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EX-10.7
12
ASSIGNMENT & ASSUMPTION BETWEEN LARRY E. ROMRELL
1
Exhibit 10.7
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT is dated as of August 4, 1994
and is among TCI/LIBERTY HOLDING COMPANY ("Holding Company"),
TELECOMMUNICATIONS, INC. ("TCI"), and LARRY E. ROMRELL, who resides at 5823
South Kearney Street, Englewood, Colorado 80111 ("Executive").
WHEREAS, TCI and Executive are parties to that certain Employment
Agreement, dated as of January 1, 1993 (the "Existing Agreement");
WHEREAS, TCI and Liberty Media Corporation ("Liberty") will consummate
a proposed business combination on August 4, 1994 (the "Closing Date") wherein
TCI and Liberty will become wholly owned subsidiaries of Holding Company; and
WHEREAS, the parties to this Agreement desire that Holding Company
assume the benefits and obligations of the Existing Agreement on the Closing
Date.
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained and for other good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, the parties, intending to be
legally bound, do hereby agree as follows:
1. Assignment and Assumption.
(a) Effective as of the Closing Date, TCI hereby assigns to Holding
Company, and Holding Company hereby assumes, all of the payment, performance
and other obligations of TCI under the Existing Agreement. Holding Company
further agrees to be bound by the Existing Agreement as though it had been an
original party to the Existing Agreement.
(b) Executive consents to the assignment and assumption described in
Section 1(a) hereof and agrees to render his employment services as provided
in the Existing Agreement. Executive agrees that, pursuant to this Agreement,
Holding Company shall receive the full benefit of TCI's rights under the
Existing Agreement.
2
2. Miscellaneous.
(a) This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof. This Agreement may
not be changed nor may any provision hereof be waived except by an instrument
in writing duly signed by the party to be charged. This Agreement shall be
interpreted, governed and controlled by the law of the State of Colorado,
without reference to principles of conflict of laws.
(b) Except as expressly otherwise stated herein, the terms and
provisions of the Existing Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, this Assignment and Assumption Agreement has been
duly executed as of the day and year first above written.
TCI/LIBERTY HOLDING COMPANY
/s/ STEPHEN M. BRETT
Stephen M. Brett
Executive Vice President
TELE-COMMUNICATIONS, INC.
/s/ STEPHEN M. BRETT
Stephen M. Brett
Senior Vice President and General Counsel
/s/ LARRY E. ROMRELL
Larry E. Romrell
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EX-10.8
13
FORM OF 1994 NON-QUALIFIED STOCK OPTION
1
Exhibit 10.8
NOVEMBER 1994 GRANT
TELE-COMMUNICATIONS, INC.
1994 STOCK INCENTIVE PLAN
NON-QUALIFIED STOCK OPTION
AND STOCK APPRECIATION RIGHTS AGREEMENT
THIS AGREEMENT ("Agreement") is made as of the _____ day of ____________,
1995, by and between TELE-COMMUNICATIONS, INC., a Delaware, corporation (the
"Company"), and the person signing adjacent to the caption "Grantee" on the
signature page hereof (the "Grantee").
The Company has adopted the Tele-Communications, Inc. 1994 Stock Incentive
Plan (the "Plan"), a copy of which is appended to this Agreement as Exhibit A
and by this reference made a part hereof, for the benefit of (i) eligible
employees of the Company and its Subsidiaries and (ii) independent contractors
providing services to the Company or its Subsidiaries. Capitalized terms used
and not otherwise defined herein shall have the meaning ascribed thereto in the
Plan.
Pursuant to the Plan, the Compensation Committee of the Board (the
"Committee"), which has been assigned responsibility for adminstering the Plan,
has determined that it would be in the interest of the Company and its
stockholders to grant the options and rights provided herein in order to
provide Grantee with additional remuneration for services rendered, to
encourage Grantee to remain in the employ of the Company or its Subsidiaries
and to increase Grantee's personal interest in the continued success and
progress of the Company.
The Company and Grantee therefore agree as follows:
1. GRANT OF OPTION. Subject to the terms and conditions herein, the
Company grants to the Grantee, during the period commencing on the Grant Date
(as defined in Schedule 1 hereto) and expiring at 5:00 p.m., Denver, Colorado
time ("Close of Business"), on the day which immediately precedes the tenth
anniversary of the Grant Date (the "Option Term"), subject to earlier
termination as provided in paragraphs 8 and 12(b) below, an option to purchase
from the Company, at the price per share set forth on Schedule 1 hereto (the
"Option Price"), the number of shares of Common Stock set forth on said
Schedule 1 (the "Option Shares"). The Option Price and Option Shares are
subject to adjustment pursuant to paragraph 12 below. This option is designated
as a "Nonqualified Stock Option" in accordance with the Plan and is hereinafter
referred to as the "Option."
2. GRANT OF STOCK APPRECIATION RIGHTS. Subject to the terms and
conditions herein and in tandem with the Option, the Company grants to Grantee
for the Option Term, subject to earlier termination as provided in paragraphs 8
and 12(b) below, a
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stock appreciation right with respect to each Option Share (individually, a
"Tandem SAR" and collectively, the "Tandem SARs"). Upon exercise of a Tandem
SAR in accordance with this Agreement, the Company shall, subject to paragraph
6 below, make payment as follows:
(i) the amount of payment shall equal the amount by which the Fair
Market Value of the Option Share on the date of exercise of the Tandem
SAR exceeds the Option Price; and
(ii) payment of the amount determined in accordance with clause (i)
shall be made in shares of Common Stock (valued at their Fair Market
Value as of the date of exercise of such Tandem SAR), or, in the sole
discretion of the Committee, in cash, or partly in cash and partly in
shares of Common Stock.
3. REDUCTION UPON EXERCISE. The exercise of any number of Tandem SARs
shall cause a corresponding reduction in the number of Option Shares which
shall apply against the Option Shares then available for purchase. The exercise
of the Option to purchase any number of Option Shares shall cause a
corresponding reduction in the number of Tandem SARs.
4. CONDITIONS OF EXERCISE. The Option and Tandem SARs are exercisable
only in accordance with the conditions stated in this paragraph.
(a) Except as otherwise provided in paragraph (12)below or in the last
sentence of this subparagraph (a), the Option shall not be exercisable until
the first anniversary of the Grant Date, and on such first anniversary and
thereafter the Option may only be exercised to the extent the Option Shares
have become available for purchase in accordance with the following schedule:
Anniversary of Percentage of Option Shares
Grant Date Available for Purchase
----------------- ---------------------------
1st 25%
2nd 50%
3rd 75%
4th 100%
Notwithstanding the foregoing, all Option Shares shall become available for
purchase if Grantee's employment with the Company and its Subsidiaries (i)
shall terminate by reason of (x) termination by the Company without cause (as
defined in Section 10.2(b) of the Plan), (y) termination by Grantee for good
reason (as defined herein) or (z) Disability, (ii) shall terminate pursuant to
provisions of a written employment agreement, if any, between the Grantee and
the Company which expressly permit the Grantee to terminate such employment
upon the occurrence of specified events (other than the giving of notice and
passage of time), or (iii) if Grantee dies while employed by the Company or a
Subsidiary.
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(b) A Tandem SAR with respect to an Option Share shall be exercisable
only if the Option Share is then available for purchase in accordance with
subparagraph (a).
(c) To the extent the Option or Tandem SARs become exercisable, such
Option or Tandem SARs may be exercised in whole or in part (at any time or from
time to time, except as otherwise provided herein) until expiration of the
Option Term or earlier termination thereof.
(d) Grantee acknowledges and agrees that the Committee may, in its
discretion and as contemplated by Section 7.5 of the Plan, adopt rules and
regulations from time to time after the date hereof with respect to the
exercise of SARs and that the exercise by Grantee of the Tandem SARs will be
subject to the further condition that such exercise is made in accordance with
all such rules and regulations as the Committee may determine are applicable
thereto.
5. MANNER OF EXERCISE. The Option or a Tandem SAR shall be considered
exercised (as to the number of Option Shares or Tandem SARs specified in the
notice referred to in subparagraph (a) below) on the latest of (i) the date of
exercise designated in the written notice referred to in subparagraph (a)
below, (ii) if the date so designated is not a business day, the first business
day following such date or (iii) the earliest business day by which the Company
has received all of the following:
(a) Written notice, in such form as the Committee may require,
designating, among other things, the date of exercise, the number of Option
Shares to be purchased and/or the number of Tandem SARs to be exercised;
(b) If the Option is to be exercised, payment of the Option Price for
each Option Share to be purchased in cash or in such other form, or combination
of forms, of payment contemplated by Section 6.6(a) of the Plan as the
Committee may permit; provided, however, that any shares of Common Stock or
Class B Stock delivered in payment of the Option Price, if such from of payment
is so permitted by the Committee, shall be shares that the Grantee has owned
for a period of at least six months prior to the date of exercise, and
provided, further, that, notwithstanding clause (v) of Section 6.6(a) of the
Plan, Option Shares may not be withheld in payment or partial payment of the
Option Price; and
(c) Any other documentation that the Committee may reasonably require.
Notwithstanding the foregoing, if in order to meet the exemptive
requirements of Rule 16b-3, the Grantee exercises Tandem SARs during a
quarterly window period determined in accordance with paragraph (e)(3) of such
Rule (including by designating in a written notice of exercise delivered prior
thereto that such exercise is to be effective during such window period), then
the date of exercise of such Tandem SARs shall be deemed for purposes of this
paragraph 5 and for purposes of the Fair Market Value determinations to be made
pursuant to paragraph 2 hereof, to be the day during such window period on
which the
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highest reported last sale price of a share of Common Stock as reported on
NASDAQ occurred and the Fair Market Value of such share shall be deemed to be
such highest reported last sale price.
6. MANDATORY WITHHOLDING FOR TAXES. Grantee acknowledges and agrees that
the Company shall deduct from the cash and/or shares of Common Stock otherwise
payable or deliverable upon exercise of the Option or a Tandem SAR an amount of
cash and/or number of shares of Common Stock (valued at their Fair Market Value
on the date of exercise) that is equal to the amount of all federal, state and
local taxes required to be withheld by the Company upon such exercise, as
determined by the Committee.
7. DELIVERY BY THE COMPANY. As soon as practicable after receipt of all
items referred to in paragraph 5, and subject to the withholding referred to in
paragraph 6, the Company shall deliver to the Grantee certificates issued in
Grantee's name for the number of Option Shares purchased by exercise of the
Option and for the number of shares of Common Stock to which the Grantee is
entitled by the exercise of Tandem SARs and any cash payment to which the
Grantee is entitled by the exercise of Tandem SARs. If delivery is by mail,
delivery of shares of Common Stock shall be deemed effected for all purposes
when a stock transfer agent of the Company shall have deposited the
certificates in the United States mail, addressed to the Grantee, and any cash
payment shall be deemed effected when a Company check, payable to the Grantee
and in an amount equal to the amount of the cash payment, shall have been
deposited in the United States mail, addressed to the Grantee.
8. EARLY TERMINATION OF OPTION AND TANDEM SARS. Unless otherwise
determined by the Committee in its sole discretion, the Option and Tandem SARs
shall terminate, prior to the expiration of the Option Term, at the time
specified below:
(a) If Grantee's employment with the Company and its Subsidiaries
terminates (i) other than (x) by the Company for "cause" (as defined in Section
10.2(b) of the Plan), (y) by the Grantee with "good reason" (as defined herein)
or (z) by the Company without cause, and (ii) other than (x) by reason of death
or Disability, (y) with the written consent of the Company or the applicable
Subsidiary or (z) without such consent if such termination is pursuant to
provisions of a written employment agreement, if any, between the Grantee and
the Company which expressly permit the Grantee to terminate such employment
upon the occurrence of specified events (other than the giving of notice and
passage of time), then the Option and all Tandem SARs shall terminate at the
Close of Business on the first business day following the expiration of the
90-day period which began on the date of termination of Grantee's employment;
(b) If Grantee dies while employed by the Company or a Subsidiary, or
prior to the expiration of a period of time following termination of Grantee's
employment during which the Option and Tandem SARs remain exercisable as
provided in paragraph (a), the Option and all Tandem SARs shall terminate at
the Close of Business on the first business day following the expiration of the
one-year period which began on the date of death;
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(c) If Grantee's employment with the Company terminates by reason of
Disability, then the Option and all Tandem SARs shall terminate at the Close of
Business on the first business day following the expiration of the one-year
period which began on the date of termination of Grantee's employment;
(d) If Grantee's employment with the Company and its Subsidiaries is
terminated by the Company for "cause" (as defined in Section 10.2(b) of
the Plan), then the Option and all Tandem SARs shall terminate immeditely upon
such termination of Grantee's employment; or
(e) If Grantee's employment (i) is terminated by Grantee (x) with "good
reason" (as defined herein), (y) with the written consent of the Company or
the applicable Subsidiary or (z) pursuant to provisions of a written employment
agreement, if any, between the Grantee and the Company which expressly permit
the Grantee to terminate such employment upon the occurrence of specified
events (other than the giving of notice and passage of time), or (ii) by the
Company without "cause" (as defined in Section 10.2(b) of the Plan), then the
Option Term shall terminate early only as provided for in paragraph 8(b) or
12(b) below.
