<PAGE>
UNITED STATES
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, 1996
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 Number 1-9554
TCI PACIFIC COMMUNICATIONS, INC.
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(Exact name of Registrant as specified in its charter)
State of Delaware 04-2980402
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5619 DTC Parkway
Englewood, Colorado 80111
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(Address of principal executive offices) (Zip Code)
Registrant's 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:
5% Class A Senior Cumulative Exchangeable Preferred Stock
Indicate by check mark whether the Registrant (1) has 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) has been subject to such filing
requirements for the past 90 days. Yes X No
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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 the Registrant'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. ____________
The aggregate market value of the 5% Class A Senior Cumulative Exchangeable
Preferred Stock held by nonaffiliates of TCI Pacific Communications, Inc.,
computed by reference to the last sales price of such stock, as of the close of
trading on January 31, 1997, was $584,337,000.
All of the Registrant's common stock is owned by TCI Communications, Inc.
The number of shares outstanding of the Registrant's common stock, as of January
31, 1997, was:
Class B common stock - 100 shares.
<PAGE>
TCI PACIFIC COMMUNICATIONS, INC.
1996 ANNUAL REPORT ON FORM 10-K
Table of Contents
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Page
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<S> <C> <C>
PART I
Item 1. Business........................................... I- 1
Item 2. Properties......................................... I-13
Item 3. Legal Proceedings.................................. I-13
Item 4. Submission of Matters to a Vote of Security Holders I-13
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-8
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure............ II-8
PART III
Item 10. Directors and Executive Officers of the Registrant. III-1
Item 11. Executive Compensation............................. III-3
Item 12. Security Ownership of Certain Beneficial Owners
and Management.................................... III-3
Item 13. Certain Relationships and Related Transactions..... III-9
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K............................... IV-1
</TABLE>
<PAGE>
PART I.
Item 1. Business.
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(a) General Development of Business
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TCI Pacific Communications, Inc. (together with its consolidated
subsidiaries, "Pacific" or the "Company") (formerly, Viacom International Inc.),
through its subsidiaries and affiliates, is principally engaged in the
construction, acquisition, ownership, and operation of cable television systems.
The Company is a Delaware corporation and was incorporated on June 2, 1987.
On July 24, 1995, Viacom Inc. ("Viacom"), Viacom International Inc. (after
giving effect to the First Distribution as defined below, "VII Cable"), a wholly
owned subsidiary of Viacom, and Viacom International Services Inc. ("New VII"),
a wholly owned subsidiary of VII Cable, entered into certain agreements with
Tele-Communications, Inc. ("TCI") and TCI Communications, Inc. ("TCIC"), a
subsidiary of TCI, providing for, among other things, the conveyance of Viacom
International Inc.'s non-cable assets and liabilities to New VII, the
distribution of all of the common stock of New VII to Viacom (the "First
Distribution"), the Exchange Offer (as defined below) and the issuance to TCIC
of all of the Class B Common Stock of VII Cable. On June 24, 1996, Viacom
commenced an exchange offer (the "Exchange Offer") pursuant to which Viacom
shareholders had the option to exchange shares of Viacom Class A or Class B
Common Stock ("Viacom Common Stock") for a total of 6,257,961 shares of VII
Cable Class A Common Stock. The Exchange Offer expired on July 22, 1996 with a
final exchange ratio of 0.4075 shares of VII Cable Class A Common Stock for each
share of Viacom Common Stock accepted for exchange.
Prior to the consummation of the Exchange Offer on July 31, 1996, Viacom
International Inc. entered into a $1.7 billion credit agreement (the "Credit
Agreement"). Proceeds from the Credit Agreement were transferred by Viacom
International Inc. to New VII as part of the First Distribution. Immediately
following the consummation of the Exchange Offer, on July 31, 1996, TCIC,
through a capital contribution of $350 million in cash, purchased all of the
shares of Class B Common Stock of VII Cable (the "Acquisition"). At that time,
VII Cable was renamed TCI Pacific Communications, Inc. and the shares of Class A
Common Stock of VII Cable were converted into 6,257,961 shares of 5% Class A
Senior Cumulative Exchangeable Preferred Stock. Proceeds from the $350 million
capital contribution were used to repay a portion of the Credit Agreement.
On October 13, 1995, TCIC (as buyer) and Prime Cable of Fort Bend, L.P. and
Prime Cable Income Partners, L.P. (as sellers) executed asset and stock purchase
and sale agreements (the "Houston Purchase Agreements") providing for the sale
of certain cable television systems serving the greater Houston Metropolitan
Area for a total base purchase price of $301 million, subject to adjustments.
On December 18, 1995, TCIC assigned all of its rights, remedies, title and
interest in, to and under the Houston Purchase Agreements to a subsidiary of
InterMedia Capital Partners IV, L.P. ("IMP"). On May 8, 1996, IMP consummated
the transactions contemplated by the Houston Purchase Agreements. In connection
with the Acquisition, IMP exchanged its Houston cable systems plus cash
amounting to $36,633,000 for VII Cable's Nashville cable system (the
"Exchange").
(b) Financial Information about Industry Segments
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The Company operates in the cable and communications services industry.
(c) Narrative Description of Business
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I-1
<PAGE>
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.
At December 31, 1996, approximately 85% of the Company's cable television
systems had bandwidth capacities ranging from 400 megahertz to 750 megahertz,
which generally permit a cable system to carry from 54 to 112 analog channels,
respectively. Compressed digital video technology converts on average as many as
fourteen 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 is uplinked to a
satellite, which sends 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 customer's home. At the home, a set-top video terminal converts the
digital signal back into analog channels that can be viewed on a normal
television set. TCIC conducted a beta test of its digital cable television
service in late 1996 and began offering such service to paying customers in
January, 1997. Pacific will be included in TCIC's digital rollout to the extent
Pacific's cable systems have the desired technological and market
characteristics.
Imedia, a small high technology firm, has developed a technology which
represents a significant advancement in increasing the number of digital
television programs delivered over a single satellite transponder or channel on
a cable system. Without requiring any change in fielded digital receiving
equipment in either the cable system headend or the customer's home, and without
requiring significant upgrades to the existing cable plant, the introduction of
Imedia's StatMux\TM\ technology significantly increases the transportation
capacity of the operator's system. The Company anticipates that it will
incorporate such technology with its digital service in strategic cable systems
during 1997.
Service Charges. The Company offers a limited "basic service" ("Basic TV")
(primarily comprised of local broadcast signals and public, educational and
governmental access channels) and an "expanded" tier (primarily comprised 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 $9.00 to $13.00, and
the monthly service fee for the "expanded" tier generally ranges from $13.00 to
$18.00. 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 $13.00 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, pay-per-view
movies offered separately generally at $4.00 per movie and certain pay-per-view
events offered separately at $10.00 to $50.00 per event. Charges are usually
discounted when multiple Pay-TV services are ordered.
As further enhancements to their cable services, customers may generally
rent converters and/or remote control devices for a monthly charge ranging from
$0.10 to $5.00 each, as well as purchase a channel guide for a monthly charge
ranging from $1.00 to $2.00. Also a nonrecurring installation charge (which is
limited by the Federal Communications Commission's ("FCC") rules which regulate
hourly service charges for each individual cable system) of up to $60.00 is
usually charged.
Monthly fees for Basic TV 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.
I-2
<PAGE>
As noted below, the Company's service offerings and rates were affected by
rate regulations issued by the FCC in 1993 and 1994. See Regulation and
Legislation below.
Customer Data. Pacific operates its cable television systems in the
following five geographic markets: The San Francisco and Northern California
area; Salem, Oregon; the Seattle, Washington and Greater Puget Sound area;
Houston, Texas and Dayton, Ohio. Basic and Pay-TV cable customers served by
Pacific and its consolidated subsidiaries are summarized as follows (amounts in
thousands, except percentages):
<TABLE>
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December 31,
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1996 1995 1994 1993 1992(1)
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Estimated homes passed 1,813 1,790 1,758 1,730 1,698
Basic customers 1,168 1,180 1,139 1,094 1,069
Basic penetration (2) 64% 66% 65% 63% 63%
Pay-TV subscriptions (3) 901 921 875 718 753
Pay-TV penetration (4) 77% 78% 77% 66% 70%
</TABLE>
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(1) Adjusted to eliminate the impact of certain dispositions in January,
1993.
(2) Calculated by dividing the number of basic customers by the number of
estimated homes passed.
(3) 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.
(4) Calculated by dividing the number of Pay-TV subscriptions by the number
of basic customers.
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.
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, not to exceed
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.
I-3
<PAGE>
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
13 of the Company's franchises expire within the next five years. This
represents approximately sixteen percent of the franchises held by the Company
and involves approximately 90,000 basic subscribers.
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 and Internet service providers. Both the 1992 Cable Act
and the Telecommunications Act of 1996 ("1996 Telecom Act") are designed to
increase competition in the cable television industry. See Regulation and
Legislation below.
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.
I-4
<PAGE>
DBS. During 1996, the Company has experienced a competitive impact from
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medium power and high power direct broadcast satellites ("DBS") that use high
frequencies to transmit signals that can be received by dish antennas ("HSDs")
much smaller in size than traditional HSDs. The partners in PRIMESTAR Partners
L.P. distribute a multi-channel programming service via a medium power
communications satellite to HSDs of approximately 3 feet in diameter. DirecTv,
Inc., United States Satellite Broadcasting Corporation and EchoStar
Communications Corp. ("EchoStar"), transmit from high power satellites and
generally use smaller dishes to receive their signals. Alphastar, Inc. began
offering medium power service in the second quarter of 1996. On February 24,
1997, News Corporation Limited ("News Corp.") and Echostar announced that News
Corp. will acquire a 50% interest in Echostar and that the companies will
combine their DBS businesses into a new company which will operate under the
name Sky. The two companies contend that Sky, which is scheduled to launch in
early 1998, will offer 500 channels of digital television, Internet services and
local broadcast network television signals, capable of reaching more than 50% of
all television households upon launch of Sky and 75% of all television
households by the end of 1998. DBS operators have the right to distribute
substantially all of the significant cable television programming services
currently carried by cable television systems. Estimated DBS customers
nationwide increased from approximately 2.2 million at the end of 1995 to
approximately 4.4 million at the end of 1996, and the Company expects that
competition from DBS will continue to increase.
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 technology
which requires a customer to rent or own one set-top box (which is significantly
more expensive than a cable converter) for each television on which they wish to
view DBS programming.