In any event in which the Option and Tandem SARs remain exercisable for a
period of time following the date of termination of Grantee's employment as
provided above, the Option and Tandem SARs may be exercised during such period
of time only to the extent the same were exercisable as provided in paragraph 4
above on such date of termination of Grantee's employment. A change of
employment is not a termination of employment within the meaning of this
paragraph 8 provided that, after giving effect to such change, the Grantee
continues to be an employee of the Company or any Subsidiary. Notwithstanding
any period of time referenced in this paragraph 8 or any other provision of
this paragraph that may be construed to the contrary, the Option and all Tandem
SARs shall in any event terminate upon the expiration of the Option Term.
"Good reason" for purposes of the Agreement shall be deemed to have
occurred upon the happening of any of the following:
(i) any reduction in Grantee's annual rate of salary;
(ii) either (x) a failure of the Company to continue in effect any
employee benefit plan in which Grantee was participating or (y) the taking
of any action by the Company that would adversely affect Grantee's
participation in, or materially reduce Grantee's benefits under, any such
employee benefit plan, unless such failure or such taking of any action,
adversely affects the senior members of the corporate management of the
Company generally;
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(iii) the assignment to Grantee of duties and responsibilities that
are materially more oppressive or onerous than those attendant to Grantee's
position immediately after the date hereof;
(iv) the relocation of the office location as assigned to Grantee by
the Company to a location more than 20 miles from Grantee's current
location without Grantee's consent; or
(v) the failure of the Company to obtain, prior to the time of any
reorganization, merger, consolidation, disposition of all or substantially
all of the assets of the Company or similar transaction effective after
the date hereof, in which the Company is not the surviving person, the
unconditional assumption in writing or by operation of law of the
Company's obligations to Grantee under this Agreement by each direct
successor to the Company in any such transaction.
9. AUTOMATIC EXERCISE OF TANDEM SARs. Immediately prior to the
termination of the Option, as provided in paragraph 8 above, or the expiration
of the Option Term, all remaining Tandem SARs shall be deemed to have been
exercised by the Grantee.
10. NONTRANSFERABILITY OF OPTION AND TANDEM SARs. During Grantee's
lifetime, the Option and Tandem SARs are not transferable (voluntarily or
involuntarily) other than pursuant to a qualified domestic relations order and,
except as otherwise required pursuant to a qualified domestic relations order,
are exercisable only by the Grantee or Grantee's court appointed legal
representative. The Grantee may designate a beneficiary or beneficiaries to
whom the Option and Tandem SARs shall pass upon Grantee's death and may change
such designation from time to time by filing a written designation of
beneficiary or beneficiaries with the Committee on the form annexed hereto as
Exhibit B or such other form as may be prescribed by the Committee, provided
that no such designation shall be effective unless so filed prior to the death
of Grantee. If no such designation is made or if the designated beneficiary
does not survive the Grantee's death, the Option and Tandem SARs shall pass by
will or the laws of descent and distribution. Following Grantee's death, the
Option and any Tandem SARs, if otherwise exercisable, may be exercised by the
person to whom such option or right passes accordingly to the foregoing and
such person shall be deemed the Grantee for purposes of any applicable
provisions of this Agreement.
11. NO SHAREHOLDER RIGHTS. The Grantee shall not be deemed for any
purpose to be, or to have any of the rights of, a stockholder of the Company
with respect to any shares of Common Stock as to which this Agreement relates
until such shares shall have been issued to Grantee by the Company.
Furthermore, the existence of this Agreement shall not affect in any way the
right or power of the Company or its stockholders to accomplish any corporate
act, including, without limitation, the acts referred to in Section 10.18 of
the Plan.
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12. ADJUSTMENTS.
(a) The Option and Tandem SARs shall be subject to adjustment (including,
without limitation, as to the number of Option Shares and the Option Price per
share) in the sole discretion of the Committee and in such manner as the
Committee may deem equitable and appropriate in connection with the occurrence
of any of the events described in Section 4.2 of the Plan following the Grant
Date.
(b) In the event of any Approved Transaction, Board Change or Control
Purchase, the Option and all Tandem SARs shall become exercisable in full
without regard to paragraph 4(a); provided, however, that to the extent not
theretofore exercised the Option and all Tandem SARs shall terminate upon the
first to occur of the consummation of the Approved Transaction, the expiration
of the Option Term or the earlier termination of the Option and Tandem SARs
pursuant to paragraph 8 hereof. Notwithstanding the foregoing, the Committee
may, in its discretion, determine that the Option and Tandem SARs will not
become exercisable on an accelerated basis in connection with an Approved
Transaction and/or will not terminate if not exercised prior to consummation of
the Approved Transaction, if the Board or the surviving or acquiring
corporation, as the case may be, shall have taken or made effective provision
for the taking of such action as in the opinion of the Committee is equitable
and appropriate to substitute a new Award for the Award evidenced by this
Agreement or to assume this Agreement and the Award evidenced hereby and in
order to make such new or assumed Award, as nearly as may be practicable,
equivalent to the Award evidenced by this Agreement as then in effect (but
before giving effect to any acceleration of the exercisability hereof unless
otherwise determined by the Committee), taking into account, to the extent
applicable, the kind and amount of securities, cash or other assets into or for
which the Common Stock may be changed, converted or exchanged in connection
with the Approved Transaction.
13. RESTRICTIONS IMPOSED BY LAW. Without limiting the generality of
Section 10.9 of the Plan, the Grantee agrees that Grantee will not exercise the
Option or any Tandem SAR and that the Company will not be obligated to deliver
any shares of Common Stock or make any cash payment, if counsel to the Company
determines that such exercise, delivery or payment would violate any applicable
law or any rule or regulation of any governmental authority or any rule or
regulation of, or agreement of the Company with, any securities exchange or
association upon which the Common Stock is listed or quoted. Except as provided
in Section 10.9 of the Plan, the Company shall in no event be obligated to take
any affirmative action in order to cause the exercise of the Option or any
Tandem SAR or the resulting delivery of shares of Common Stock or other payment
to comply with any such law, rule, regulation or agreement.
14. NOTICE. Unless the Company notifies the Grantee in writing of a
different procedure, any notice or other communication to the Company with
respect to this Agreement shall be in writing and shall be:
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(i) delivered personally to the following address:
Tele-Communications, Inc.
5619 DTC Parkway
Englewood, Colorado 80111-3000
and conspicuously marked "Tele-Communications, Inc. 1994 Stock
Incentive Plan, c/o General Counsel"; or
(ii) sent by first class mail, postage prepaid, and addressed as
follows:
Tele-Communications, Inc. 1994 Stock Incentive Plan
c/o General Counsel, Tele-Communications, Inc.
P.O. Box 5630
Denver, Colorado 80217
Any notice or other communication to the Grantee with respect to this Agreement
shall be in writing and shall be delivered personally, or shall be sent by
first class mail, postage prepaid, to Grantee's address as listed in the
records of the Company or the employing Subsidiary on the Grant Date, unless
the Company has received written notification from the Grantee of a change of
address.
15. AMENDMENT. Notwithstanding any other provisions hereof, this
Agreement may be supplemented or amended from time to time as approved by the
Committee as contemplated by Section 10.8(b) of the Plan. Without limiting the
generality of the foregoing, without the consent of the Grantee.
(a) this Agreement may be amended or supplemented (i) to cure any
ambiguity or to correct or supplement any provision herein which may be
defective or inconsistent with any other provision herein, or (ii) to add to
the covenants and agreements of the Company for the benefit of Grantee or
surrender any right or power reserved to or conferred upon the Company in this
Agreement, subject, however, to any required approval of the Company's
stockholders and, provided, in each case, that such changes or corrections
shall not adversely affect the rights of Grantee with respect to the Award
evidenced hereby, or (iii) to make such other changes as the Company, upon
advice of counsel, determines are necessary or advisable because of the
adoption or promulgation of, or change in or of the interpretation of, any law
or governmental rule or regulation, including any applicable federal or state
securities laws; and
(b) subject to Section 10.8(b) of the Plan and any required approval of
the Company's stockholders, the Award evidenced by this Agreement may be
cancelled by the Committee and a new Award made in substitution therefor,
provided that the Award so substituted shall satisfy all of the requirements of
the Plan as of the date such new Award is
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made and no such action shall adversely affect the Option or any Tandem SAR to
the extent then exercisable.
16. GRANTEE EMPLOYMENT. Nothing contained in this Agreement, and no
action of the Company or the Committee with respect hereto, shall confer or be
construed to confer on the Grantee any right to continue in the employ of the
Company or any of its Subsidiaries or interfere in any way with the right of
the Company or any employing Subsidiary to terminate the Grantee's employment
at any time, with or without cause; subject, however, to the provisions of any
employment agreement between the Grantee and the Company or any Subsidiary.
17. GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the internal laws of the State of Colorado.
18. CONSTRUCTION. References in this Agreement to "this Agreement" and
the words "herein," "hereof," "hereunder" and similar terms include all
Exhibits and Schedules appended hereto, including the Plan. This Agreement is
entered into, and the Award evidenced hereby is granted, pursuant to the Plan
and shall be governed by and construed in accordance with the Plan and the
administrative interpretations adopted by the Committee thereunder. All
decisions of the Committee upon questions regarding the Plan or this Agreement
shall be conclusive. Unless otherwise expressly stated herein, in the event of
any inconsistency between the terms of the Plan and this Agreement, the terms
of the Plan shall control. The headings of the paragraphs of this Agreement
have been included for convenience of reference only, and are not to be
considered a part hereof and shall in no way modify or restrict any of the
terms or provisions hereof.
19. DUPLICATE ORIGINALS. The Company and the Grantee may sign any number
of copies of this Agreement. Each signed copy shall be an original, but all of
them together represent the same agreement.
20. RULES BY COMMITTEE. The rights of the Grantee and obligations of the
Company hereunder shall be subject to such reasonable rules and regulations as
the Committee may, subject to the express provisions of the Plan, adopt from
time to time hereafter.
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21. GRANTEE ACCEPTANCE. Grantee shall signify acceptance of the terms
and conditions of this Agreement by signing in the space provided below and
returning a signed copy to the Company.
ATTEST: TELE-COMMUNICATIONS, INC.
______________________ By: ________________________________
Assistant Secretary Name:
Title:
ACCEPTED:
____________________________________
Grantee
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Schedule 1 to Non-Qualified Stock Option
and Stock Appreciation Rights Agreement
dated as of ________________, 1995
TELE-COMMUNICATIONS, INC. 1994 STOCK INCENTIVE PLAN
Grantee:
Grant Date: ____________________, 1995
Option Price: $16.75 per share
Option Shares: ____________ shares of the Company's Class A
Common Stock, $1.00 par value per share
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Exhibit B to Non-Qualified Stock Option
and Stock Appreciation Rights Agreement
dated as of _____________________, 1995
TELE-COMMUNICATIONS, INC. 1994 STOCK INCENTIVE PLAN
DESIGNATION OF BENEFICIARY
I, _______________________________________ (the "Grantee"), hereby declare
that upon my death _____________________________________ (the "Beneficiary") of
Name
______________________________________________________________________________,
Street Address City State Zip Code
who is my ___________________________________________, shall be entitled to the
Relationship to Grantee
Option, Tandem SARs and all other rights accorded the Grantee by the
above-referenced grant agreement (the "Agreement").
It is understood that this Designation of Beneficiary is made pursuant to
the Agreement and is subject to the conditions stated herein, including the
Beneficiary's survival of the Grantee's death. If any such condition is not
satisfied, such rights shall devolve according to the Grantee's will or the
laws of descent and distribution.
It is further understood that all prior designations of beneficiary under
the Agreement are hereby revoked and that this Designation of Beneficiary may
only be revoked in writing, signed by the Grantee, and filed with the Company
prior to the Grantee's death.
______________________________ __________________________________
Date Grantee
EX-21
14
SUBSIDIARIES OF TELE-COMMUNICATIONS, INC.
1
EXHIBIT 21
A table of the subsidiaries of the Tele-Communications, Inc. as of March 1,
1995, is set forth below, indicating as to each the state or the jurisdiction
of incorporation or organization ("org.") and the names under which such
subsidiaries do business ("d/b/a"). Subsidiaries not included in the table are
inactive and, considered in the aggregate as a single subsidiary, would not
constitute a significant subsidiary.
Subsidiary org. d/b/a
---------- ---- -----
1ST CABLEVISION, INC.
2ND CABLEVISION OF KNOXVILLE, INC.
A-1 TV, INC. CO
AFFILIATED REGIONAL COMMUNICATIONS, LTD. CO PRIME SPORTS - SOUTHWEST
PRIME SPORTS RADIO
PRIME INTERNATIONAL
PRIME SPORTS MIDWEST
LIBERTY SATELLITE SPORTS
LIBERTY SPORTS COMMUNICATIONS
SPORTS ACCESS
SPORTSCASTER
ALABAMA T.V., INC. AL
AMERICAN CABLE OF REDLANDS JOINT VENTURE CO
AMERICAN CABLE TV INVESTORS 2 CA
AMERICAN CABLE TV INVESTORS 3 CA
AMERICAN CABLE TV INVESTORS 4, LTD. CO SUN CABLEVISION
AMERICAN CABLE TV INVESTORS 5, LTD. CO AMERICAN CABLE TV OF LOWER DELAWARE
AMERICAN CABLE TV OF ST. MARY'S COUNTY
AMERICANA LIBERTY TELEVISION LLC CO
AMERICAN MICROWAVE & COMMUNICATIONS, INC. MI
AMERICAN MOBILE SYSTEMS, INC. DE
AMERICAN MOVIE CLASSICS INVESTMENT, INC. CO
AMERICAN TELEVENTURE OF MINERSVILLE, INC. CO
AMES CABLEVISION, INC. IA TCI OF CENTRAL IOWA
ANTARES SATELLITE CORPORATION CO
ARC HOLDING, LTD. TX
ARLINGTON TELECABLE, INC. TX
ARP PARTNERSHIP DE
ASIAN TELEVISION AND COMMUNICATIONS INTERNATIONAL LLC CO
ASSOCIATED COMMUNICATIONS CORPORATION DE
ATHENA CABLEVISION CORPORATION OF KNOXVILLE TN
ATHENA CABLEVISION OF TENNESSEE AND KENTUCKY, INC. TN
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Subsidiary org. d/b/a
---------- ---- -----
ATHENA REALTY, INC. NV
ATLANTIC AMERICAN CABLEVISION OF FLORIDA, INC. FL TCI CABLEVISION OF PASCO COUNTY
ATLANTIC AMERICAN CABLEVISION, INC. DE
ATLANTIC AMERICAN HOLDINGS, INC. FL
ATLANTIC CABLEVISION OF FLORIDA, INC. FL
AUSTRALIS MEDIA LIMITED
AVON CABLE INVESTMENTS LIMITED UK
AVON CABLE JOINT VENTURE UK
AVON CABLE LIMITED PARTNERSHIP CO
BATON ROUGE CABLEVISION ASSOCIATES, L.P. CO
BAY AREA INTERCONNECT CA BAY CABLE ADVERTISING
BCA
BEAMLINK LIMITED UK
BEATRICE CABLE TV COMPANY NE TCI CABLE OF BEATRICE
BECKLEY ANTENNA COMPANY WV
BELLEVUE CABLEVISION, INC. DE
BILLINGS TELE-COMMUNICATIONS, INC. OR
BIRMINGHAM CABLE CORPORATION LIMITED UK
BIRMINGHAM CABLE LIMITED UK
BOB MAGNESS, INC. WY
BRAVO CLASSIC MOVIES LIMITED UK
BRENMOR CABLE PARTNERS, L.P. CA
BRESNAN COMMUNICATIONS COMPANY LIMITED PARTNERSHIP MI
BRIGAND PICTURES, INC. NY
BROOKHAVEN CABLE TV, INC. NY TCI CABLE OF BROOKHAVEN
BROOKINGS CABLEVISION CO
BROOKSIDE ANTENNA COMPANY OH
CABLE ACCOUNTING, INC. CO
CABLE ADNET OF PUERTO RICO, INC. DE CABLE ADNET
CABLE ADNET PARTNERS DE CABLE ADNET
HUDSON VALLEY CABLE GROUP
CABLE ADVERTISING PARTNERS CA ADLINK
CABLE ALARMS LTD. UK
CABLE CAMDEN LIMITED UK
CABLE ENFIELD LIMITED UK
CABLE GUIDE LIMITED UK
CABLE HACKNEY AND ISLINGTON LIMITED UK
CABLE HARRINGEY LIMITED UK
CABLE LONDON PLC UK
CABLE NETWORK TELEVISION, INC. NV
-2-
3
Subsidiary org. d/b/a
---------- ---- -----
CABLE PROGRAMME PARTNERS (1) LTD. UK
CABLE PROGRAMME PARTNERS-1 LIMITED PARTNERSHIP DE
CABLE SHOPPING INVESTMENT, INC. CO
CABLE TELECOM LTD. UK
CABLE TELEVISION ADVERTISING GROUP, INC. WY
CABLE TELEVISION OF GARY, INC. IN
CABLENTERTAINMENT-VI-ATLANTIC CITY
CABLEPHONE LTD UK
CABLETIME, INC. CO
CABLEVISION ASSOCIATES OF GARY JOINT VENTURE IN
CABLEVISION IV, LTD IA
CABLEVISION OF ARCADIA/SIERRA MADRE, INC. DE
CABLEVISION OF BATON ROUGE, LTD. CO
CABLEVISION V, INC. IA
CABLEVISION VI, INC. IA TCI CABLEVISION OF THE ROCKIES, INC.
TCI OF THE HEARTLANDS
CABLEVISION VII, INC. IA TCI CABLEVISION OF THE ROCKIES, INC.
TCI OF THE HEARTLANDS
TCI OF EASTERN IOWA
CAGUAS/HUMACAO CABLE SYSTEMS NY
CAPITAL CITY CABLEVISION LIMITED UK
CARDIFF LIQUIDATING PARTNERSHIP
CARVER - SCOTT COUNTY CABLE, INC. MN
CAT PARTNERSHIP DE
CATV FACILITY CO., INC. CO
CCC - TELEPORT SOUTHERN NEW JERSEY, INC. CO
CCC-NJFT, INC. CO
CHANNEL 64 ACQUISITION, INC. DE
CHANNEL 64 JOINT VENTURE OH
CHICAGO CABLE NETWORK JOINT VENTURE IL
CINCINNATI TELEVISION INCORPORATED DE
CLINTON CABLEVISION IA
CLINTON TV CABLE COMPANY, INC. IA
COCONUT CREEK CABLE, T.V., INC. FL
COLORADO CABLEVISION COMPANY CO TCI OF COLORADO, INC.
COLORADO TERRACE TOWER II CORPORATION CO
COMMENT CABLEVISION TYNESIDE LIMITED UK
COMMUNICATION CAPITAL CORP. DE COLORADO COMMUNICATION CAPITAL CORP.
COMMUNICATION INVESTMENT CORPORATION VA
COMMUNICATIONS & CABLE OF CHICAGO, INC. IL CHICAGO CABLE TV
-3-
4
Subsidiary org. d/b/a
---------- ---- -----
COMMUNICATIONS SERVICES, INC. KS TCI CABLEVISION OF CENTRAL TEXAS
TCI CABLEVISION OF EAST OKLAHOMA
TCI CABLEVISION OF NORTH TEXAS
TCI CABLEVISION OF NORTHEAST TEXAS
TCI CABLEVISION OF OKLAHOMA (CSI), INC.
TCI CABLEVISION OF TEXAS (CSI), INC.
TCI COMMUNICATIONS SERVICES, INC.
TCI OF ARKANSAS
TCI OF ARKANSAS (CSI), INC.
TCI OF KANSAS (CSI), INC.
TCI OF LOUISIANA
TCI OF LOUISIANA (CSI), INC.
TCI COMMUNICATIONS SERVICES, INC.
COMMUNITY CABLE TELEVISION WY TCI CABLEVISION OF SOUTHWEST TEXAS
TCI CABLEVISION OF WEST OAKLAND COUNTY
COMMUNITY REALTY, INC. NV NEVADA COMMUNITY REALTY, INC.
COMMUNITY TELEVISION SYSTEMS, INC. DE TCI CABLEVISION OF SOUTH CENTRAL CONNECTICUT
CONSUMER ENTERTAINMENT SERVICES, INC. WY
CORK COMMUNICATIONS LTD.
CORSAIR PICTURES, INC. DE BRIGAND PICTURES, INC.
COTSWOLD CABLE JOINT VENTURE UK
COURTROOM TELEVISION NETWORK NY COURT TV
CROYDEN CABLE VENTURE UK
CRYSTAL PALACE RADIO LIMITED UK
CRYSTALVISION PRODUCTIONS LIMITED UK
CRYSTALVISION RADIO LIMITED UK
CRYSTALVISION TEXT SERVICES LIMITED UK
CULROSS INVESTMENTS LTD.
CVN, INC. CA
CYBERMEDIA, INC. DE
DANIELS CABLEVISION, INC.
DANIELS COMMUNICATIONS PARTNERS LIMITED PARTNERSHIP DE
DANIELS-HAUSER HOLDINGS CO
DAVIS COUNTY CABLEVISION, INC. UT
DCP-85, LTD. CO
DD CABLE HOLDINGS, INC.
DD CABLE PARTNERS, L.P.
DECATUR TELECABLE CORPORATION AL
DESERT HOT SPRINGS CABLEVISION, INC.
DIGITAL DIRECT OF OREGON, INC. CO
-4-
5
Subsidiary org. d/b/a
---------- ---- -----
DIGITAL DIRECT OF UTAH, INC. CO
DIGITAL DIRECT, INC. CO TCI TELEPHONY, INC.
DIRECT BROADCAST SATELLITE SERVICES, INC. DE
DISCOVERY (UK) LIMITED UK
DISCOVERY COMMUNICATIONS, INC. (MD) DE
DISCOVERY PROGRAMMING INVESTMENT, INC. CO
DISTRICT CABLEVISION LIMITED PARTNERSHIP DC
DISTRICT CABLEVISION, INC.
E! ENTERTAINMENT TELEVISION, INC.
EAST ARKANSAS CABLEVISION, INC. AR TCI OF ARKANSAS
EAST ARKANSAS INVESTMENTS, INC. CO
EASTEX MICROWAVE, INC. TX
ECP HOLDINGS, INC. OK
EDINBURGH CABLE JOINT VENTURE UK
EDINBURGH CABLE LIMITED PARTNERSHIP CO
EDINBURGH CABLEVISION LIMITED UK
EIDAK CORPORATION
ELBERT COUNTY CABLE PARTNERS, L. P. CO TCI OF COLORADO, INC.
ENCORE ASIA MANAGEMENT CORPORATION HKG
ENCORE AUSTRALIA MANAGEMENT CORPORATION DE
ENCORE ICCP, INC. CO
ENCORE INTERNATIONAL, INC. CO
ENCORE MEDIA CORPORATION CO ENCORE
STARZ!
ENCORE QE PROGRAMMING CORP. CO
EPG JOINT VENTURE
ESTUARIES CABLE LIMITED PARTNERSHIP CO
EUROPEAN BUSINESS NETWORK LTD. UK
FAB COMMUNICATIONS, INC. OK
FAROUDJA RESEARCH ENTERPRISES, INC.