Although the effect of competition from these DBS services cannot be
specifically predicted, it is clear there has been significant growth in DBS
subscribers and the Company assumes that such DBS competition will be
substantial in the near future as developments in technology continue to
increase satellite transmitter power and decrease the cost and size of equipment
needed to receive these transmissions and enable DBS to overcome the
aforementioned disadvantages. Further, the extensive national advertising of
DBS programming packages, including certain sports packages not currently
available on cable television systems, will likely continue the growth in DBS
subscribers.
I-5
<PAGE>
Telephony Company Entry. The 1996 Telecom Act eliminated the statutory and
-----------------------
regulatory restrictions that prevented local telephone companies from competing
with cable operators for the provision of video services by any means. See
Regulation and Legislation section. The 1996 Telecom Act allows local telephone
companies, including the regional bell operating companies ("RBOCs"), to compete
with cable television operators both inside and outside their telephone service
areas. The Company expects that it will face substantial competition from
telephone companies for the provision of video services, whether it is through
wireless cable, or through upgraded telephone networks. The Company assumes
that all major telephone companies have already entered or soon will enter the
business of providing video services. Most major telephone companies have
greater financial resources than the Company, and the 1992 Cable Act ensures
that telephone company providers of video services will have access to acquiring
all of the significant cable television programming services. The specific
manner in which telephone company provision of video services will be regulated
is described under Regulation and Legislation below. Additionally, the 1996
Telecom Act eliminates certain federal restrictions on utility holding companies
and thus frees all utility companies to provide cable television services. The
Company expects this could result in another source of significant competition
in the delivery of video services.
Although long distance telephone companies had no legal prohibition on the
provision of video services, they have historically not been providers of such
services in competition with cable systems. However, such companies may prove
to be a source of competition in the future. The long distance companies are
expected to expand into local markets with local telephone and other offerings
(including video services) in competition with the RBOCs.
MMDS/LMDS. Another alternative method of distribution is multi-channel
---------
multi-point distribution systems ("MMDS"), which deliver programming services
over microwave channels received by customers with special antennas. 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. The 1992 Cable Act also ensures that MMDS operators
have the opportunity to acquire all significant cable television programming
services. Although there are relatively few MMDS systems in the United States
currently in operation, 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 an 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 analog channels, and thus compete
more effectively with cable television. Developments in digital compression
technology will significantly increase the number of channels that can be made
available from MMDS. Further, in 1995, several large telephone companies
acquired significant ownership in numerous MMDS companies. This infusion of
money into the MMDS industry was expected to accelerate its growth and its
competitive impact. However, in 1996 telephone company support of MMDS appeared
to diminish as both Bell Atlantic Corporation and NYNEX Corporation suspended
their investments in two major MMDS companies. Finally, an emerging technology,
local multipoint distribution services ("LMDS"), could also pose a significant
threat to the cable television industry, if and when it becomes established.
LMDS, sometimes referred to as cellular television, could have the capability of
delivering more than 100 channels of video programming to a customer's home.
The potential impact of LMDS is difficult to assess due to the recent
development of the technology and the absence of any current fully operational
LMDS systems.
I-6
<PAGE>
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.
Private Cable. The Company also competes with Master Antenna Television
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("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.
Further, the FCC is now considering new rules that would restrict or eliminate
the ability of cable operators to maintain ownership of cable wiring inside
multi-unit buildings, thereby potentially making it less expensive for SMATV
competitors to reach those customers.
In addition to competition for customers, 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 customers, the Company is the largest provider of cable television
services.
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 by the FCC, some state governments and most local
governments. On February 8, 1996, the President signed into law the 1996
Telecom Act. This new law alters the regulatory structure governing the
nation's telecommunications providers. It removes barriers to competition in
both the cable television market and the local telephone market. Among other
things, it reduces the scope of cable rate regulation.
The 1996 Telecom Act requires the FCC to implement numerous rulemakings,
the final outcome of which cannot yet be determined. Moreover, Congress and the
FCC have frequently revisited the subject of cable television regulation and may
do so again. Future legislative and regulatory changes could adversely affect
the Company's operations. This section briefly summarizes key laws and
regulations currently affecting the growth and operation of the Company's cable
systems.
I-7
<PAGE>
Cable Rate Regulation. The 1992 Cable Act imposed extensive rate
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regulation on the cable television industry. All cable systems are subject to
rate regulation, unless they face "effective competition" in their local
franchise area. Under the 1992 Cable Act, the incumbent cable operator can
demonstrate "effective competition" by showing either low penetration (less than
30% of the local population subscribes to basic service) or the presence
(measured collectively as 50% availability, 15% subscriber penetration) of other
multichannel video programming distributors ("MVPDs"). The 1996 Telecom Act
expands the existing definition of "effective competition" to create a special
test for a competing MVPD (other than a DBS distributor) affiliated with a local
exchange carrier ("LEC"). There is no penetration minimum for a LEC affiliate to
qualify as an effective competitor, but it must offer comparable programming
services in the franchise area.
Although the FCC establishes all cable rate rules, local government units
(commonly referred to as local franchising authorities or "LFAs") are primarily
responsible for administering the regulation of the lowest level of cable -- the
basic service tier ("BST"), which typically contains local broadcast stations
and public, educational and government ("PEG") access channels. Before an LFA
begins BST rate regulation, it must certify to the FCC that it will follow
applicable federal rules, and many LFAs have voluntarily declined to exercise
this authority. LFAs also have primary responsibility for regulating cable
equipment rates. Under federal law, charges for various types of cable
equipment must be unbundled from each other and from monthly charges for
programming services.
The FCC itself directly administers rate regulation of any cable
programming service tiers ("CPST"), which typically contain satellite-delivered
programming. Under the 1996 Telecom Act, the FCC can regulate CPST rates only if
an LFA first receives at least two complaints from local subscribers within 90
days of a CPST rate increase and then files a formal complaint with the FCC.
When new CPST rate complaints are filed, the FCC now considers only whether the
incremental increase is justified and will not reduce the previously established
CPST rate.
Under the FCC's rate regulations, the Company was required to reduce its
BST and CPST rates in 1993 and 1994, and has since had its rate increases
governed by a complicated price structure that allows for the recovery of
inflation and certain increased costs, as well as providing some incentive for
expanding channel carriage. The FCC has modified its rate adjustment regulations
to allow for annual rate increases and to minimize previous problems associated
with delays in implementing rate increases. Operators also have the opportunity
of bypassing this "benchmark" structure in favor of traditional cost-of-service
regulation in cases where the latter methodology appears favorable. However, the
FCC significantly limited the inclusion in the rate base of acquisition costs in
excess of the historical cost of tangible assets. As a result, the Company
pursued cost of service justifications in only a few cases. Premium cable
services offered on a per channel or per program basis remain unregulated, as do
affirmatively marketed packages consisting entirely of new programming product.
The 1996 Telecom Act sunsets FCC regulation of CPST rates for all systems
(regardless of size) on March 31, 1999. It also relaxes existing uniform rate
requirements by specifying that uniform rate requirements do not apply where the
operator faces "effective competition," and by exempting bulk discounts to
multiple dwelling units, although complaints about predatory pricing still may
be made to the FCC.
I-8
<PAGE>
Cable Entry Into Telecommunications. The 1996 Telecom Act provides that no
-----------------------------------
state or local laws or regulations may prohibit or have the effect of
prohibiting any entity from providing any interstate or intrastate
telecommunications service. States are authorized, however, to impose
"competitively neutral" requirements regarding universal service, public safety
and welfare, service quality, and consumer protection. State and local
governments also retain their authority to manage the public rights-of-way.
Although the 1996 Telecom Act clarifies that traditional cable franchise fees
may be based only on revenues related to the provision of cable television
services, it also provides that LFAs may require reasonable, competitively
neutral compensation for management of the public rights-of-way when cable
operators provide telecommunications service. The 1996 Telecom Act prohibits
LFAs from requiring cable operators to provide telecommunications service or
facilities as a condition of a franchise grant, renewal or transfer, except that
LFAs can seek "institutional networks" as part of such franchise negotiations.
The favorable pole attachment rates afforded cable operators under federal law
can be increased by utility companies owning the poles during a five year phase
in period beginning in 2001, if the cable operator provides telecommunications
service, as well as cable service, over its plant.
Cable entry into telecommunications will be affected by the regulatory
landscape now being fashioned by the FCC and state regulators. One critical
component of the 1996 Telecom Act intended to facilitate the entry of new
telecommunications providers (including cable operators) is the interconnection
obligation imposed on all telecommunications carriers. Review of the FCC's
initial interconnection order is now pending before the Eighth Circuit Court of
Appeals.
Telephone Company Entry Into Cable Television. The 1996 Telecom Act allows
---------------------------------------------
telephone companies to compete directly with cable operators by repealing the
historic telephone company/cable company cross-ownership ban and the FCC's video
dialtone regulations. This will allow LECs, including the RBOCs, to compete
with cable operators both inside and outside their telephone service areas.
Because of their resources, LECs could be formidable competitors to traditional
cable operators, and certain LECs have begun offering cable service.
Under the 1996 Telecom Act, a LEC providing video programming to customers
will be regulated as a traditional cable operator (subject to local franchising
and federal regulatory requirements), unless the LEC elects to provide its
programming via an "open video system" ("OVS"). LECs providing service through
an OVS can proceed without a traditional cable franchise, although an OVS
operator will be subject to general rights-of-way management regulations and can
be required to pay franchise fees to the extent it provides cable services. To
be eligible for OVS status, the LEC itself cannot occupy more than one-third of
the system's activated channels when demand for channels exceeds supply. Nor
can it discriminate among programmers or establish unreasonable rates, terms or
conditions for service.
Although LECs and cable operators can now expand their offerings across
traditional service boundaries, the general prohibitions remain on LEC buyouts
(i.e., any ownership interest exceeding 10 percent) of co-located cable systems,
cable operator buyouts of co-located LEC systems, and joint ventures between
cable operators and LECs in the same market. The 1996 Telecom Act provides a
few limited exceptions to this buyout prohibition. The "rural exemption"
permits buyouts where the purchased system serves an area with fewer than 35,000
inhabitants outside an urban area, and the cable system plus any other system in
which the LEC has an interest do not represent 10% or more of the LEC's
telephone service area. The 1996 Telecom Act also provides the FCC with the
power to grant waivers of the buyout prohibition in cases where: (1) the cable
operator or LEC would be subject to undue economic distress; (2) the system or
facilities would not be economically viable; or (3) the anticompetitive effects
of the proposed transaction are clearly outweighed by the effect of the
transaction in meeting community needs. The LFA must approve any such waiver.
I-9
<PAGE>
Electric Utility Entry Into Telecommunications/Cable Television. The 1996
---------------------------------------------------------------
Telecom Act provides that registered utility holding companies and subsidiaries
may provide telecommunications services (including cable television)
notwithstanding the Public Utilities Holding Company Act. Electric utilities
must establish separate subsidiaries, known as "exempt telecommunications
companies" and must apply to the FCC for operating authority. Again, because of
their resources, electric utilities could be formidable competitors to
traditional cable systems.
Additional Ownership Restrictions. Pursuant to the 1992 Cable Act, the FCC
---------------------------------
adopted regulations establishing a 30% limit on the number of homes nationwide
that a cable operator may reach through cable systems in which it holds an
attributable interest (attributable for these purposes is defined as a 5% or
greater ownership interest or the existence of 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 TCIC's, and subsequently Pacific's, ability to acquire interests
in additional cable systems.
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 nationwide that a cable operator may reach through its cable
systems) to 40% 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% 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.
The 1996 Telecom Act eliminates statutory restrictions on broadcast/cable
cross-ownership (including broadcast network/cable restrictions), but leaves in
place existing FCC regulations prohibiting local cross-ownership between
television stations and cable systems. The 1996 Telecom Act also eliminates the
three year holding period required under the 1992 Cable Act's "anti-trafficking"
provision. The 1996 Telecom Act leaves in place existing restrictions on cable
cross-ownership with SMATV and MMDS facilities, but lifts those restrictions
where the cable operator is subject to effective competition. In January 1995,
however, the FCC adopted regulations which permit cable operators to own and
operate SMATV systems within their franchise area, provided that such operation
is consistent with local cable franchise requirements.
Must Carry/Retransmission Consent. The 1992 Cable Act contains broadcast
---------------------------------
signal carriage requirements that allow local commercial television broadcast
stations to elect once every three years between requiring a cable system to
carry the station ("must carry") or negotiating for payments for granting
permission to the cable operator to carry the station ("retransmission
consent"). Less popular stations typically elect "must carry," and more popular
stations typically elect "retransmission consent." Must carry requests can
dilute the appeal of a cable system's programming offerings, and retransmission
consent demands may require substantial payments or other concessions. Either
option has a potentially adverse affect on the Company's business.
Additionally, cable systems are required to obtain retransmission consent for
all "distant" commercial television stations (except for commercial satellite-
delivered independent "superstations" such as WTBS). The constitutionality of
the must carry requirements has been challenged and is awaiting a decision from
the U.S. Supreme Court.
I-10
<PAGE>
Access Channels. LFAs can include franchise provisions requiring cable
---------------
operators to set aside certain channels for public, educational and governmental
access programming. Federal law also requires a cable system with 36 or more
channels to designate a portion of its channel capacity (either 10% or 15%) for
commercial leased access by unaffiliated third parties. The FCC has adopted
rules regulating the terms, conditions and maximum rates a cable operator may
charge for use of this designated channel capacity, but use of commercial leased
access channels has been relatively limited. In February of 1997, the FCC
released revised rules which mandate a modest rate reduction and could make
commercial leased access a more attractive option for third party programmers.
"Anti-Buy Through" Provisions. Federal law requires each cable system to
-----------------------------
permit subscribers to purchase premium or pay-per-view video programming offered
by the operator on a per-channel or a per-program basis without the necessity of
subscribing to any tier of service (other than the basic service tier) unless
the system's lack of addressable converter boxes or other technological
limitations does not permit it to do so. The statutory exemption for cable
systems that do not have the technological capability to comply expires in
December 2002, but the FCC may extend that period if deemed necessary.
Access to Programming. To spur the development of independent cable
---------------------
programmers and competition to incumbent cable operators, the 1992 Cable Act
imposed restrictions on the dealings between cable operators and cable
programmers. Of special significance from a competitive business posture, the
1992 Cable Act precludes video programmers affiliated with cable companies from
favoring cable operators over competitors and requires such programmers to sell
their programming to other multichannel video distributors (such as DBS and
MMDS). This provision limits the ability of vertically integrated cable
programmers to offer exclusive programming arrangements to the Company.
Other FCC Regulations. In addition to the FCC regulations noted above,
---------------------
there are other FCC regulations covering such areas as equal employment
opportunity, subscriber privacy, programming practices (including, among other
things, syndicated program exclusivity, network program nonduplication, local
sports blackouts, indecent programming, lottery programming, political
programming, sponsorship identification, and children's programming
advertisements), registration of cable systems and facilities licensing,
maintenance of various records and public inspection files, frequency usage,
lockbox availability, antenna structure notification, tower marking and
lighting, consumer protection and customer service standards, technical
standards, and consumer electronics equipment compatibility. The FCC is expected
to impose new Emergency Alert System requirements on cable operators in 1997.
The FCC has the authority to enforce its regulations through the imposition of
substantial fines, the issuance of cease and desist orders and/or the imposition
of other administrative sanctions, such as the revocation of FCC licenses needed
to operate certain transmission facilities used in connection with cable
operations.
Two pending FCC proceedings of particular competitive concern involve
inside wiring and navigational devices or converter boxes. The former FCC
proceeding is considering ownership of cable wiring located inside multiple
dwelling unit ("MDU") complexes. If the FCC concludes that such wiring belongs
to, or can be unilaterally acquired by the MDU owner, it will become easier for
MDU owners to terminate service from the incumbent cable operator in favor of a
new entrant. The latter FCC proceeding is considering whether cable customers
should be permitted to purchase cable converters from third party vendors. If
the FCC concludes that third party sale of converters is required, and does not
make appropriate allowances for signal piracy concerns, it may become more
difficult for cable operators to combat theft of service.
I-11
<PAGE>
Copyright. Cable television systems are subject to federal copyright
---------
licensing covering carriage of television and radio broadcast signals. In
exchange for filing certain reports and contributing a percentage of their
revenue to a federal copyright royalty pool (such percentage varies depending on
the size of the system and the number of distant broadcast television signals
carried), cable operators can obtain blanket permission to retransmit
copyrighted material on broadcast signals. The possible modification or
elimination of this compulsory copyright license is subject to continuing review
and could adversely affect the Company's ability to obtain desired broadcast
programming. In addition, the cable industry pays music licensing fees to
Broadcast Music, Inc. and is negotiating a similar arrangement with the American
Society of Composers, Authors and Publishers. Copyright clearances for
nonbroadcast programming services are arranged through private negotiations.
State and Local Regulation. Cable television systems generally are
--------------------------
operated pursuant to nonexclusive franchises granted by a municipality or other
state or local government entity. The 1996 Telecom Act clarified that the need
for an entity providing cable services to obtain a local franchise depends
solely on whether the entity crosses public rights of way. Federal law now
prohibits franchise authorities from granting exclusive franchises or from
unreasonably refusing to award additional franchises covering an existing cable
system's service area. Cable franchises generally are granted for fixed terms
and in many cases are terminable if the franchisee fails to comply with material
provisions. Non-compliance by the cable operator with franchise provisions may
also result in monetary penalties.
The terms and conditions of franchises vary materially from jurisdiction to
jurisdiction. Each franchise generally contains provisions governing cable
operations, service rates, franchise fees, system construction and maintenance
obligations, system channel capacity, design and technical performance, customer
service standards, and indemnification protections. A number of states subject
cable television systems to the jurisdiction of centralized state governmental
agencies, some of which impose regulation of a character similar to that of a
public utility. Although LFAs have considerable discretion in establishing
franchise terms, there are certain federal limitations. For example, LFAs
cannot insist on franchise fees exceeding 5% of the system's gross revenue,
cannot dictate the particular technology used by the system, and cannot specify
video programming other than identifying broad categories of programming.
Federal law contains renewal procedures designed to protect incumbent
franchisees against arbitrary denials of renewal. Even if a franchise is
renewed, the franchise authority may seek to impose new and more onerous
requirements such as significant upgrades in facilities and services or
increased franchise fees as a condition of renewal. Similarly, if a franchise
authority's consent is required for the purchase or sale of a cable system or
franchise, such authority may attempt to impose more burdensome or onerous
franchise requirements in connection with a request for consent. Historically,
franchises have been renewed for cable operators that have provided satisfactory
services and have complied with the terms of their franchises.
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. 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 affected adversely by future legislation, new
regulation or deregulation.
I-12
<PAGE>
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, 1996, the Company had approximately 1,900 employees, most
of which were located at the Company's various facilities in the communities in
which the Company owns and/or operates cable television systems.
(d) Financial Information about Foreign & Domestic Operations and Export Sales
--------------------------------------------------------------------------
The Company has neither material foreign operations nor export sales.
Item 2. Properties.
- ------ ----------
The Company leases most of its local operating offices, and owns many of
its head-end and antenna sites. Its physical cable television properties
consist of system components, motor vehicles, miscellaneous hardware, spare
parts and other components.
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.
- ------ -----------------
None.
Item 4. Submission of Matters to a Vote of Security Holders.
- ------ ---------------------------------------------------
None.
I-13
<PAGE>
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
- ------ ---------------------------------------------------------------------
All of TCI Pacific Communications, Inc.'s (together with its consolidated
subsidiaries, "Pacific" or the "Company") common stock is owned by TCI
Communications, Inc. ("TCIC"). The Company has not paid cash dividends on its
common stock and has no present intention of so doing. Payment of cash
dividends, if any, in the future will be determined by the board of directors in
light of the Company's earnings, financial condition and other relevant
considerations. The Company is a holding company and its assets consist almost
entirely of investments in its subsidiaries. As a holding company, the
Company's ability to pay dividends on any classes of its stock is dependent on
the earnings of, or other funds available to, the Company's subsidiaries and the
distribution or other payment of such earnings or other funds to the Company in
the form of dividends, loans or other advances, payment or reimbursement of
management fees and expenses and repayment of loans and advances from the
Company. 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.
II-1
<PAGE>
Item 6. Selected Financial Data.
- ------ -----------------------
The following tables present selected information relating to the financial
condition and results of operations of Pacific and its predecessor Viacom
International Inc. (after giving effect to the First Distribution, as defined in
Item 7, "VII Cable") for the past five years. The following data should be read
in conjunction with TCI Pacific Communications, Inc.'s consolidated financial
statements. The selected information of VII Cable for periods prior to July 31,
1996 reflects the carve-out historical results of operations and financial
position of VII Cable's cable television distribution business and is not
necessarily indicative of results of operations or financial position that would
have occurred if such business had been a separate stand-alone entity during the
periods presented.