FLEXTECH COMMUNICATIONS LIMITED
FOOTHILLS CABLEVISION ASSOCIATES, L.P. CO
FOOTHILLS CABLEVISION, LTD. CO
FOUR FLAGS CABLE TV MI
FOUR FLAGS CABLEVISION MI
FVTV CHANNEL LLC CO
GENERAL COMMUNICATION, INC.
GENERAL COMMUNICATIONS AND ENTERTAINMENT COMPANY, INC. DE
GILL BAY INTERCONNECT, INC. CA
GREATER BIRMINGHAM INTERCONNECT AL GBI
-5-
6
Subsidiary org. d/b/a
---------- ---- -----
GREATER PORTLAND INTERCONNECT OR
GUIDE INVESTMENTS, INC. CO
HADJUKABELKOM KABELTELEVIZIO KFT HUN
HALCYON COMMUNICATIONS LIMITED PARTNERSHIP OK TCI CABLEVISION OF EAST OKLAHOMA
TCI OF ARKANSAS
HALCYON COMMUNICATIONS PARTNERS OK
HARBOR COMMUNICATIONS JOINT VENTURE WA
HARRIS COUNTY CABLE TV, INC. VA
HAWKEYE COMMUNICATIONS OF CLINTON, INC. IA
HERITAGE CABLE PARTNERS, INC. IA
HERITAGE CABLEVISION ASSOCIATES, A LIMITED PARTNERSHIP IA TCI CABLE ADVERTISING
TCI OF MICHIANA
TCI OF BEDFORD
HERITAGE CABLEVISION OF CALIFORNIA, INC. DE TCI CABLEVISION OF SAN JOSE
HERITAGE CABLEVISION OF COLORADO, INC. CO TCI CABLEVISION OF SOUTHERN COLORADO, INC.
HERITAGE CABLEVISION OF DALLAS, INC. IA
HERITAGE CABLEVISION OF DELAWARE, INC. DE TCI CABLEVISION OF NEW CASTLE COUNTY
HERITAGE CABLEVISION OF MAINE II, INC. ME
HERITAGE CABLEVISION OF MASSACHUSETTS, INC. MA TCI CABLEVISION OF ANDOVER
HERITAGE CABLEVISION OF SOUTH EAST MASSACHUSETTS, INC. MA
HERITAGE CABLEVISION OF TENNESSEE, INC. TN TCI OF COLORADO, INC.
HERITAGE CABLEVISION OF TEXAS, INC. IA TCI CABLEVISION OF SOUTH TEXAS
HERITAGE CABLEVISION, INC. (IA) IA TCI OF THE HEARTLANDS
TCI OF CENTRAL IOWA
TCI OF SOUTHERN IOWA
TCI OF NORTHERN IOWA
TCI OF EASTERN IOWA
HERITAGE CABLEVISION, INC. (TX) TX
HERITAGE CABLEVUE, INC. DE TCI CABLEVISION OF NEW ENGLAND
HERITAGE COMMUNICATIONS PRODUCTS CORP. IA
HERITAGE COMMUNICATIONS, INC. IA
HERITAGE INVESTMENTS, INC. IA
HERITAGE MEDIA CORPORATION
HERITAGE ROC HOLDINGS CORP. IA
HERITAGE/INDIANA CABLEVISION, INC. IA
HIERONYMOUS LIMITED
HILLCREST CABLEVISION COMPANY OH
HKP PARTNERS OF NEW ZEALAND, LIMITED NZL
HOME SHOPPING NETWORK, INC. DE HOME SHOPPING NETWORK
CITRUS OFFICE SUPPLY, INC. FL
-6-
7
Subsidiary org. d/b/a
---------- ---- -----
HOME SHOPPING CLUB, INC. DE HOME SHOPPING CLUB TELEMATION
HOME SHOPPING CLUB OUTLET OF BRANDON, INC. DE
HOME SHOPPING CLUB OUTLET OF CLEARWATER, INC. DE
HOME SHOPPING CLUB OUTLET OF NEW PORT RICHEY, INC. DE
HOME SHOPPING CLUB OUTLET OF ORLANDO, INC. DE
HOME SHOPPING CLUB OF PINE HILLS, INC. DE
HOME SHOPPING CLUB OUTLET OF SOUTH ORLANDO, INC. DE
HOME SHOPPING CLUB OUTLET OF ST. PETERSBERG, INC. DE
HOME SHOPPING CLUB OUTLET OF TAMPA, INC. DE
HOME SHOPPING CLUB OUTLET OF WEST TAMPA, INC. DE
HOME SHOPPING CLUB OUTLETS, INC. DE
HOME SHOPPING NETWORK ENTERTAINMENT, INC. DE
HOME SHOPPING SERVICES, INC. DE HOME SHOPPING SERVICES OF DELAWARE, INC.
HOME SHOPPING SHOWCASE, INC. DE INNOVATIONS IN LIVING
HSN AVIATION, INC. DE
HSN CAPITAL CORPORATION NV
HSN COSMETICS, INC. DE
HSN CREDIT CORPORATION DE
HSN DIRECT, INC. DE
HSN ENTERTAINMENT EVENTS, INC. DE
HSN ENTERTAINMENT HOLDING COMPANY, INC. DE
HSN ENTERTAINMENT JOINT VENTURES, INC. DE STAR PRODUCT GROUP
HSN ENTERTAINMENT JOINT VENTURES II, INC. DE PACIFIC MEDIA VENTURES
HSN FULFILLMENT, INC. DE
HSN FULFILLMENT OF IOWA, INC. DE
HSN FULFILLMENT OF NEVADA, INC. DE
HSN FULFILLMENT OF VIRGINIA, INC. DE
HSN HEALTH ASSIST, INC. DE
HSN HEALTH SERVICES, INC. DE
HSN INSURANCE, INC. FL
HSN INTERACTIVE, INC. DE
HSN LIFEWAY HEALTH PRODUCTS, INC. DE INTERACTIVE MERCHANDISING
HSN LIQUIDATION, INC. DE
HSN LIQUIDATION, INC. OF FLORIDA DE
HSN LIQUIDATION, INC. OF IOWA DE
HSN LIQUIDATION, INC. OF NEVADA DE
HSN LIQUIDATION, INC. OF VIRGINIA DE
HSN MAIL ORDER, INC. DE DESIGNER DIRECT
HSN MAIL ORDER, INC. (CONT) THE ORTHO-VENT DIVISION, INC.
HOME SHOPPING VALUES
-7-
8
Subsidiary org. d/b/a
---------- ---- -----
HEROES COLLECTOR'S CLUB
PRIVATE SHOWING - JEWELRY VALUES BY MAIL
HSN MEDIA MERCHANDISE
HSN PRODUCTS, INC. DE
HSN REALTY, INC. DE HSN REALTY OF DELAWARE, INC.
HSN REDI-MED, INC. DE
HSN TELEVISION SHOPPING MALL, INC. DE
HSN TOURS, INC. DE HOME SHOPPING TOURS
HSN TRANSPORTATION, INC. DE
HSN TRAVEL, INC. DE
HSN TRUCKING, INC. DE
INTERNET SOFTWARE, INC. CA
MARKETECHS SERVICES, INC. DE PETALS & PRESENTS
NATIONAL CALL CENTER, INC. DE
ORTHO-VENT, INC. DE STUART MCGUIRE
ORTHO-VENT
VELA RESEARCH, INC. DE
WORLD REZ, INC. DE HOME SHOPPING TRAVEL
WORLD REZ INC. OF DELAWARE
THOMAS OAK & SONS
HOME SPORTS NETWORK, INC. CO
HOME TEAM SPORTS LIMITED PARTNERSHIP DE HOME TEAM SPORTS
HORIZON COMMUNICATIONS LTD.
HORIZON T.V. DISTRIBUTION LTD.
INDEPENDENCE CABLE TV COMPANY MI TCI CABLEVISION OF OAKLAND COUNTY, INC.
INDEPENDENT WIRELESS CABLE LTD.
INGENIUS CO WHAT ON EARTH
X*CHANGE
INTELLIGENT ELECTRONICS, INC.
INTERACTIVE NETWORK, INC. CA
INTERMEDIA CAPITAL PARTNERS III, L.P.
INTERMEDIA PARTNERS LIMITED PARTNERSHIP CA
INTERMEDIA PARTNERS II, L.P.
INTERMEDIA PARTNERS III, L.P. CA
INTERMEDIA PARTNERS OF CAROLINA, L.P.
INTERMEDIA PARTNERS OF MARYLAND, L.P.
INTERMEDIA PARTNERS OF WEST TENNESSEE, L.P.
INTERMEDIA PARTNERS V, L.P.
INTERNATIONAL CABLE CHANNELS PARTNERSHIP LTD. CO INTERNATIONAL CHANNEL
INTERNATIONAL CABLECASTING TECHNOLOGIES, INC.
-8-
9
Subsidiary org. d/b/a
---------- ---- -----
INTERNATIONAL SATELLITE, INC.
INTERNATIONAL TELEMETER CORPORATION (NV) NV
IONIAN COMMUNICATIONS, L.P. DE
IOWA VENTURE CAPITAL FUND LIMITED PARTNERSHIP
IR-TCI PARTNERS II, L.P. CA
IR-TCI PARTNERS III, L.P. CA
IR-TCI PARTNERS IV, L.P. CO
IR-TCI PARTNERS V, L.P. CO
KABELCOM HOLDING CO. DE
KABELCOM KABELTELEVIZIO KFT HUN
KABELKOM MANAGEMENT CO.COMMUNIKACIOS KFT DE
KAUAI CABLEVISION
KENNIV SECURITIES
KBL NETWORK, INC. CO PRIME SPORTS - KBL
KFT
KIDS ARE PEOPLE TOO
KNOX CABLE T.V., INC. TN
KTMA HOLDING CORP.
KTMA-TV INC. TX
LASALLE TELECOMMUNICATIONS, INC. IL CHICAGO CABLE TV-IV
LAWRENCE COUNTY CABLE PARTNERS CO
LENFEST COMMUNICATIONS, INC. DE
LIBERTY BROADCASTING, INC. OR
LIBERTY CHC, INC. CO
LIBERTY COMMAND II, INC. CO
LIBERTY COMPUTER VENTURES, INC. CO
LIBERTY COURT, INC. WY
LIBERTY DISTRIBUTION, INC. CO
LIBERTY HSN, INC. CO
LIBERTY IFE, INC. CO
LIBERTY MEDIA CORPORATION DE
LIBERTY MLP, INC. CO
LIBERTY OF NORTHERN INDIANA, INC. DE
LIBERTY QVC, INC. CO
LIBERTY PRODUCTIONS, INC. CO
LIBERTY PROGRAM INVESTMENTS, INC. WY
LIBERTY PROGRAM SUPPLY, INC. WY
LIBERTY PROGRAMMING DEVELOPMENT CORPORATION WY
LIBERTY SATELLITE MARKETING, INC. CO
LIBERTY SPORTS AUSTRALIA PTY LIMITED AUS PREMIER SPORTS NETWORK
LIBERTY SPORTS, INC. CO
-9-
10
Subsidiary org. d/b/a
---------- ---- -----
LIBERTY SPORTS INTERNATIONAL, BV NETHERLANDS
LIBERTY SPORTS SALES, INC. CO
LIBERTY VC, INC. CO
LIBERTY VJN, INC. CO
LIBERTY WHEELS, INC.
LIBERTY WOMENS SPORTS LEAGUE, INC. CO
LIBERTY-CSI, INC. CO
LMC BAY AREA SPORTS, INC. CO SPORTSCHANNEL PACIFIC
LMC BET, INC. CO
LMC CANADA, INC. CAN
LMC CHICAGO SPORTS, INC. WY SPORTSCHANNEL CHICAGO
LMC CLASSICS, INC. NV
LMC ENTERTAINMENT, INC. NV
LMC INFORMATION SERVICES, INC. NV X*PRESS INFORMATION SERVICES
LMC INTERNATIONAL, INC. CO
LMC LENFEST, INC. CO
LMC MUSIC, INC. CO
LMC NORTHWEST CABLE SPORTS, INC. CO PRIME SPORTS NORTHWEST
LMC REGIONAL SPORTS, INC. CO
LMC SATCOM, INC. GA
LMC SILVER KING, INC. CO
LMC SOUTHEAST SPORTS, INC. CO SPORTSOUTH NETWORK
LMC SUNSHINE, INC. CO SUNSHINE NETWORK
LMC UPPER MIDWEST SPORTS, INC. CO PRIME SPORTS - UPPER MIDWEST
LMC UTAH SPORTS, INC. I CO PRIME SPORTS - INTERMOUNTAIN WEST
LONDON SOUTH CABLE PARTNERSHIP CO
LSI SHOWCASE, INC. CO
LVO CABLE PROPERTIES, INC. OK
LVOC MANAGEMENT, INC. OK
MACNEIL/LEHRER PRODUCTIONS NY
MARGATE VIDEO SYSTEMS, INC. FL
MARVEL DE
MATERIALS HANDLING SERVICES, INC. CO WESTERN COMMUNICATIONS MATERIALS
HANDLING SERVICES, INC.