<TABLE>
<CAPTION>
VII Cable
Pacific ------------------------------------------
------------- December 31,
December 31, ------------------------------------------
1996 1995 1994 1993 1992
------------- ---------- ---------- -------- --------
amounts in thousands
Summary Balance Sheet Data:
- ---------------------------
<S> <C> <C> <C> <C> <C>
Property and equipment, net $ 379,183 419,644 365,032 326,080 287,219
Franchise costs, net $2,984,473 561,229 578,072 593,749 636,132
Total assets $3,440,561 1,066,813 1,040,434 966,249 961,285
Debt $1,151,884 57,000 57,000 57,000 106,000
Exchangeable preferred stock $ 629,801 -- -- -- --
Common stockholder's equity $ 539,195 857,107 823,940 765,531 753,929
Pacific VII Cable
------------ -------------------------------------------------------
Five months Seven months
ended ended Years ended December 31,
December 31, July 31, -----------------------------------------
1996 1996 1995 1994 1993 1992
------------ ------------ --------- --------- ------- -------
amounts in thousands
Summary Statement of Operations Data:
- ------------------------------------
Revenue $215,550 280,630 448,206 408,801 414,786 410,129
Operating income $ 37,802 52,266 86,862 61,744 83,815 97,518
Interest expense $(43,566) (30,908) (48,524) (38,050) (33,417) (49,769)
Net earnings (loss) $ (2,452) 10,660 33,714 9,146 97,391 25,793
Dividend requirement on
exchangeable preferred stock
$(13,079) -- -- -- -- --
-------- --------- --------- --------- ------- -------
Net earnings (loss)
attributable to common stockholder $(15,531) 10,660 33,714 9,146 97,391 25,793
======== ========== ========= ========= ======= =======
II-2
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations.
----------------------
General
- -------
On July 24, 1995, Viacom Inc. ("Viacom"), Viacom International Inc. (after
giving effect to the First Distribution as defined below, "VII Cable") a wholly
owned subsidiary of Viacom, and Viacom International Services Inc. ("New VII"),
a wholly owned subsidiary of VII Cable, entered into certain agreements with
Tele-Communications, Inc. ("TCI") and TCIC, a subsidiary of TCI, providing for,
among other things, the conveyance of Viacom International Inc.'s non-cable
assets and liabilities to New VII, the distribution of all of the common stock
of New VII to Viacom (the "First Distribution"), the Exchange Offer (as defined
below) and the issuance to TCIC of all of the Class B Common Stock of VII Cable.
On June 24, 1996, Viacom commenced an exchange offer (the "Exchange Offer")
pursuant to which Viacom shareholders had the option to exchange shares of
Viacom Class A or Class B Common Stock ("Viacom Common Stock") for a total of
6,257,961 shares of VII Cable Class A Common Stock. The Exchange Offer expired
on July 22, 1996 with a final exchange ratio of 0.4075 shares of VII Cable Class
A Common Stock for each share of Viacom Common Stock accepted for exchange.
Prior to the consummation of the Exchange Offer on July 31, 1996, Viacom
International Inc. entered into a $1.7 billion credit agreement (the "Credit
Agreement"). Proceeds from the Credit Agreement were transferred by Viacom
International Inc. to New VII as part of the First Distribution. Immediately
following the consummation of the Exchange Offer, on July 31, 1996, TCIC,
through a capital contribution of $350 million in cash, purchased all of the
shares of Class B Common Stock of VII Cable (the "Acquisition"). At that time,
VII Cable was renamed TCI Pacific Communications, Inc. and the shares of Class A
Common Stock of VII Cable were converted into shares of 5% Class A Senior
Cumulative Exchangeable Preferred Stock (the "Exchangeable Preferred Stock").
Proceeds from the $350 million capital contribution were used to repay a portion
of the Credit Agreement.
The Exchangeable Preferred Stock is exchangeable, at the option of the
holder commencing after the fifth anniversary of the date of issuance, for
shares of Series A TCI Group Stock at an exchange rate of 5.447 shares of Series
A TCI Group Stock for each share of Exchangeable Preferred Stock exchanged. The
Exchangeable Preferred Stock is subject to redemption, at the option of Pacific,
on or after the fifteenth day following the fifth anniversary of the date of
issuance, initially at a redemption price of $102.50 per share and thereafter at
prices declining ratably annually to $100 per share on and after the eighth
anniversary of the date of issuance, plus accrued and unpaid dividends to the
date of redemption. The Exchangeable Preferred Stock is also subject to
mandatory redemption on the tenth anniversary of the date of issuance for $100
per share plus accrued and unpaid dividends. Amounts payable by the Company in
satisfaction of its dividend, optional redemption and mandatory redemption
obligations with respect to the Exchangeable Preferred Stock may be made in cash
or, at the election of the Company, in shares of Series A TCI Group Stock, or in
any combination of the foregoing. If payments are made in shares of Series A TCI
Group Stock, Pacific will discount the market value of such stock by 5% in
determining the number of shares required to be issued to satisfy such payments.
(continued)
II-3
<PAGE>
Summary of Operations
- ---------------------
1996 vs. 1995
- -------------
Due to the consummation of the Acquisition, the Company's 1996 statement of
operations includes information reflecting the five month period ended December
31, 1996 (the "Five Month Period") and the seven month period ended July 31,
1996 (the "Seven Month Period"). In order to provide a meaningful basis for
comparing the years ended December 31, 1996 and 1995, the Five Month Period has
been combined with the Seven Month Period for purposes of the following
discussion and analysis.
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 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, Pacific'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
regulations established benchmark rates in 1993, which were further reduced in
1994, to which the rates charged by cable operators for Regulated Services were
required to conform.
Pacific 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 by 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 one year prior to the
implementation of the rate reductions.
On February 8, 1996, the Telecommunications Act of 1996 (the "1996 Telecom
Act") was signed into law. Because the 1996 Telecom Act does not deregulate
cable programming service tier rates until 1999 (and basic service tier rates
will remain regulated thereafter), 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.
Revenue increased 11% for the year ended December 31, 1996, as compared to
1995. Such increase is primarily attributable to a 2% increase in average basic
customers and a 12% increase in the average basic rate, partially offset by a
15% decrease in the average premium rate. Average premium subscribers were
comparable from 1995 to 1996. Total revenue per basic customer per month
increased 9% to $35.05 for the year ended December 31, 1996 from $32.17 for the
year ended December 31, 1995. As of December 31, 1996, Pacific served
approximately 1,168,000 basic customers subscribing to approximately 901,000
premium units, representing a 1% and 2% decrease, respectively, since December
31, 1995.
Operating expenses increased 7% for the year ended December 31, 1996, as
compared to 1995. Such increase is due to increases in costs related to
customer growth, increased programming fees and increased channel capacity.
Selling, general and administrative ("SG&A") expenses increased 16% for the
year ended December 31, 1996, as compared to 1995. Such increase reflects
programming launch incentives received in 1995 but not in 1996, and higher
overhead allocations in 1996.
(continued)
II-4
<PAGE>
Prior to the Acquisition, Viacom provided VII Cable with certain general
services, including insurance, legal, financial and other corporate functions.
Charges for these services were based on the average of certain specified ratios
of revenue, operating income and net assets of VII Cable in relation to Viacom.
The charges for such services were $5,750,000 for the seven month period and are
included in SG&A.
Effective August 1, 1996, TCI provides certain facilities, services and
personnel to Pacific. The scope of the facilities, personnel and services to
Pacific and the respective charges payable in respect thereof are set forth in a
services agreement entered into among TCI, TCIC and Pacific ("Services
Agreement"). Pursuant to the Services Agreement, TCI provides to Pacific
administrative and operational services necessary for the conduct of its
business, including, but not limited to, such services as are generally
performed by TCI's accounting, finance, corporate, legal and tax departments.
In addition, TCI makes available to Pacific such general overall management
services and strategic planning services as TCI and Pacific have agreed, and
provides Pacific with such access to and assistance from TCI engineering and
construction groups and TCI's programming and technology/venture personnel at
Pacific's request.
The Services Agreement also provides that, for so long as TCI continues to
beneficially own shares of Pacific's common stock representing at least a
majority in voting power of the outstanding shares of capital stock of Pacific
entitled to vote generally in the election of directors, TCI will continue to
provide in the same manner, and on the same basis as is generally provided from
time to time to other participating TCI subsidiaries, benefits and
administrative services to Pacific's employees.
In this regard, Pacific is allocated that portion of TCI's compensation
expense attributable to benefits extended to employees of Pacific. Pursuant to
the Services Agreement, Pacific reimburses TCI for all direct expenses incurred
by them in providing such services and a pro rata share of all indirect expenses
incurred by them in connection with the rendering of such services, including a
pro rata share of the salary and other compensation of TCI employees performing
services for Pacific and general overhead expenses. Charges for expenses
incurred in connection with the Services Agreement were $7,982,000 during the
five month period and are included in SG&A. See note 11 to the accompanying
financial statements.
Depreciation expense decreased 16% for the year ended December 31, 1996, as
compared to 1995. Such decrease is attributable to the consummation of the
Acquisition, in which Pacific recorded property and equipment at estimated fair
market value which was less than VII Cable's historical cost, offset by an
increase in depreciation due to $96,912,000 in capital expenditures during 1996.
Amortization expense increased 129% for the year ended December 31, 1996,
as compared to 1995. Such increase is attributable to increased franchise costs
resulting from the Acquisition.
Other Income and Expense
------------------------
Interest expense increased 53% for the year ended December 31, 1996, as
compared to 1995. Such increase is due to interest related to the $1.7 billion
Credit Agreement entered into prior to consummation of the Exchange Offer.
Interest expense for periods prior to the Acquisition reflects amounts recorded
by VII Cable on borrowings under a credit agreement and amounts allocated by
Viacom to VII Cable based on a percentage of VII Cable's average net assets to
Viacom's average net assets.
(continued)
II-5
<PAGE>
VII Cable was included in the consolidated Federal, state and local income
tax returns filed by Viacom. However, the income tax provision was prepared on
a separate return basis as though VII Cable filed stand-alone income tax
returns. The effective tax rates of 53% and 49% for the years ended December
31, 1996 and 1995, respectively, were both adversely affected by the
amortization of acquisition costs which are not deductible for tax purposes.
Subsequent to the Acquisition, Pacific is included in the consolidated
Federal income tax return of TCI. Income tax expense or benefit for Pacific is
based on those items in the consolidated calculation applicable to Pacific.
Intercompany tax allocation represents an apportionment of tax expense or
benefit (other than deferred taxes) among the 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 to TCIC.
The Company's net earnings (before preferred stock dividend requirements)
of $8,208,000 for the year ended December 31, 1996 represents a decrease of
$25,506,000 as compared to 1995. Such reduction primarily represents an
increase of interest expense of $25,950,000 in 1996 and the recognition in 1995
of a gain on sale of marketable equity securities held as available for sale
($26,902,000) offset by a decrease in income tax expense of $23,561,000.
Additionally, net earnings were reduced by the increase in amortization expense
less the decrease in depreciation expense attributable to the consummation of
the Acquisition.
1995 vs. 1994
- -------------
Revenue increased 10% from 1994 to 1995. The increase in revenue reflects
a 4% and 13% increase in average basic and premium customers, respectively, and
a 5% increase in average basic rates, partially offset by a 7% decrease in the
average premium rate. Total revenue per basic customer per month increased 6%
to $32.17 for 1995 from $30.49 for 1994. As of December 31, 1995, VII Cable
served approximately 1,180,000 basic customers subscribing to approximately
921,000 premium units, representing a 4% and 5% increase, respectively, since
December 31, 1994.
Operating expenses increased 13% principally reflecting an increase in
programming and other costs related to customer growth, increased programming
fees and increased channel capacity.
SG&A decreased 9% for the year ended December 31, 1995, as compared to
1994. Such decrease reflects lower overhead allocations in 1995 and programming
launch incentives received in 1995.
Prior to the Acquisition, Viacom provided VII Cable with certain general
services, including insurance, legal, financial and other corporate functions.
Charges for these services were based on the average of certain specified ratios
of revenue, operating income and net assets of VII Cable in relation to Viacom.
The charges for such services were $13,492,000 and $16,849,000 for 1995 and
1994, respectively, representing a 20% decrease, and are included in SG&A.
Other Income and Expense
------------------------
Interest expense increased 28% from 1994 to 1995. Interest expense
reflects amounts recorded by VII Cable on borrowings under a credit agreement
and amounts allocated by Viacom of $46,363,000 and $35,681,000 for 1995 and
1994, respectively. Viacom allocated interest expense to VII Cable based on a
percentage of VII Cable's average net assets to Viacom's average net assets.
(continued)
II-6
<PAGE>
In 1995, VII Cable recognized a pre-tax gain of $26,902,000 from the sale
of marketable securities.
VII Cable was included in the consolidated federal, state and local income
tax returns filed by Viacom. However, the income tax provision was prepared on
a separate return basis as though VII Cable filed stand-alone income tax
returns. The annual effective tax rate of 49% for 1995 was adversely affected
by the amortization of acquisition costs which are not deductible for tax
purposes.
VII Cable's net earnings of $33,714,000 for the year ended December 31,
1995 represents an increase of $24,568,000 as compared to 1994. Such reduction
primarily represents an increase in average basic and primary customers and the
recognition of a gain on the sale of marketable equity securities offset by
increases in interest expense of $10,474,000 and income tax expense of
$14,838,000.
Liquidity and Capital Resources
- -------------------------------
On October 13, 1995, TCIC (as buyer) and Prime Cable of Fort Bend, L.P. and
Prime Cable Income Partners, L.P. (as sellers) executed asset and stock purchase
and sale agreements (the "Houston Purchase Agreements") providing for the sale
of certain cable television systems serving the greater Houston Metropolitan
Area for a total base purchase price of $301 million, subject to adjustments.
On December 18, 1995, TCIC assigned all of its rights, remedies, title and
interest in, to and under the Houston Purchase Agreements to a subsidiary of
InterMedia Capital Partners IV, L.P. ("IMP"). On May 8, 1996, IMP consummated
the transactions contemplated by the Houston Purchase Agreements. In connection
with the Acquisition, IMP exchanged its Houston cable systems plus cash
amounting to $36,633,000 for VII Cable's Nashville cable system.
During July 1991, VII Cable received reassessments from ten California
counties of its real and personal property, related to a June 1987 acquisition,
which could result in substantially higher California property tax liabilities.
VII Cable is appealing the reassessments. At July 31, 1996 VII Cable had paid
$44,083,000 related to real and personal property taxes which have, along with
any potential future liability related to periods prior to July 31, 1996,
transferred to New VII on July 31, 1996 as part of the First Distribution and
any potential future liability was conveyed to Viacom effective July 31, 1996.
The Company's business requires significant capital expenditures to
maintain, upgrade, rebuild and expand its cable television systems.
Historically, VII Cable's cash requirements were funded by VII Cable's operating
activities and through intercompany advances from Viacom, as needed. During the
fourth quarter of 1996, Pacific reevaluated its capital expenditure strategy
and currently anticipates that it will spend significantly less for property and
equipment in 1997 than it has in the past. Accordingly, management believes that
net cash provided by operating activities and available capacity pursuant to the
Credit Agreement, and advances from TCIC, as required, will provide adequate
services of short-term and long-term liquidity in the future.
In accordance with the terms of the Credit Agreement, Pacific has entered
into an interest rate exchange agreement (the "Exchange Agreement") with TCIC
pursuant to which Pacific will pay a fixed interest rate of 7.5% on a notional
amount of $600 million. The terms of the Exchange Agreement become effective
only if the one month LIBOR rate exceeds 6.5% for five consecutive days within
the two-year observation period, as defined by the Exchange Agreement (the
"Trigger"). In the event the Trigger occurs, the terms of the agreement become
effective until August 1, 2001. As of December 31, 1996, the terms of the
Exchange Agreement have not become effective.
At December 31, 1996, the Company had $250,000,000 in unused availability
under the Credit Agreement. Although the Company was in compliance with the
restrictive covenants contained in the Credit Agreement at said date, additional
borrowings under the Credit Agreement are subject to the Company's 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 in the credit facilities) after giving effect to such
additional borrowings. See note 7 to the accompanying consolidated financial
statements for additional information regarding the material terms of the Credit
Agreement.
(continued)
II-7
<PAGE>
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
13 of the Company's franchises expire within the next five years. This
represents approximately sixteen percent of the franchises held by the Company
and involves approximately 90,000 basic subscribers.
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)($82,445,000 for the five months ended December 31, 1996) to
interest expense ($43,566,000 for the five months ended December 31, 1996), is
determined by reference to the statements of operations. The Company's interest
coverage ratio was 189% for the five months ended December 31, 1996. 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. Operating Cash Flow is a measure of value and borrowing capacity
within the cable television industry and is not intended to be a substitute for
cash flows provided by operating activities, a measure of performance prepared
in accordance with generally accepted accounting principles, and should not be
relied upon as such. Operating Cash Flow, as defined, does not take into
consideration substantial costs of doing business, such as interest expense, and
should not be considered in isolation to other measures of performance.
Another measure of liquidity is net cash provided by operating activities,
as reflected in the accompanying consolidated statements of cash flows. Net
cash provided by operating activities ($6,063,000 for the five months ended
December 31, 1996) reflects net cash from the operations of the Company
available for the Company's liquidity needs after taking into consideration the
aforementioned additional substantial costs of doing business not reflected in
Operating Cash Flow. See the Company's consolidated statements of cash flows
included in the accompanying financial statements.
Item 8. Financial Statements and Supplementary Data.
- ------ -------------------------------------------
The consolidated financial statements of TCI Pacific Communications, Inc.
are filed under this Item, beginning on Page II-9. 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.
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors and Stockholders
TCI Pacific Communications, Inc.:
We have audited the accompanying consolidated balance sheet of TCI Pacific
Communications, Inc. and subsidiaries (a subsidiary of TCI Communications, Inc.)
as of December 31, 1996, and the related consolidated statements of operations,
common stockholder's equity, and cash flows for the five months ended December
31, 1996. 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 audit.
We conducted our audit 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 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 TCI Pacific
Communications, Inc. and subsidiaries as of December 31, 1996, and the results
of their operations and their cash flows for the five months ended December 31,
1996, in conformity with generally accepted accounting principles.
As discussed in note 1 to the consolidated financial statements, effective
August 1, 1996, TCI Communications, Inc. acquired all of the outstanding stock
of Viacom International Inc. which was renamed TCI Pacific Communications, Inc.,
in a business combination accounted for as a purchase. As a result of the
acquisition, the consolidated financial information for the periods after the
acquisition is presented on a different cost basis than that for the periods
before the acquisition and, therefore, is not comparable.
KPMG Peat Marwick LLP
Denver, Colorado
March 24, 1997
II-9
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
October 18, 1996
The Board of Directors and Stockholders
of TCI Pacific Communications, Inc.
(the "Company", formerly VII Cable):
In our opinion, the accompanying combined balance sheet and the related
combined statements of operations, of common stockholder's equity and of cash
flows present fairly, in all material respects, the financial position of VII
Cable (as defined in note 1 to the financial statements) at December 31, 1995,
and the results of its operations and its cash flows for the seven months ended
July 31, 1996 and each of the two years in the period ended December 31, 1995,
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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 disclosure in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Our audits of the combined financial statements of VII Cable also included
an audit of the Financial Statement Schedule on page IV-9 for the seven months
ended July 31, 1996 and each of the two years in the period ended December 31,
1995. In our opinion, the Financial Statement Schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related combined financial statements.
PRICE WATERHOUSE LLP
New York, New York
October 18, 1996
II-10
<PAGE>
TCI PACIFIC COMMUNICATIONS, INC. AND SUBSIDIARIES
(see notes 1 and 2)
Balance Sheet
<TABLE>
<CAPTION>
Pacific VII Cable
(note 2) (note 2)
------------- -------------
December 31, December 31,
1996 1995
------------- -------------
Assets amounts in thousands
- ------
<S> <C> <C>
Cash $ -- 2,294
Restricted cash (Note 1) 33,664 --
Trade and other receivables, net 18,986 14,333
Prepaids 6,144 3,342
Property and equipment, at cost:
Land 5,795 5,470
Distribution systems 348,949 549,553
Support equipment and buildings 35,812 192,305
---------- ---------
390,556 747,328
Less accumulated depreciation 11,373 327,684
---------- ---------
379,183 419,644
---------- ---------
Franchise costs 3,015,246 718,636
Less accumulated amortization 30,773 157,407
---------- ---------
2,984,473 561,229
---------- ---------
Other assets, at cost, net of
amortization (note 1) 18,111 65,971
---------- ---------
$3,440,561 1,066,813
Liabilities and Common ========== =========
Stockholder's Equity
- -----------------------
Cash overdraft $ 9,736 --
Accounts payable 3,490 28,380
Accrued expenses (note 6) 30,008 37,686
Subscriber advance payments 2,727 2,556
Debt (note 7) 1,151,884 57,000
Deferred income taxes (note 10) 1,073,340 72,953
Other liabilities 380 11,131
---------- ---------
Total liabilities 2,271,565 209,706
---------- ---------
Exchangeable preferred stock
(note 8) 629,801 --
Common stockholder's equity:
Class A common stock, $1 par
value. Authorized 6,257,961
shares; no shares issued
and outstanding -- --
Class B common stock, $.01,
par value. Authorized 100
shares; issued and outstanding
100 shares -- --
Additional paid-in capital 336,921 --
Accumulated deficit (2,452) --
Viacom Inc. ("Viacom") equity
investment -- 857,107
---------- ---------
334,469 857,107
Due to TCI Communications, Inc.