MATRIX-VISION OF LOUDON COUNTY, INC.
MCNS HOLDINGS, L.P. NY
MELANIE CABLE PARTNERS, L.P.
MIAMI TELE-COMMUNICATIONS, INC. FL
MICRO-RELAY, INC. MD
-10-
11
Subsidiary org. d/b/a
---------- ---- -----
MICROBAND UNITED CORPORATION DE
MICROUNITY SYSTEMS ENGINEERING, INC.
MICROWAVE DISTRIBUTION SYSTEMS LTD.
MID-KANSAS, INC. KS
MIDDLESEX CABLE LIMITED UK
MILBANK-GRANT COUNTY DEVELOPMENT CORPORATION SD
MILE HI CABLE PARTNERS, L.P. CO
MISSISSIPPI CABLEVISION, INC. MS TCI OF NORTH MISSISSIPPI
MOONLIGHT BOWL, INC. CA
MOUNTAIN CABLE NETWORK, INC. NV MOUNTAIN CABLE ADVERTISING
MOUNTAIN MOBILE TELEVISION LIMITED LIABILITY COMPANY NV MOUNTAIN MOBILE TELEVISION
MOUNTAIN STATES GENERAL PARTNER CO. CO
MOUNTAIN STATES LIMITED PARTNER CO. CO
MOUNTAIN STATES VIDEO CO TCI OF COLORADO, INC.
MOUNTAIN STATES VIDEO COMMUNICATIONS CO., INC. CO TCI OF COLORADO, INC.
MOUNTAIN STATES VIDEO, INC. CO TCI OF COLORADO, INC.
MSV SUBSIDIARY, INC. CO
MT VENTURE I TX
MULTITECHNOLOGY SERVICES, L.P. TX
MUSKEGON CABLE TV CO. MI TCI CABLEVISION OF GREATER MICHIGAN, INC.
NARRAGANSETT CABLEVISION CORPORATION RI HERITAGE CABLEVISION OF NARRAGANSETT
NATIONAL CABLE ACQUISITION ASSOCIATES, L.P. DE
NETLINK INTERNATIONAL, INC. CO
NETLINK USA CO
NETWORK 021 LTD. UK
NEW CONCEPTS ENTERPRISES, INC. NJ
NEWPORT NEWS CABLEVISION ASSOCIATES, L.P. CO
NEWPORT NEWS CABLEVISION, LTD. CO UNITED ARTISTS CABLE OF NEWPORT NEWS
NHT PARTNERSHIP NY
NORKABEL A/S NOR
NORTH LONDON CHANNEL LTD. UK
NORTHERN VIDEO, INC. MN TCI OF CENTRAL MINNESOTA
NORTHWEST CABLE ADVERTISING NY TV MART (FILLED UNDER TCIC WA)
NORTHWEST ILLINOIS CABLE CORPORATION DE
NORTHWEST ILLINOIS TV CABLE CO. DE TCI CABLEVISION OF GALESBURG/MONMOUTH
NORTHWEST ILLINOIS TV CABLE COMPANY IL
NUCABLE RESOURCES CORPORATION
OHIO CABLEVISION NETWORK, INC. IA TCI CABLEVISION OF NORTHWESTERN OHIO
OSCAR I CORPORATION
OTTUMWA CABLEVISION, INC. IA TCI OF SOUTHERN IOWA
-11-
12
Subsidiary org. d/b/a
---------- ---- -----
PACIFIC MICROWAVE JOINT VENTURE CA
PARKLAND CABLEVISION, INC. FL
PENNSYLVANIA EDUCATIONAL COMMUNICATIONS SYSTEMS PA
PESCI KABELTELEVIZIO KFT HUN
PITTSBURG CABLE TV, INC. KS TCI OF PITTSBURG
PREMIER SPORTS AUSTRALIA PTY LIMITED AUS
PREVIEW MAGAZINE CORPORATION NY
PRIME NETWORK LIMITED LIABILITY COMPANY WY PRIME NETWORK NEWSPORT
PRIME PHILADELPHIA SPORTS LIMITED LIABILITY COMPANY WY SPORTSCHANNEL PHILADELPHIA/PRISM
PRIME SPORTS AUSTRALIA AUS
PRIME SPORTS EVENTS, INC. CO
PRIME SPORTS MERCHANDISING, INC. CO
PRIME SPORTS NETWORK - UPPER MIDWEST MN PRIME SPORTS - UPPER MIDWEST
PRIME SPORTS NORTHWEST NETWORK DE PRIME SPORTS - NORTHWEST
PRIME SPORTSCHANNEL NETWORKS ASSOCIATES NY PRIME NETWORK
PRIME TICKET NETWORKS, L.P. CA PRIME SPORTS - WEST
LA CADENA DEPORTIVA
PRIME TIME SPORTS EVENTS, INC. CO
PRIME TIME TONIGHT, INC. DE
PRIMESTAR PARTNERS L.P. DE
PRINCES HOLDINGS LTD. IRE
PUBLIC CABLE COMPANY ME
PEACHTREE CABLE TV, INC. NV
QE+ LTD. CO
QVC INC. DE QVC NETWORK
Q2
QVC INVESTMENT, INC. CO
QVC INVESTMENT, INC. CO
QVC NETWORK, INC. DE
RACINE TELECABLE CORPORATION WI
RANDOM ACCESS, INC.
REISS MEDIA ENTERPRISES, INC. DE
REPUBLIC PICTURES TELEVISION DE
RL INGENIUS, INC. CO
ROBERT FULK, LTD. DE
ROBIN CABLE SYSTEMS II, INC.
ROBIN CABLE SYSTEMS II, L.P. CA
ROBIN CABLE SYSTEMS OF SIERRA VISTA, L.P.
ROBIN CABLE SYSTEMS OF TUCSON AZ
ROBIN CABLE SYSTEMS, L.P. CA
-12-
13
Subsidiary org. d/b/a
---------- ---- -----
ROBIN MEDIA GROUP, INC. NV
ROCKY MOUNTAIN FARMS, INC. CO
ROCKY MOUNTAIN LEONARD VS HEARNS II, JOINT VENTURE CO
ROCKY MOUNTAIN PRIME SPORTS NETWORK CO
ROCKY MOUNTAIN SPORTS AND LIFESYTLE CHANNEL, INC. DE
RTV ASSOCIATES, L.P. DE
RUTI-SWEETWATER, INC. UT
S/D CABLE PARTNERS, LTD. CO TCI CABLEVISION OF PRINCETON, L.P.
TCI CABLEVISION OF ROCK FALLS, L.P.
SAGUARO CABLE TELEVISION INVESTORS LIMITED PARTNERSHIP CO
SAN LEANDRO CABLE TELEVISION, INC. CA TCI CABLEVISION OF HAYWARD
SANTA FE CABLEVISION CO. NM
SANTA FE CABLEVISION COMPANY NM TCI CABLEVISION OF SANTA FE
SATELLITE SERVICES OF PUERTO RICO, INC. DE
SATELLITE SERVICES, INC. DE
SCC PROGRAMS, INC. IL
SCD INVEST AB SWE
SELMA TELECABLE CORPORATION AL
SEMAPHORE PARTNERS CO
SERVICES, INC.
SHELTER RESOURCES CORP.
SILLERMAN - MAGEE COMMUNICATIONS MANAGEMENT CORPORATION
SILVER SCREEN PARTNERS, L.P.
SILVER SPUR LAND AND CATTLE CO. WY SILVER SPUR RANCH
SKY NETWORK TELEVISION, LIMITED NZL
SKYVIEW TV, INC. MT
SONIC COMMUNICATIONS SAN LUIS OBISPO AND SANTA CRUZ
SONIC PARTNERS, L.P.
SOUTH CHICAGO CABLE, INC. IL CHICAGO CABLE TV-V
SOUTH FLORIDA CABLE ADVERTISING FL
SOUTHERN COMMUNICATIONS CORPORATION VA
SOUTHERN SATELLITE SYSTEMS, INC. GA
SOUTHWEST CABLEVISION ASSOCIATES, L.P. CO
SOUTHWEST TELECABLE, INC. TX
SOUTHWEST WASHINGTON CABLE, INC. WA
SPORTS HOLDING, INC. TX
SPORTSCHANNEL CHICAGO ASSOCIATES NY SPORTSCHANNEL CHICAGO
SPORTSCHANNEL PACIFIC ASSOCIATES NY SPORTSCHANNEL PACIFIC
SPORTSCHANNEL PRISM ASSOCIATES NY SPORTSCHANNEL PHILADELPHIA/PRISM
-13-
14
Subsidiary org. d/b/a
---------- ---- -----
SPORTSOUTH NETWORK, L.P. DE SPORTSOUTH NETWORK
SSI 2, INC. NV
ST. LOUIS TELE-COMMUNICATIONS, INC. MO TCI CABLEVISION OF ST. LOUIS
STARSTREAM LIMITED UK
STT VIDEO PARTNERS, L.P.
SVHH CABLE ACQUISITIONS, L. P. DE
SUNSHINE NETWORK FL SUNSHINE NETWORK
SUNSHINE NETWORK OF FLORIDA, LTD. FL
SWEDEN CABLE & DISH AB SWE
SYRACUSE HILTON HEAD HOLDINGS, L. P. DE
T.V. SPORTS LTD.
TAMPA BAY INTERCONNECT FL TBI
TCG CHICAGO NY
TCG CONNECTICUT NY
TCG DALLAS NY
TCG DALLAS SYSTEMS NY
TCG DETROIT NY
TCG ILLINOIS NY
TCG LOS ANGELES NY
TCG PARTNERS
TCG PHOENIX NY
TCG PITTSBURGH NY
TCG SAN FRANCISCO NY
TCG SEATTLE NY
TCG SOUTH FLORIDA NY
TCG ST. LOUIS NY
TCI AOL, INC. CO
TCI ARGENTINA, INC. CO
TCI BATON ROUGE VENTURES, INC. CO
TCI CABLE ADNET, INC. CO
TCI CABLE EDUCATION, INC. CO
TCI CABLE HOLDING COMPANY I DE
TCI CABLE HOLDING COMPANY II DE
TCI CABLE INVESTMENTS, INC. DE
TCI CABLE MANAGEMENT CORPORATION CO
TCI CABLE PROGRAMME PARTNERS, INC. CO
TCI CABLEVISION ASSOCIATES, INC. DE
TCI CABLEVISION OF ALABAMA, INC. AL
TCI CABLEVISION OF ARIZONA, INC. AZ
TCI CABLEVISION OF BAKER/ZACHARY, INC. DE TCI OF LOUISIANA
-14-
15
Subsidiary org. d/b/a
---------- ---- -----
TCI CABLEVISION OF CALIFORNIA, INC. CA
TCI CABLEVISION OF CANON CITY, LTD. CO
TCI CABLEVISION OF COLORADO, INC. CO TCI OF COLORADO, INC.
TCI CABLEVISION OF DALLAS, INC. TX
TCI CABLEVISION OF FLORIDA, INC. FL TCI OF COLORADO, INC.