("TCIC") 204,726 --
---------- ---------
Total common stockholder's
equity 539,195 857,107
---------- ---------
Commitments (note 12)
$3,440,561 1,066,813
========== =========
</TABLE>
See accompanying notes to financial statements.
II-11
<PAGE>
TCI PACIFIC COMMUNICATIONS, INC. AND SUBSIDIARIES
(see notes 1 and 2)
Statements of Operations
<TABLE>
<CAPTION>
Pacific VII Cable
(note 2) (note 2)
------------- ---------------------------------
Five months Seven months Years ended
ended ended December 31,
December 31, July 31, ------------------
1996 1996 1995 1994
------------- ------------- -------- --------
amounts in thousands
<S> <C> <C> <C> <C>
Revenue $215,550 280,630 448,206 408,801
Operating costs and expenses:
Operating (note 11) 74,516 108,652 170,521 151,084
Selling, general and
administrative (note 11) 58,589 68,132 108,849 119,577
Depreciation (note 3) 12,765 40,681 63,292 57,879
Amortization 31,878 10,899 18,682 18,517
-------- ------- ------- -------
177,748 228,364 361,344 347,057
-------- ------- ------- -------
Operating income 37,802 52,266 86,862 61,744
Other income (expense):
Interest expense (note 11) (43,566) (30,908) (48,524) (38,050)
Interest income 450 2,214 -- --
Gain on sale of marketable securities
held as available-for-sale -- -- 26,902 --
Other, net (1,312) 520 1,293 3,433
-------- ------- ------- -------
(44,428) (28,174) (20,329) (34,617)
-------- ------- ------- -------
Earnings (loss) before income
taxes (6,626) 24,092 66,533 27,127
Income tax benefit (expense) (note 10) 4,174 (13,432) (32,819) (17,981)
-------- ------- ------- -------
Net earnings (loss) (2,452) 10,660 33,714 9,146
======== ======= ======= =======
Dividend requirement on Exchangeable
Preferred Stock (13,079)
--------
Net loss attributable to
common stockholder $(15,531)
========
</TABLE>
See accompanying notes to financial statements.
II-12
<PAGE>
TCI PACIFIC COMMUNICATIONS, INC. AND SUBSIDIARIES
(see notes 1 and 2)
Statement of Common Stockholder's Equity
<TABLE>
<CAPTION>
Common stock Additional Viacom Total
---------------------- paid-in Accumulated equity Due to equity
Class A Class B capital deficit investment TCIC (deficit)
------------ ------- ----------- ----------- ---------- ------ ----------
amounts in thousands
<S> <C> <C> <C> <C> <C> <C> <C>
VII Cable (note 2)
- ------------------
Balance at January 1, 1994 $ -- -- -- -- 765,531 -- 765,531
Net earnings -- -- -- -- 9,146 -- 9,146
Cash distributions to Viacom -- -- -- -- (434,002) -- (434,002)
Cash distributions from Viacom -- -- -- -- 392,896 -- 392,896
Allocated charges from Viacom -- -- -- -- 75,221 -- 75,221
Unrealized holding gains on
available-for-sale securities, net
of tax -- -- -- -- 15,148 -- 15,148
---- ---- ------ ---- ---------- ------ ----------
Balance at December 31, 1994 -- -- -- -- 823,940 -- 823,940
Net earnings -- -- -- -- 33,714 -- 33,714
Cash distributions to Viacom -- -- -- -- (505,265) -- (505,265)
Cash distributions from Viacom -- -- -- -- 409,264 -- 409,264
Allocated charges from Viacom -- -- -- -- 110,602 -- 110,602
Unrealized holding gains on
available-for-sale securities, net
of tax -- -- -- -- (15,148) -- (15,148)
---- ---- ------ ---- ---------- ------ ----------
Balance at December 31, 1995 -- -- -- -- 857,107 -- 857,107
Net earnings 10,660 -- 10,660
Net distributions from Viacom -- -- -- -- 4,163 -- 4,163
Allocated interest from Viacom -- -- -- -- 28,140 -- 28,140
Allocated overhead from Viacom -- -- -- -- 5,750 -- 5,750
Income tax allocation from Viacom -- -- -- -- 10,873 -- 10,873
Salaries and benefits payments
allocated by Viacom -- -- -- -- 7,569 -- 7,569
Other -- -- -- -- (11) -- (11)
Transfer of cash and net
liabilities in connection with
the First Distribution (note 1) -- -- -- -- (1,678,760) -- (1,678,760)
Costs incurred by TCIC to obtain
Credit Agreement allocated to
VII Cable (note 1) -- -- -- -- -- 12,673 12,673
---- ---- ------ ---- ---------- ------ ----------
Balance at July 31, 1996 $ -- -- -- -- (754,509) 12,673 (741,836)
==== ==== ======= ==== ========== ====== ==========
</TABLE>
(continued)
II-13
<PAGE>
TCI PACIFIC COMMUNICATIONS, INC. AND SUBSIDIARIES
(see notes 1 and 2)
Statement of Common Stockholder's Equity
<TABLE>
<CAPTION>
Common stock Additional Viacom Total
-------------------- paid-in Accumulated equity Due to equity
Class A Class B capital deficit investment TCIC (deficit)
------- ------- ---------- ----------- ---------- ------ ---------
amounts in thousands
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
Pacific (note 2)
- ----------------
Initial capitalization $ -- -- 350,000 -- -- 35,293 385,293
Net earnings (loss) -- -- -- (2,452) -- -- (2,452)
Accreted dividends on Exchangeable
Preferred Stock -- -- (13,079) -- -- -- (13,079)
Allocation of programming charges
from TCIC -- -- -- -- -- 44,532 44,532
Transfer of investment
to TCIC (note 11) -- -- -- -- -- (47,300) (47,300)
Allocation of expenses in
connection with the Services
Agreement (note 11) -- -- -- -- -- 7,982 7,982
Intercompany income tax allocation -- -- -- -- -- 4,174 4,174
Net cash transfers from TCIC -- -- -- -- -- 160,045 160,045
------------ ------- ----------- --------- ---------- -------- --------
Balance at December 31, 1996 $ -- -- 336,921 (2,452) -- 204,726 539,195
============ ======= =========== ========= ========== ======== ========
</TABLE>
See Accompanying Notes to Financial Statements.
II-14
<PAGE>
TCI PACIFIC COMMUNICATIONS, INC. AND SUBSIDIARIES
(see notes 1 and 2)
Statements of Cash Flows
<TABLE>
<CAPTION>
Pacific VII Cable
(note 2) (note 2)
------------- -----------------------------------
Five months Seven months Years ended
ended ended December 31,
December 31, July 31, --------------------
1996 1996 1995 1994
------------- ------------- --------- ---------
<S> <C> <C> <C> <C>
amounts in thousands
(see notes 2 and 4)
Cash flows from operating activities:
Net earnings (loss) $ (2,452) 10,660 33,714 9,146
Adjustments to reconcile net
earnings (loss) to net cash
provided by operating
activities:
Depreciation and
amortization 44,643 51,580 81,974 76,396
Gain on sale of marketable
securities held as
available-for-sale -- -- (26,902) --
Deferred income tax
expense (benefit) (29,705) 2,559 2,783 8,793
Other noncash credits -- (35) (89) (2,242)
Changes in operating
assets and liabilities:
Change in receivables (9,351) 1,215 (1,678) (4,315)
Change in accruals
and payables 6,805 6,288 (242) (1,085)
Change in prepaids (3,877) 141 (277) (950)
--------- ---------- -------- --------
Net cash provided
by operating
activities 6,063 72,408 89,283 85,743
--------- ---------- -------- --------
Cash flows from investing activities:
Capital expended for property
and equipment (28,331) (68,581) (117,966) (99,198)
Cash paid for acquisitions (3,486) -- -- --
Cash proceeds from disposition of
assets -- 81 27,001 1,430
Other investing activities (2,057) (4,364) (13,636) (20,931)
--------- ---------- -------- --------
Net cash used in
investing activities (33,874) (72,864) (104,601) (118,699)
--------- ---------- -------- --------
Cash flows from financing activities:
Change in cash overdraft 9,736 -- -- --
Borrowings of debt 1,884 1,700,000 -- --
Repayments of debt (200,000) (57,000) -- --
Payment of preferred stock dividends (9,074) -- -- --
Net cash transfers from TCIC 216,733 -- -- --
Transfer of cash to New VII
as part of First -- (1,701,112) -- --
Distribution (note 1)
Change in cash transfers from
Viacom, Inc. -- 4,163 (96,001) (41,106)
Allocated charges from Viacom -- 52,321 110,602 75,221
--------- ---------- -------- --------
Net cash provided
(used) by financing
activities 19,279 (1,628) 14,601 34,115
--------- ---------- -------- --------
Net increase (decrease)
in cash (8,532) (2,084) (717) 1,159
Cash at beginning
of period 42,196 2,294 3,011 1,852
--------- ---------- -------- --------
Cash at end of period $ 33,664 210 2,294 3,011
========= ========== ======== ========
See accompanying notes to financial statements.
</TABLE>
II-15
<PAGE>
TCI PACIFIC COMMUNICATIONS, INC. AND SUBSIDIARIES
(see notes 1 and 2)
December 31, 1996, 1995 and 1994
(1) Acquisition and Related Transactions
------------------------------------
On July 24, 1995, Viacom Inc. ("Viacom"), Viacom International Inc. (after
giving effect to the First Distribution, as defined below, "VII Cable"), a
wholly owned subsidiary of Viacom, and Viacom International Services Inc.
("New VII"), a wholly owned subsidiary of VII Cable, entered into certain
agreements (the "Transaction Agreements") with Tele-Communications, Inc.
("TCI") and TCI Communications, Inc. ("TCIC"), a subsidiary of TCI,
providing for, among other things, the conveyance of Viacom International
Inc.'s non-cable assets and liabilities to New VII, the distribution of all
of the common stock of New VII to Viacom (the "First Distribution"), the
Exchange Offer (as defined below) and the issuance to TCIC of all of the
Class B Common Stock of VII Cable. On June 24, 1996, Viacom commenced an
exchange offer (the "Exchange Offer") pursuant to which Viacom shareholders
had the option to exchange shares of Viacom Class A or Class B Common Stock
("Viacom Common Stock") for a total of 6,257,961 shares of VII Cable Class
A Common Stock. The Exchange Offer expired on July 22, 1996 with a final
exchange ratio of 0.4075 shares of VII Cable Class A Common Stock for each
share of Viacom Common Stock accepted for exchange.
Prior to the consummation of the Exchange Offer on July 31, 1996, Viacom
International Inc. entered into a $1.7 billion credit agreement (the
"Credit Agreement"). Proceeds from the Credit Agreement were transferred
by Viacom International Inc. to New VII as part of the First Distribution.
Immediately following the consummation of the Exchange Offer, on July 31,
1996, TCIC, through a capital contribution of $350 million in cash,
purchased all of the shares of Class B Common Stock of VII Cable (the
"Acquisition"). At that time, VII Cable was renamed TCI Pacific
Communications, Inc. (together with its consolidated subsidiaries,
"Pacific") and the shares of Class A Common Stock of VII Cable were
converted into shares of 5% Class A Senior Cumulative Exchangeable
Preferred Stock (the "Exchangeable Preferred Stock"). Proceeds from the
$350 million capital contribution were used to repay a portion of the
Credit Agreement.
On October 13, 1995, TCIC (as buyer) and Prime Cable of Fort Bend, L.P. and
Prime Cable Income Partners, L.P. (as sellers) executed asset and stock
purchase and sale agreements (the "Houston Purchase Agreements") providing
for the sale of certain cable television systems serving the greater
Houston Metropolitan Area for a total base purchase price of $301 million,
subject to adjustments. On December 18, 1995, TCIC assigned all of its
rights, remedies, title and interest in, to and under the Houston Purchase
Agreements to a subsidiary of InterMedia Capital Partners IV, L.P. ("IMP").
On May 8, 1996, IMP consummated the transactions contemplated by the
Houston Purchase Agreements. In connection with the Acquisition, IMP
exchanged its Houston cable systems plus cash amounting to $36,633,000 for
VII Cable's Nashville cable system (the "Exchange"), which amount has been
Escrowed for future cable system acquisitions.
(continued)
II-16
<PAGE>
TCI PACIFIC COMMUNICATIONS, INC. AND SUBSIDIARIES
(see notes 1 and 2)
Notes to Financial Statements
VII Cable's equity investment in Prime Sports Northwest Network, included
in other assets at December 31, 1995, was transferred to New VII on July
31, 1996, as part of the First Distribution.
Pacific, through its subsidiaries and affiliates, is principally engaged in
the construction, acquisition, ownership, and operation of cable television
systems. Pacific operates its cable television systems in the following
five geographic markets: the San Francisco and Northern California area;
Salem, Oregon; the Seattle, Washington and Greater Puget Sound area;
Houston, Texas and Dayton, Ohio.
(2) Basis of Presentation
---------------------
In the accompanying financial statements and in the following text,
references are made to VII Cable and Pacific. The periods through July 31,
1996 reflect the carve-out historical results of operations and financial
position of the cable television business of Viacom and are referred to as
"VII Cable". The financial statements for periods subsequent to July 31,
1996 reflect the consolidated results of operations and financial condition
of Pacific and are referred to as "Pacific". The "Company" refers to both
Pacific and its predecessor entity, VII Cable.
The accompanying financial statements include the accounts of the Company
and all investments of more than 50% in subsidiaries in which the Company
has significant control. All significant intercompany transactions have
been eliminated for all periods presented. As a result of the Acquisition,
which was accounted for as a purchase, the consolidated financial
information for the periods after the Acquisition is presented on a
different cost basis than that for the periods before the Acquisition and,
therefore, is not comparable.
The following table represents the summary balance sheet of VII Cable at
July 31, 1996 prior to the consummation of the Exchange Offer and the
Acquisition and the opening summary balance sheet of Pacific subsequent to
the consummation of the Exchange Offer, the Acquisition, and the Exchange
(amounts in thousands):
<TABLE>
<CAPTION>
VII
Cable Pacific
------------ ---------
<S> <C> <C>
Assets
------
Cash, receivables and
prepaids $ 16,465 54,099
Property and equipment, net 447,435 362,726
Franchise costs and other
assets 586,798 3,076,729
---------- ---------
$1,050,698 3,493,554
========== =========
Liabilities and Equity
----------------------
Payables and accruals $ 30,899 29,420
Debt 1,700,000 1,350,000
Deferred income taxes 59,411 1,103,045
Other liabilities 2,224 --
---------- ---------
Total liabilities 1,792,534 2,482,465
---------- ---------
Exchangeable Preferred Stock -- 625,796
Due to TCIC 12,673 35,293
Equity (deficit) (754,509) 350,000
---------- ---------
$1,050,698 3,493,554
========== =========
</TABLE>
(continued)
II-17
<PAGE>
TCI PACIFIC COMMUNICATIONS, INC. AND SUBSIDIARIES
(see notes 1 and 2)
Notes to Financial Statements
The following reflects the recapitalization of equity resulting from the
Exchange Offer, the Acquisition and the Exchange (amounts in thousands):
<TABLE>
<CAPTION>
<S> <C>
Viacom negative equity
investment in VII Cable
exchanged with Viacom
shareholders for shares of
VII Cable Class A Common
Stock $ (741,836)
Capital contribution by
TCIC for shares of VII
Cable Class B Common Stock 350,000
Conversion of shares of VII
Cable Class A Common Stock
into shares of
Exchangeable Preferred
Stock (625,796)
Amounts due to TCIC assumed
in the Exchange 22,620
Elimination of historical
equity of VII Cable,
excluding amounts due to
TCIC 1,380,305
----------
Initial common
stockholder's equity of
Pacific subsequent to the
Exchange Offer and the
Acquisition $ 385,293
==========
</TABLE>
(3) Summary of Significant Accounting Policies
------------------------------------------
Receivables
-----------
Receivables are reflected net of an allowance for doubtful accounts. Such
allowance at December 31, 1996 and 1995 was not material.
Long-Lived Assets
-----------------
(a) Property and Equipment
----------------------
Property and equipment is stated at cost, including acquisition costs
allocated to tangible assets acquired based upon estimated fair market
value. Construction costs, including interest during construction and
applicable overhead, are capitalized. Interest capitalized was not
material during any of the periods presented.
Depreciation expense during the five months ended December 31, 1996 is
computed on a straight-line basis over estimated useful lives of 3 to
15 years for distribution systems and 3 to 40 years for support
equipment and buildings. Depreciation expense during periods prior to
August 1, 1996 is computed on a straight-line basis over estimated
useful lives of 9 to 15 years for distribution systems and 4 to 30
years for support equipment and buildings.
(continued)
II-18
<PAGE>
TCI PACIFIC COMMUNICATIONS, INC. AND SUBSIDIARIES
(see notes 1 and 2)
Notes to 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 connection with the sales of properties in their
entirety.
(b) Franchise Costs
---------------
Franchise costs consist of the difference between TCIC's allocated
historical cost of acquiring VII Cable and amounts allocated to the
tangible assets. At December 31, 1995, franchise costs of VII Cable
substantially consisted of the difference between the cost of acquired
businesses and amounts allocated to their tangible assets.
Franchise costs are generally amortized on a straight-line basis over
40 years. Costs incurred by VII Cable prior to the Acquisition in
obtaining franchises are being amortized on a straight-line basis over
the life of the franchise, generally 10 to 25 years.
In March of 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of ("Statement
No. 121"), effective for fiscal years beginning after December 15, 1995.
Statement No. 121 requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying amount. Statement No. 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. VII
Cable adopted Statement No .121 effective January 1, 1996. Such adoption
did not have an effect on the financial position or results of operations
of VII Cable.
Subsequent to the Acquisition and pursuant to Statement No. 121, Pacific
periodically reviews the carrying amount of its long-lived assets,
franchise costs and certain other assets to determine whether current
events or circumstances warrant adjustments to such carrying amounts.
Pacific considers historical and expected future net operating losses to be
its primary indicators of potential impairment. Assets are grouped and
evaluated for impairment at the lowest level for which there are
identifiable cash flows that are largely independent of the cash flows of
other groups of assets ("Assets"). Pacific deems Assets to be impaired if
Pacific is unable to recover the carrying value of such Assets over their
expected remaining useful life through a forecast of undiscounted future
operating cash flows directly related to the Assets. If Assets are deemed
to be impaired, the loss is measured as the amount by which the carrying
amount of the Assets exceeds their fair value. Pacific generally measures
fair value by considering sales prices for similar assets or by discounting
estimated future cash flows. Considerable management judgment is necessary
to estimate discounted future cash flows. Accordingly, actual results
could vary significantly from such estimates.
(continued)
II-19
<PAGE>
TCI PACIFIC COMMUNICATIONS, INC. AND SUBSIDIARIES
(see notes 1 and 2)
Notes to Financial Statements
Estimates
---------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ from
those estimates.
Reclassifications
-----------------
Certain amounts have been reclassified for comparability with the 1996
presentation.
(4) Supplemental Disclosure to Statements of Cash Flows Relating to the
-------------------------------------------------------------------
Exchange Offer, Acquisition, and the Exchange
---------------------------------------------
<TABLE>
<CAPTION>
amounts in thousands
<S> <C>
Cash of VII Cable at July
31, 1996 $ 210
Cash received in Exchange 36,633
Net cash received in the
Acquisition and
Exchange for working
capital adjustments 5,353
-------
Cash of Pacific upon
consummation of Exchange
Offer, Acquisition, and
the Exchange $42,196
=======
</TABLE>
(5) Supplemental Disclosure to Statements of Cash Flows
---------------------------------------------------
Cash paid for interest was $40,163,000 for the five months ended December
31, 1996. Cash paid for income taxes was not material for the five months
ended December 31, 1996. See statement of common stockholder's equity for
periods prior to the Acquisition as amounts due for interest and taxes were
settled through the Viacom intercompany account.
Prior to the Acquisition, interest and income taxes were settled through
the intercompany account. See notes 10 and 11 for discussion of these
charges.
(continued)
II-20
<PAGE>
TCI PACIFIC COMMUNICATIONS, INC. AND SUBSIDIARIES
(see notes 1 and 2)
Notes to Financial Statements
Significant noncash investing and financing activities are as follows:
<TABLE>
<CAPTION>
Pacific VII Cable
---------------- ----------------------------------
Five months Seven months Years ended
ended ended December 31,
December 31, July 31, ---------------------
1996 1996 1995 1994
---------------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
amounts in thousands
Exchange of
investment for
intercompany
note receivable
(note 11) $47,300 -- -- --
======= ======= ======= =======
Transfer of
liabilities, net
of assets under
First Distribution
(note 1) $ -- 22,352 -- --
======= ======= ======= =======
Costs incurred by
TCIC to obtain
Credit Agreement
allocated to VII
Cable $ -- 12,673 -- --
======= ======= ======= =======
(6) Accrued Expenses
----------------
Accrued expenses are comprised of
the following:
December 31,
--------------------
1996 1995
---------- --------
amounts in thousands
Accrued franchise fees $ 8,663 6,707
Accrued property tax expenses 2,549 1,532
Accrued programming expenses 2,331 8,729
Other 16,465 20,718
--------- --------
$ 30,008 37,686
========= ========
</TABLE>
(continued)
II-21
<PAGE>
TCI PACIFIC COMMUNICATIONS, INC. AND SUBSIDIARIES
(see notes 1 and 2)
Notes to Financial Statements
(7) Debt
----
In connection with the Transaction Agreements described in note 1, Viacom
International Inc. borrowed $1.7 billion pursuant to the Credit Agreement.