TCI CABLEVISION OF GEORGIA, INC. GA
TCI CABLEVISION OF GREAT FALLS, INC. DE
TCI CABLEVISION OF IDAHO, INC. ID
TCI CABLEVISION OF KENTUCKY, INC. KY TCI CABLE ADVERTISING
TCI CABLEVISION OF KIOWA, INC. CO
TCI CABLEVISION OF LEESVILLE, INC. DE
TCI CABLEVISION OF MARYLAND, INC. MD
TCI CABLEVISION OF MASSACHUSETTS, INC. MA
TCI CABLEVISION OF MICHIGAN, INC. MI TCI CABLE ADVERTISING
TCI CABLEVISION OF MINNESOTA, INC. MN TCI OF MINNESOTA
TCI CABLEVISION OF MISSOURI, INC. MO
TCI CABLEVISION OF MONTANA, INC. MT
TCI CABLEVISION OF NEBRASKA, INC. NE
TCI CABLEVISION OF NEVADA, INC. NV
TCI CABLEVISION OF NEW HAMPSHIRE, INC. NH
TCI CABLEVISION OF NEW MEXICO, INC. NM
TCI CABLEVISION OF NORTH CAROLINA, INC. NC
TCI CABLEVISION OF NORTH CENTRAL KENTUCKY, INC. KY
TCI CABLEVISION OF OHIO, INC. OH TCI CABLE ADVERTISING
TCI CABLEVISION OF OKANOGAN VALLEY, INC. WA
TCI CABLEVISION OF OKLAHOMA, INC. OK
TCI CABLEVISION OF OREGON, INC. OR
TCI CABLEVISION OF PASCO COUNTY FL
TCI CABLEVISION OF PINELLAS COUNTY, INC. FL
TCI CABLEVISION OF PUERTO RICO, INC. DE
TCI CABLEVISION OF SIERRA VISTA, INC. CO
TCI CABLEVISION OF SOUTH DAKOTA, INC. SD
TCI CABLEVISION OF SOUTHWEST WASHINGTON, INC. WA
TCI CABLEVISION OF ST. BERNARD, INC. LA TCI OF LOUISIANA
TCI CABLEVISION OF TEXAS, INC. TX
TCI CABLEVISION OF TUCSON/SIERRA VISTA, INC. CO
TCI CABLEVISION OF TWIN CITIES, INC. WA
TCI CABLEVISION OF UTAH, INC. UT
TCI CABLEVISION OF VERMONT, INC. DE
TCI CABLEVISION OF WASHINGTON, INC. WA PACCOM
-15-
16
Subsidiary org. d/b/a
---------- ---- -----
TV MART
TCI CABLEVISION OF WISCONSIN, INC. WI
TCI CABLEVISION OF WYOMING, INC. WY
TCI CABLEVISION OF YAKIMA VALLEY, INC. WA
TCI CABLEVISION OF YAKIMA, INC. WA
TCI CATHAY TV, INC. CO
TCI CENTRAL, INC. DE
TCI CHILI, INC. CO
TCI COMMUNICATIONS, INC. DE TCI CABLEVISION OF DURANGO, INC.
TCI CUTTHROAT ISLAND, INC. CO
TCI CABLEPCS, INC. CO
TCI CABLEPHONE, INC. CO
TCI DEVELOPMENT CORPORATION CO
TCI EL ENTERTAINMENT, INC. CO
TCI EAST, INC. DE
TCI FAROUDJA, INC. CO
TCI FLEET SERVICES, INC. CO
TCI GAMECO HOLDINGS, INC. CO
TCI GCI, INC. CO
TCI GREAT LAKES, INC. DE
TCI HEALTH, INC. CO
TCI HITS, INC. CO
TCI HOLDINGS II, INC. CO
TCI HOLDINGS, INC. CO
TCI INTELLIGENT ELECTRONICS, INC. CO
TCI INTERNATIONAL HOLDINGS, INC. DE
TCI INTERNATIONAL INVESTMENTS LTD. UK
TCI INTERNATIONAL PARTNERSHIP HOLDINGS, INC. CO
TCI INVESTMENTS, INC. CO
TCI IP, INC. DE
TCI IP, INC. CO
TCI JAPAN, INC. CO
TCI K-1, INC. CO
TCI LIBERTY, INC. DE
TCI LIGHTSPAN HOLDINGS, INC. CO
TCI MICROWAVE, INC. DE
TCI MOVIES, AUSTRALIA PTY, LIMITED AUS
TCI NETWORK, INC. CO
TCI NEWS, INC. CO
-16-
17
Subsidiary org. d/b/a
---------- ---- -----
TCI NORTH CENTRAL, INC. DE
TCI NORTHEAST, INC. DE
TCI OF ARKANSAS, INC. AR
TCI OF AUBURN, INC. DE
TCI OF CONNECTICUT, INC. CT
TCI OF COUNCIL BLUFFS, INC. IA
TCI OF D.C., INC. DC
TCI OF DELAWARE, INC. DE
TCI OF GREENSBURG CO
TCI OF ILLINOIS, INC. IL TCI CABLE ADVERTISING
TCI CALBEVISION OF DUBUQUE, INC.
TCI OF INDIANA, INC. IN TCI CABLE ADVERTISING
TCI OF IOWA, INC. IA TCI CABLEVISION OF DUBUQUE, INC.
TCI OF KANSAS, INC. KS TCI CABLEVISION OF STILLWATER
TCI CABLEVISION OF TULSA
TCI OF KOKOMO, INC. CO
TCI OF MAINE, INC. ME
TCI OF MISSISSIPPI, INC. MS
TCI OF NEW JERSEY, INC. NV
TCI OF NEW YORK, INC. NY
TCI OF NORTH CENTRAL KENTUCKY, INC. KY
TCI OF NORTH DAKOTA, INC. ND
TCI OF NORTHERN NEW JERSEY, INC. WA TCI CABLEVISION OF CENTRAL COLORADO
TCI CABLEVISION OF NORTHEASTERN OREGON
TCI CABLEVISION OF SOUTHEAST WASHINGTON
TCI CABLEVISION OF THE TREASURE COAST
TCI OF NORTHERN NEW JERSEY
TCI OF PENNSYLVANIA, INC. PA TCI CABLE ADVERTISING
TCI OF CALIFORNIA
TCI OF PR, INC. CO
TCI OF PUERTO RICO, INC. CO
TCI OF RHODE ISLAND, INC. RI
TCI OF SEATTLE, INC. DE
TCI OF SOUTH CAROLINA, INC. SC
TCI OF SOUTHERN MAINE, INC. ME
TCI OF SOUTHERN MINNESOTA, INC. DE TCI OF SOUTHERN MINNESOTA
TCI OF TACOMA, INC. DE
TCI OF TENNESSEE, INC. TN
TCI OF THE BLUFFLANDS, INC. DE TCI CABLE OF LA CROSSE
TCI OF SOUTHERN MINNESOTA
-17-
18
Subsidiary org. d/b/a
---------- ---- -----
TCI OF VIRGINIA, INC. VA
TCI OF WATERTOWN, INC. IA
TCI OF WEST VIRGINIA, INC. WV TCI CABLE ADVERTISING
TCI ONLINE SERVICES, INC. CO
TCI OSCAR I, INC. CO
TCI PACIFIC MICROWAVE, INC. CO PACIFIC MICROWAVE
TCI POLAND, INC. CO
TCI PRIME SPORTS, INC. CO
TCI PRIVATE VENTURES, INC. CO
TCI PROGRAM HOLDINGS COMPANY II DE
TCI PROGRAMMING HOLDING COMPANY III DE
TCI RANDOM ACCESS, INC. CO
TCI REALTY INVESTMENTS COMPANY DE
TCI REPUBLIC PICTURES, INC. CO
TCI REQUEST, INC. CO
TCI SILLERMAN-MAGEE, INC. CO
TCI SOUTHEAST DIVISIONAL HEADQUARTERS, INC. AL
TCI SOUTHEAST, INC. DE
TCI SPORTS UT
TCI SPORTS, INC. (NV) NV
TCI STARZ, INC. CO
TCI STS, INC. CO
TCI STS-MTVI, INC. TX
TCI TECHNOLOGY VENTUES, INC. DE
TCI TELEPORT OF BALTIMORE, INC. MD
TCI TELEPORT OF BOSTON, INC. MA
TCI TELEPORT OF CHICAGO, INC. IL
TCI TELEPORT OF CHICAGO-SWITCH, INC. IL
TCI TELEPORT OF DALLAS, INC. TX
TCI TELEPORT OF DALLAS-SWITCH, INC. TX
TCI TELEPORT OF DENVER, INC. TX
TCI TELEPORT OF DETROIT, INC. MI
TCI TELEPORT OF HARTFORD, INC. CT
TCI TELEPORT OF HOUSTON, INC. TX
TCI TELEPORT OF INDIANAPOLIS, INC. CO
TCI TELEPORT OF LOS ANGELES, INC. CA
TCI TELEPORT OF MIAMI, INC. FL
TCI TELEPORT OF PHOENIX, INC. AZ
TCI TELEPORT OF PITTSBURGH, INC. PA PENN ACCESS CORPORATION
-18-
19
Subsidiary org. d/b/a
---------- ---- -----
TCI TELEPORT OF PROVIDENCE, INC. CO
TCI TELEPORT OF SAN FRANCISCO, INC. CA
TCI TELEPORT OF SEATTLE, INC. WA
TCI TELEPORT OF ST. LOUIS, INC. MO
TCI TELEPORT PARTNERS, INC. CO
TCI TELEPORT, INC. CO
TCI TKR CABLE I, INC. DE
TCI TKR CABLE II, INC. DE
TCI TKR CABLE III, INC. DE
TCI TKR LIMITED PARTNERSHIP CO
TCI TKR OF ALABAMA, INC. DE TCI OF ALABAMA
TCI TKR OF CENTRAL FLORIDA, INC. FL TCI OF CENTRAL FLORIDA
TCI TKR OF DALLAS, INC. DE
TCI TKR OF FLORIDA, INC. DE
TCI TKR OF GEORGIA, INC. DE TCI OF GEORGIA
TCI TKR OF HOLLYWOOD, INC. DE TCI OF HOLLYWOOD
TCI TKR OF HOUSTON, INC. TX TCI CABLEVISION OF HOUSTON
TCI TKR OF JEFFERSON COUNTY, INC. KY TKR CABLE OF GREATER LOUISVILLE, INC.
TCI TKR OF KENTUCKY, INC. DE
TCI TKR OF METRO DADE, INC. DE
TCI TKR OF NORTHERN KENTUCKY, INC. KY TKR CABLE OF NORTHERN KENTUCKY, INC.
TCI TKR OF SOUTH DADE, INC. FL TCI OF SOUTH DADE
TCI TKR OF SOUTH FLORIDA, INC. DE TCI OF SOUTH FLORIDA
TCI TKR OF SOUTHEAST TEXAS, INC. DE
TCI TKR OF SOUTHERN KENTUCKY, INC. DE TKR CABLE OF SOUTHERN KENTUCKY, INC.
TCI TKR OF THE GULF PLAINS, INC. DE TCI OF THE GULF PLAINS
TCI TKR OF THE METROPLEX, INC. TX TCI CABLEVISION OF THE METROPLEX
TCI TKR OF WYOMING, INC. WY
TCI TKR, INC. DE
TCI TSX, INC. CO
TCI TURNER PREFERRED, INC. CO
TCI TVRO MANAGEMENT CORPORATION CO
TCI UA I, INC. CO
TCI UA, INC. DE
TCI VENTURES FIVE, INC. CO
TCI VENTURES FOUR, INC. CO
TCI VENTURE CAPITAL, INC. CO
TCI WEST, INC. DE
TCI WOODLANDS VENTURES, INC. CO
TCI-AUSTRALIA, INC. CO
-19-
20
Subsidiary org. d/b/a
---------- ---- -----
TCI-EUROMUSIC, INC. CO
TCI-TVGOS, INC. CO
TCI-UC, INC. DE
TCI/FOX FUNDING PARTNERSHIP NY
TCI/US WEST CABLE COMMUNICATIONS GROUP CO
TCID - WW, INC. CO
TCID DATA TRANSPORT, INC. CO
TCID GAMES, INC. CO
TCID, INC. CO
TCID NETWORKS, INC. DE
TCID OF CARSON, INC. CA
TCID OF CHICAGO, INC. IL
TCID OF FLORIDA, INC. FL TCI CABLEVISION OF PASCO COUNTY
TCID OF MICHIGAN, INC. NV
TCID OF NEW ZEALAND LIMITED NZL
TCID OF PUERTO RICO, INC. NV
TCID OF SOUTH CHICAGO, INC. IL
TCID PARTNERS II, INC. CO
TCID PARTNERS, INC. CO
TCID VIDEO ENTERPRISES, INC. CO
TCID VIRTUAL I/O, INC. CO
TCID X*PRESS, INC. CO
TCID, INC. CO
TCID-COMMERCIAL MUSIC, INC. CO
TCID-ICP III, INC. CO
TCID-IP III, INC. CO
TCID-IP IV, INC. CO
TCID-IP V, INC. CO
TCID-SVHH, INC. DE
TCIP, INC. CO
TECHNOLOGY PROGRAMMING VENTURES CO
TELE-COMMUNICATIONS DOMINICANA, INC. DE
TELE-COMMUNICATIONS OF COLORADO, INC. CO TCI COLORADO COMMUNITY CABLE TELEVISION, INC.
TELE-COMMUNICATIONS OF SOUTH SUBURBIA, INC. IL
TELE-COMMUNICATONS, INC. DE
TELECABLE DEVELOPMENT CORPORATION VA
TELECABLE KCFN HOLDING CORP. VA
TELECABLE NACIONAL, CXA (DR)
TELECABLE OF BLOOMINGTON/NORMAL CORPORATION VA
-20-
21
Subsidiary org. d/b/a
---------- ---- -----
TELECABLE OF CLEVELAND, INC. TN
TELECABLE OF COLUMBUS, INC. GA
TELECABLE OF GREENVILLE, INC. SC
TELECABLE OF LEE COUNTY, INC. AL
TELECABLE OF LEXINGTON, INC. KY
TELECABLE OF OVERLAND PARK, INC. KS
TELECABLE OF PIEDMONT, INC. SC
TELECABLE OF PLANO, INC. TX
TELECABLE OF RADCLIFF, INC. KY
TELECABLE OF RICHARDSON, INC. TX
TELECABLE OF SPARTANBURG, INC. SC
TELECABLE OF SPRINGFIELD, INC. MO
TELECOMMUNICATIONS CABLE SYSTEMS, INC. LA TCI OF LOUISIANA
TELENOIS, INC. IL
TELEPORT COMMUNICATIONS GROUP INC.
TELESTAR VIDEO CORPORATION FL
TELEVENTS GROUP JOINT VENTURE CO TCI OF CENTRAL IOWA
TCI OF EASTERN IOWA
TCI OF THE HEARTLANDS
TELEVENTS GROUP, INC. NV
TELEVENTS OF COLORADO, INC. CO
TELEVENTS OF EAST COUNTY, INC. WY TCI CABLEVISION OF EAST COUNTY
TELEVENTS OF FLORIDA, INC. WY
TELEVENTS OF POWDER RIVER, INC. WY
TELEVENTS OF SAN JOAQUIN, INC. WY TCI CABLEVISION OF SAN JOAQUIN
-21-
22
Subsidiary org. d/b/a
---------- ---- -----
TELEVENTS OF WYOMING, INC. WY
TELEVENTS, INC. NV TCI CABLEVISION OF CONTRA COSTA COUNTY
TELEVESTER, INC.
TELEVISION CABLE SERVICE, INC. TX TCI CABLEVISION OF ABILENE
TCI CABLEVISION OF EAST TEXAS
TCI CABLEVISION OF PERRYTON
TCI CABLEVISION OF WEST TEXAS
TELEWEST COMMUNICATIONS GROUP LTD. UK
TELEWEST EUROPE GROUP CO
TELEWEST LTD. UK
TELEWEST PARLIAMENTARY HOLDINGS LIMITED UK
TELLURIDE CABLEVISION, INC. DE
TEMPO CABLE, INC. OK TCI CABLEVISION OF CENTRAL OKLAHOMA, INC.
TCI CABLEVISION OF NOCONA
TCI CABLEVISION OF OKLAHOMA (TEMPO), INC.
TCI CABLEVISION OF TEXAS (TEMPO), INC.
TCI OF ARKANSAS (TEMPO), INC.
TEMPO DBS, INC. CO
TEMPO DEVELOPMENT CORPORATION OK
TEMPO ENTERPRISES, INC. OK TEMPO ENTERPRISES, INC.
TEMPO SATELLITE, INC. OK
TEMPO TELEVISION, INC. OK
TEVEL ISRAEL INTERNATIONAL COMMUNICATIONS LTD. ISR
THE CABLE CORPORATION LIMITED UK
THE CABLE TELEVISION NETWORK OF NEW JERSEY, INC.
THE DETROIT CABLE INTERCONNECT L.P. DE THE DETROIT CABLE INTERCONNECT LIMITED
PARTNERSHIP
THE FASHION CHANNEL NETWORK, INC. DE
THE GREATER CHICAGO CABLE INTERCONNECT IL GCCI
THE GREATER PHILADELPHIA CABLE INTERCONNECT PA PCA
PHILADELPHIA CABLE ADVERTISING
THE HILINE NETWORK MT
THE PARLIAMENTARY CHANNEL LIMITED
THE WOLFDALE CORPORATION CO
THE WOODLANDS COMMUNICATIONS NETWORK TX THE WOODLANDS SECURITY COMPANY
UNITED ARTISTS CABLE OF THE WOODLANDS
TISHDORET ACHZAKOT LTD. ISR
TRANS-MUSKINGUM, INCORPORATED WV
TRI CITIES CABLE TELEVISION COMPANY NE
TRIBUNE COMPANY CABLE OF MICHIGAN, INC. DE TRIBUNE/UNITED CABLE OF OAKLAND COUNTY
-22-
23
Subsidiary org. d/b/a
---------- ---- -----
TRIBUNE-UNITED CABLE OF OAKLAND COUNTY MI TCI CABLEVISION OF OAKLAND COUNTY, INC.
TSX CORPORATION NV
TULSA CABLE TELEVISION, INC. OK TCI CABLEVISION OF TULSA
TURNER BROADCASTING SYSTEM, INC.
TV NETWORK CORPORATION CO
TYNESIDE CABLE LIMITED PARTNERSHIP CO
UA EUROPEAN THEATRES, INC. CO
UA THINK, INC. CO
UA-COLUMBIA ALPINE TOWER, INC. NJ
UA-COLUMBIA CABLEVISION OF MASSACHUSETTS, INC. MA TCI CABLEVISION OF NORTH ATTLEBORO/TAUNTON
UA-COLUMBIA CABLEVISION OF NEW JERSEY, INC. NJ
UA-COLUMBIA CABLEVISION OF WESTCHESTER, INC. NY TCI OF NORTHERN NEW JERSEY
TCI CABLE OF WESTCHESTER
UA-FRANCE, INC. CO
UA-UII MANAGEMENT, INC. CO
UA-UII, INC. CO
UACC MIDWEST, INC. DE TCI CABLE ADVERTISING
TCI OF SOUTH MISSISSIPPI
TCI CABLEVISION OF ASHEVILLE
TCI CABLEVISION OF DECATUR
TCI CABLEVISION OF CENTRAL ILLINOIS
TCI OF CENTRAL INDIANA (MADISON CO)
TCI OF EVANSVILLE (VANDERBURGH CO)
TCI CABLEVISION OF WEST MICHIGAN, INC.
TCI CABLEVISION OF MERCED COUNTY
TCI CABLEVISION OF SANTA CRUZ COUNTY
TCI CABLEVISION OF TRACY
TCI CABLEVISION OF VACAVILLE
TCI CABLEVISION OF WALNUT CREEK
TCI CABLEVISION OF NORTHSHORE
UAII MERGER CORP. DE
UAII SUB NO. 24, INC. DE
UATC MERGER CORP. NY
UCI ENTERPRISES, INC. CO
UCT AIRCRAFT, INC. CO
UCT INVESTMENTS (COLORADO), INC. CO
UCT VIDEO, INC. CO
UCT-NETHERLANDS, B.V. NTH
UCTC OF BALTIMORE, INC. DE
-23-
24
Subsidiary org. d/b/a
---------- ---- -----
UCTC OF LOS ANGELES COUNTY, INC. DE TCI CABLEVISION OF LOS ANGELES COUNTY
UII MANAGEMENT CO
UII-IRELAND LIMITED LIABILITY COMPANY UT
UII-IRELAND, LTD. CO
UK LIVING LIMITED
UNITED ADVERTISING NETWORK, INC. CO
UNITED ARTISTS (CHILDRENS CHANNEL) LIMITED UK
UNITED ARTISTS B. V. NTH
UNITED ARTISTS BROADCAST PROPERTIES, INC. DE
UNITED ARTISTS CABLE HOLDINGS, INC. CO
UNITED ARTISTS CABLE INVESTMENTS, INC. DE
UNITED ARTISTS CABLE TELEVISION INTERNATIONAL
HOLDINGS, INC. CO
UNITED ARTISTS CABLE TELEVISION INTERANTIONAL
INVESTMENTS, INC. CO
UNITED ARTISTS CABLE TELEVISION INTERNATIONAL LTD UK
UNITED ARTISTS CABLE TELEVISION INTERNATIONAL
SERVICE COMPANY, INC. CO
UNITED ARTISTS CABLE TELEVISION UK, HOLDINGS, INC. DE
UNITED ARTISTS CABLESYSTEMS CORPORATION DE
UNITED ARTISTS COMMUNICATIONS (AVON) LTD. UK
UNITED ARTISTS COMMUNICATIONS (COTSWOLDS) LTD. UK
UNITED ARTISTS COMMUNICATIONS (LONDON SOUTH) PLC UK
UNITED ARTISTS COMMUNICATIONS (NOMINEES) LTD. UK
UNITED ARTISTS COMMUNICATIONS (NORTH EAST) LIMITED UK
UNITED ARTISTS COMMUNICATIONS (NORTH EAST) PARTNERSHIP UK
UNITED ARTISTS COMMUNICATIONS (NORTH THAMES ESTUARY) LTD UK
UNITED ARTISTS COMMUNICATIONS (SCOTLAND) LTD. SCT
UNITED ARTISTS COMMUNICATIONS (SOUTH THAMES ESTUARY) LTD UK
UNITED ARTISTS COMMUNICATIONS (THAMES ESTUARY) PARTNERSHIP UK
UNITED ARTISTS COTSWOLDS PARTNERSHIP HOLDINGS, L.P. CO
UNITED ARTISTS ENTERTAINMENT (PROGRAMMING) LIMITED UK
UNITED ARTISTS ENTERTAINMENT COMPANY DE
UNITED ARTISTS ENTERTAINMENT (PROGRAMMING) LTD. UK
UNITED ARTISTS EUROPEAN HOLDINGS LIMITED UK
UNITED ARTISTS HOLDINGS, INC. DE
UNITED ARTISTS INTERNATIONAL, INC. CO
UNITED ARTISTS INVESTMENTS, INC. CO
UNITED ARTISTS K-1 INVESTMENTS, INC. CO
UNITED ARTISTS OPERATOR SERVICES CORPORATION CO
-24-
25
Subsidiary org. d/b/a
---------- ---- -----
UNITED ARTISTS PAYPHONE CORPORATION CO
UNITED ARTISTS PREFERRED INVESTMENT, INC. CO
UNITED ARTISTS PROGRAMME MANAGEMENT LIMITED UK
UNITED ARTISTS PROGRAMMING INTERNATIONAL, INC. CO
UNITED ARTISTS PROGRAMMING-EUROPE, INC. CO
UNITED ARTISTS REPUBLIC INVESTMENTS, INC. CO
UNITED ARTISTS SATELLITE, INC. CO
UNITED ARTISTS TELECOMMUNICATIONS, INC. DE
UNITED CABLE (LONDON SOUTH) LIMITED PARTNERSHIP CO
UNITED CABLE AD-LINK, INC. CO
UNITED CABLE ADVERTISING, INC. CO
UNITED CABLE AND MICROWAVE LTD.
UNITED CABLE INVESTMENT OF BALTIMORE, INC. MD
UNITED CABLE PRODUCTIONS, INC. CO
UNITED CABLE REALTY CO. OF CALIFORNIA, INC. CO
UNITED CABLE SHOPPING CHANNEL, INC. CO
UNITED CABLE T.V. OF OAKLAND COUNTY, INC. MI TCI CABLEVISION OF OAKLAND COUNTY, INC.
UNITED CABLE TELEVISION ACQUISITION CORPORATION CO TCI OF COLORADO, INC.
UNITED CABLE TELEVISION CORP. OF EASTERN CONNECTICUT CT TCI CABLEVISION OF CENTRAL CONNECTICUT
UNITED CABLE TELEVISION CORPORATION DE TCI CABLE OF THE MIDLANDS
TCI CABLEVISION OF HAYWARD
TCI CABLEVISION OF TREASURE VALLEY
UNITED CABLE TELEVISION CORPORATION OF MICHIGAN MI TCI CABLEVISION OF WOODHAVEN, INC.
UNITED CABLE TELEVISION CORPORATION OF NORTHERN ILLINOIS IL TCI CABLEVISION OF NORTHERN ILLINOIS
UNITED CABLE TELEVISION FINANCING CORPORATION CO
UNITED CABLE TELEVISION INVESTMENTS, LTD. CO
UNITED CABLE TELEVISION OF ALAMEDA, INC. CA UCT OF ALAMEDA, INC. #2
TCI CABLEVISION OF ALAMEDA
UNITED CABLE TELEVISION OF BALDWIN PARK, INC. CO TCI CABLEVISION OF LOS ANGELES COUNTY
UNITED CABLE TELEVISION OF BALTIMORE LIMITED PARTNERSHIP CO UNITED ARTISTS CABLE OF BALTIMORE
UNITED CABLE TELEVISION OF BOSSIER CITY, INC. DE TCI OF LOUISIANA
UNITED CABLE TELEVISION OF CALIFORNIA, INC. CA TCI CABLEVISION OF CUPERTINO/LOS ALTOS
TCI CABLEVISION OF DAVIS
UNITED CABLE TELEVISION OF CHASKA, INC. CO
UNITED CABLE TELEVISION OF COLORADO, INC. CO TCI OF COLORADO, INC.
UNITED CABLE TELEVISION OF CUPERTINO, INC. CA TCI CABLEVISION OF CUPERTINO/LOS ALTOS
UNITED CABLE TELEVISION OF EAST SAN FERNANDO VALLEY, LTD. CO UNITED ARTIESTS OF EAST SAN FERNANDO VALLEY
UNITED CABLE TELEVISION OF EASTERN SHORE, INC. DE TCI CABLEVISION OF EASTERN SHORE
UNITED CABLE TELEVISION OF HILLSBOROUGH, INC. CO TCI CABLEVISION OF HAYWARD
UNITED CABLE TELEVISION OF ILLINOIS VALLEY, INC. IL TCI CABLEVISION OF ILLINOIS VALLEY
-25-
26
Subsidiary org. d/b/a
---------- ---- -----
UNITED CABLE TELEVISION OF JEFFCO, INC. CO TCI OF COLORADO, INC.
UNITED CABLE TELEVISION OF LOS ANGELES, INC. CA TCI CABLEVISION OF LOS ANGELES COUNTY
UNITED CABLE TELEVISION OF MID-MICHIGAN, INC. DE TCI CABLEVISION OF MID-MICHIGAN, INC.
UNITED CABLE TELEVISION OF NORTHERN INDIANA, INC. DE TCI OF NORTHERN INDIANA
UNITED CABLE TELEVISION OF OAKLAND COUNTY, LTD. CO
UNITED CABLE TELEVISION OF PICO RIVERA, INC. CO
UNITED CABLE TELEVISION OF SANTA CRUZ, INC. CO TCI CABLEVISION OF SANTA CRUZ COUNTY
UNITED CABLE TELEVISION OF SARPY COUNTY, INC. NE TCI CABLE OF THE MIDLANDS
UNITED CABLE TELEVISION OF SCOTTSDALE, INC. AZ TCI CABLE OF SCOTTSDALE
UNITED CABLE TELEVISION OF SOUTHERN ILLINOIS, INC. DE TCI CABLEVISION OF SOUTHERN ILLINOIS
UNITED CABLE TELEVISION OF WESTERN COLORADO, INC. CO TCI CABLEVISION OF WESTERN COLORADO, INC.
UNITED CABLE TELEVISION REAL ESTATE CORPORATION CO
UNITED CABLE TELEVISION SERVICES CORPORATION OK TCI CABLEVISION OF CENTRAL CONNECTICUT
UNITED CABLE TELEVISION SERVICES OF COLORADO, INC. CO
UNITED CABLE TURNER INVESTMENT, INC. CO
UNITED CABLE VIDEO INVESTMENT, INC. CO
UNITED CARPHONE CORPORATION CO
UNITED CATV, INC. MD TCI CABLEVISION OF ANNAPOLIS
UNITED COMMUNICATIONS INTERNATIONAL CO
UNITED CORPORATE COMMUNICATIONS COMPANY CO
UNITED ENTERTAINMENT CORPORATION CO
UNITED ENTERTAINMENT NETWORK, INC. NE
UNITED HOCKEY, INC. CO
UNITED INTERNATIONAL INVESTMENTS CO
UNITED MICROWAVE CORPORATION DE
UNITED OF OAKLAND, INC. DE TCI CABLEVISION OF OAKLAND COUNTY, INC.
TRIBUNE/UNITED CABLE OF OAKLAND COUNTY
UNITED PAGING CORPORATION CO
UNITED TRIBUNE PAGING CORPORATION CO
UNITED'S HOME VIDEO CENTERS, INC. CO
UPPER MIDWEST CABLE PARTNERS MN PRIME SPORTS - UPPER MIDWEST
UPPER VALLEY TELECABLE COMPANY, INC. ID TCI CABLEVISION OF IDAHO (UVTC), INC.
UTI PURCHASE COMPANY CO
VACATIONLAND CABLEVISION, INC. WI TCI OF SOUTH CENTRAL WISCONSIN
VALLEY CABLE TV, INC. TX
VARTECH, L.P.
VIDEO CABLE COMPANY, INC. VA
VIRTUAL I/O, INC.
VISION GROUP INCORPORATED CO
-26-
27
Subsidiary org. d/b/a
---------- ---- -----
VVF, INC. CO
WALTHAM TELE-COMMUNICATIONS MA TCI CABLEVISION OF WALTHAM
WALTHAM TELE-COMMUNICATIONS, INC. CO
WASATCH COMMUNITY T.V., INCORPORATED UT
WENTRONICS, INC. NM TCI CABLEVISION OF WESTERN COLORADO, INC.
TCI CABLEVISION OF CASPER
TCI CABLEVISION OF GALLUP
TCI CABLEVISION OF MOAB
WESTERN COMMUNITY TV, INC. MT
WESTERN INFORMATION SYSTEMS, INC. CO WIS
WESTERN NEW YORK CABLE ADVERTISING L.P. NY
WESTERN SATELLITE 2, INC. CO
WESTERN TELE-COMMUNICATIONS, INC. DE
WESTLINK, INC. CO
WESTMARC CABLE GROUP, INC. DE
WESTMARC CABLE HOLDING, INC. DE TCI OF CENTRAL MINNESOTA
TCI OF NORTHERN IOWA
TCI OF NOTHERN MINNESOTA
TCI OF THE VALLEY
WESTMARC COMMUNICATIONS OF MINNESOTA, INC. DE TCI OF CENTRAL MINNESOTA
TCI OF SOUTHERN MINNESOTA
WESTMARC COMMUNICATIONS, INC. NV
WESTMARC DEVELOPMENT II, INC. CO
WESTMARC DEVELOPMENT III, INC. CO
WESTMARC DEVELOPMENT IV, INC. CO
WESTMARC DEVELOPMENT JOINT VENTURE CO TCI CABLE ADVERTISING
TCI CABLEVISION OF GREATER MICHIGAN, INC.
TCI CABLEVISION OF NORTHWESTERN CONNECTICUT
TCI CABLEVISION OF CAPE COD
TCI CABLEVISION OF NANTUCKET
TCI TWIN STATE CABLE TV
TCI/TWIN VALLEY CABLE
TCI CABLE OF VERMONT
WESTMARC DEVELOPMENT, INC. CO
WESTMARC REALTY, INC. CO
WESTWARD CABLES LTD.
WESTWARD HORIZON LTD
WINDSOR ALARMS LTD. UK
WINDSOR TELEVISION LIMITED UK
WOODLANDS CABLEVISION ASSOCIATES, L.P. CO
-27-
28
Subsidiary org. d/b/a
---------- ---- -----
WTCI UPLINK, INC. PA
X*PRESS ELECTRONIC SERVICES, LTD. CO
X*PRESS INFORMATION SERVICES, LTD. CO
ZING SYSTEMS, L.P. DE
-28-
EX-23.1
15
CONSENT OF KPMG PEAT MARWICK LLP
1
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Tele-Communications, Inc.
We consent to the incorporation by reference in the Registration Statements
(Nos. 33-56271, 33-57409, 33-57469, 33-57177 and 33-57399) on Form S-3, the
Registration Statements (Nos. 33-54263, 33-57405 and 33-56135) on Form S-4, and
the Registration Statements (Nos. 33-54263 and 33-57635) on Form S-8 of
Tele-Communications, Inc. and the Registration Statement (No. 33-44532) on Form
S-8 of TCI Communications, Inc. of our reports dated March 27, 1995, relating
to the consolidated balance sheets of Tele-Communications, Inc. and
subsidiaries as of December 31, 1994 and 1993, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1994, and all related
schedules, which reports appear in the December 31, 1994 annual report on Form
10-K of Tele-Communications, Inc. and TCI Communications, Inc. Our reports
refer to the adoption of Statement of Financial Accounting Standards No. 115,
"Accounting for Investments in Certain Debt and Equity Securities", in 1994.
Denver, Colorado
March 28, 1995
EX-23.2
16
CONSENT OF KPMG PEAT MARWICK LLP
1
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
TCI Communications, Inc.
We consent to the incorporation by reference in the Registration Statement (No.
33-60982) on Form S-3 and the Registration Statement (No. 33-44532) on Form
S-8 of TCI Communications, Inc. of our reports dated March 27, 1995, relating
to the consolidated balance sheets of TCI Communications, Inc. and subsidiaries
as of December 31, 1994 and 1993, and the related consolidated statements of
operations, stockholder's(s') equity, and cash flows for each of the years in
the three-year period ended December 31, 1994, and all related schedules, which
reports appear in the December 31, 1994 annual report on Form 10-K of
Tele-Communications, Inc. and TCI Communications, Inc. Our reports refer to
the adoption of Statement of Financial Accounting Standards No. 115,
"Accounting for Investments in Certain Debt and Equity Securities" in 1994.
Denver, Colorado
March 28, 1995
EX-23.3
17
CONSENT OF KPMG
1
Exhibit 23.3
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
TeleWest Communications plc
We consent to the incorporation by reference in the Registration Statements
(Nos. 33-56271, 33-57409, 33-57469, 33-57177 and 33-57399) on Form S-3, the
Registration Statements (Nos. 33-54263, 33-57405 and 33-56135) on Form S-4, and
the Registration Statements (Nos. 33-54263 and 33-57635) on Form S-8 of
Tele-Communications, Inc. and the Registration Statement (No. 33-44532) on Form
S-8 of TCI Communications, Inc. of our report dated March 21, 1995, relating to
the consolidated balance sheet of TeleWest Communications plc and subsidiaries
as of 31 December 1994 and 1993, and the related consolidated statements of
operations and cash flows for each of the years in the three year period ended
31 December 1994, which report appears in the December 31, 1994 annual report
on Form 10-K of Tele-Communications, Inc. and TCI Communications, Inc.
London, England
29 March 1995
EX-27.1
18
FINANCIAL DATA SCHEDULE--TELE-COMMUNICATIONS, INC.
5
0000925692
TELE-COMMUNICATIONS, INC.
1,000,000
12-MOS
DEC-31-1994
JAN-01-1994
DEC-31-1994
74
0
324
23
121
0
8,942
3,066
19,528
0
11,162
0
0
666
2,305
19,528
482
4,936
313
4,148
617
58
785
171
116
55
0
0
0
55
.09
.09
EX-27.2
19
FINANCIAL DATA SCHEDULE--TCI COMMUNICATIONS, INC.
5
0000096903
TCI COMMUNICATIONS, INC.
1,000,000
12-MOS
DEC-31-1994
JAN-01-1994
DEC-31-1994
6
0
213
15
0
0
8,578
2,999
15,880
0
10,712
0
0
1
645
15,880
0
4,318
0
3,500
595
57
777
223
131
92
0
0
0
92
0
0