The Credit Agreement consisted of $350 million and $300 million term loans
which are due December 31, 2004 and September 30, 2004, respectively, and a
$1.05 billion revolving commitment loan (the "Revolving Loan") that
provides for semi-annual escalating commitment reductions from June 30,
1998 through September 30, 2004. The $300 million term loan and $50
million of the Revolving Loan were repaid on July 31, 1996 with the
proceeds from the TCIC capital contribution described in note 1. The
remaining term loan and the Revolving Loan provide for quarterly interest
payments at variable rates (7.7% and 7.3% respectively, at December 31,
1996) based upon the Company's debt to cash flow ratio (as defined in the
Credit Agreement). The Credit Agreement contains restrictive covenants
which require, among other things, the maintenance of specified cash flow
and financial ratios and include certain limitations of indebtedness,
investments, guarantees, dispositions, stock repurchases and dividend
payments. In addition, the Revolving Loan requires a commitment fee
ranging from 3/8% to 1/2% per annum to be paid quarterly on the average
unborrowed portion of the total amount available for borrowing. At
December 31, 1996, the unborrowed portion of the Revolving Loan was
$250,000,000.
Based on current rates available for debt of the same maturity, the
Company believes that the fair value of Pacific's debt is approximately
equal to its carrying value at December 31, 1996.
In accordance with the terms of the Credit Agreement, Pacific has entered
into an interest rate exchange agreement (the "Exchange Agreement") with
TCIC pursuant to which Pacific will pay a fixed interest rate of 7.5% on a
notional amount of $600 million. The terms of the Exchange Agreement
become effective only if the one month LIBOR rate exceeds 6.5% for five
consecutive days within the two-year observation period, as defined by the
Exchange Agreement (the "Trigger"). In the event the Trigger occurs, the
terms of the agreement become effective until August 1, 2001. As of
December 31, 1996, the terms of the Exchange Agreement have not become
effective.
During 1994, Viacom International Inc. and certain of its subsidiaries
entered into a $311 million credit agreement (the "Viacom Credit
Agreement"), of which $57 million was entered into by Viacom Cablevision of
Dayton Inc. ("Dayton"). Such borrowings by Dayton were included in the
combined financial statements for VII Cable. The Viacom Credit Agreement
stipulated that, should Dayton cease to be a wholly owned subsidiary of
Viacom or VII Cable, the $57 million of borrowings would become due and
payable on the date on which Dayton ceased to be such a wholly owned
subsidiary. As a result of the transactions described in note 1, VII Cable
repaid Dayton's obligation under the Viacom Credit Agreement on July 31,
1996, prior to the First Distribution.
Additionally, in connection with the Credit Agreement, TCIC incurred
commitment fees of approximately $13 million which have been deferred and
will be amortized over the terms of the Agreement.
(continued)
II-22
<PAGE>
TCI PACIFIC COMMUNICATIONS, INC. AND SUBSIDIARIES
(see notes 1 and 2)
Notes to Financial Statements
Annual maturities of debt for each of the next five years are as follows
(amounts in thousands):
<TABLE>
<CAPTION>
<S> <C>
1997 $ 409
1998 409
1999 409
2000 25,409
2001 150,247
</TABLE>
(8) Exchangeable Preferred Stock
----------------------------
The Company is authorized to issue and has issued 6,257,961 shares of 5%
Class A Senior Cumulative Exchangeable Preferred Stock with a stated value
of $100 per share in connection with the Acquisition (see note 1).
The Exchangeable Preferred Stock is exchangeable, at the option of the
holder commencing after the fifth anniversary of the date of issuance, for
shares of Tele-Communications, Inc. Series A TCI Group common stock
("Series A TCI Group Stock") at an exchange rate of 5.447 shares of Series
A TCI Group Stock for each share of Exchangeable Preferred Stock exchanged.
The Exchangeable Preferred Stock is subject to redemption, at the option of
Pacific, on or after the fifteenth day following the fifth anniversary of
the date of issuance, initially at a redemption price of $102.50 per share
and thereafter at prices declining ratably annually to $100 per share on
and after the eighth anniversary of the date of issuance, plus accrued and
unpaid dividends to the date of redemption. The Exchangeable Preferred
Stock is also subject to mandatory redemption on the tenth anniversary of
the date of issuance for $100 per share plus accrued and unpaid dividends.
Amounts payable by the Company in satisfaction of its dividend, optional
redemption and mandatory redemption obligations with respect to the
Exchangeable Preferred Stock may be made in cash or, at the election of the
Company, in shares of Series A TCI Group Stock, or in any combination of
the foregoing. If payments are made in shares of Series A TCI Group Stock,
Pacific will discount the market value of such stock by 5% in determining
the number of shares required to be issued to satisfy such payments.
(continued)
II-23
<PAGE>
TCI PACIFIC COMMUNICATIONS, INC. AND SUBSIDIARIES
(see notes 1 and 2)
Notes to Financial Statements
Exchangeable Preferred Stock does not entitle its holders to voting
rights with respect to general corporate matters, except as provided by law
and except (i) if dividends on the Exchangeable Preferred Stock are in
arrears and unpaid for at least six quarterly dividend periods, in which
case the number of directors constituting the Pacific Board of Directors
will, without further action, be increased by two to permit the holders of
the shares of Exchangeable Preferred Stock, voting separately as a class
(with the holders of all other shares of parity stock upon which like
voting rights have been conferred and are exercisable) to elect by a
plurality vote two directors, until such time as all dividends in arrears
on the Exchangeable Preferred Stock are paid in full or (ii) if Pacific
seeks to (a) amend, alter or repeal (by merger or otherwise) any provision
of the Amended and Restated Certificate of Incorporation so as to affect
adversely the specified rights, preferences, privileges or voting rights of
holders of shares of the Exchangeable Preferred Stock, (b) issue additional
shares of Exchangeable Preferred Stock, (c) create or issue any class or
series of senior stock or (d) effect any reclassification of the
Exchangeable Preferred Stock (other than a reclassification that solely
seeks to change the designation of the Exchangeable Preferred Stock and
does not adversely affect the powers, preferences or rights of the holders
of shares of Exchangeable Preferred Stock outstanding immediately prior to
such reclassification), in each of which event specified in this clause
(ii) the affirmative vote or consent of at least 66 2/3% of shares of
Exchangeable Preferred Stock then outstanding, voting or consenting, as the
case may be, separately as one class, would be required.
(9) Pension Plans and Other Employee Benefits
-----------------------------------------
TCI has several employee stock purchase plans (the "Plans") to provide
employees an opportunity for ownership in TCI and to create a retirement
fund. Terms of the Plans generally provide for employees to contribute up
to 10% of their compensation to a trust for investment in TCI common stock.
TCI, by annual resolution of the Board of Directors, generally contributes
up to 100% of the amount contributed by employees. Amounts contributed by
TCI on behalf of Pacific employees are allocated to Pacific pursuant to the
Services Agreement described in note 11.
Prior to the Acquisition, VII Cable employees were covered by Viacom's
pension plan. Retirement benefits were based principally on years of
service and salary. Viacom allocated charges for pension expense of
$1,774,000, $1,134,000 and $1,574,000 for the seven months ended July 31,
1996 and the years ended December 31, 1995 and 1994, respectively. The
obligation for pension benefits earned prior to the consummation of the
Exchange Offer was retained by Viacom.
(continued)
II-24
<PAGE>
TCI PACIFIC COMMUNICATIONS, INC. AND SUBSIDIARIES
(see notes 1 and 2)
Notes to Financial Statements
(10) Income Taxes
------------
Prior to the Acquisition, VII Cable was included in the consolidated
Federal income tax returns of Viacom. Tax expense for the seven months
ended July 31, 1996 and the years ended December 31, 1995 and 1994
reflected in the accompanying statements of operations and tax liabilities
reflected in the accompanying December 31, 1995 balance sheet have been
prepared on a separate return basis as though VII Cable had filed stand-
alone income tax returns. The current income tax liabilities for such
periods have been satisfied by Viacom. These amounts have been reflected
in Viacom equity investment in the accompanying December 31, 1995 combined
balance sheet. In connection with the transactions described in note 1,
Viacom agreed to indemnify VII Cable against income tax assessments, if
any, arising from Federal, state or local tax audits for periods in which
VII Cable was a member of Viacom's consolidated tax group.
Subsequent to the Acquisition, Pacific is included in the consolidated
Federal income tax return of TCI. Income tax expense or benefit for
Pacific is based on those items in the consolidated calculation applicable
to Pacific. Intercompany tax allocation represents an apportionment of tax
expense or benefit (other than deferred taxes) among the 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 to TCIC.
TCIC and TCI are parties to a tax sharing agreement (the "Tax Sharing
Agreement") which contains provisions regarding the allocation of certain
consolidated income tax attributes and the settlement procedures with
respect to the intercompany allocation of current tax attributes. The Tax
Sharing Agreement encompasses U.S. federal, state, local and foreign tax
consequences and relies upon the U.S. Internal Revenue Code of 1986 as
amended, and any applicable state, local and foreign tax law and related
regulations. Beginning on the July 1, 1995 effective date, TCIC is
responsible to TCI for its share of current consolidated income tax
liabilities. TCI is responsible to TCIC to the extent that TCIC's income
tax attributes generated after the effective date are utilized by TCI to
reduce its consolidated income tax liabilities. Accordingly, all tax
attributes generated by TCIC's operations after the effective date
including, but not limited to, net operating losses, tax credits, deferred
intercompany gains, and the tax basis of assets are inventoried and tracked
for the entities comprising TCIC.
(continued)
II-25
<PAGE>
TCI PACIFIC COMMUNICATIONS, INC. AND SUBSIDIARIES
(see notes 1 and 2)
Notes to Financial Statements
Income tax benefit (expense) consists of:
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -----
<S> <C> <C> <C> <C>
amounts in thousands
Pacific
-------
Five months ended December 31, 1996:
Intercompany tax allocation $(25,531) 25,822 291
State and local -- 3,883 3,883
-------- ------ -------
$(25,531) 29,705 4,174
======== ====== =======
--------------------------------------------------------------------
VII Cable
---------
Seven months ended July 31, 1996:
Intercompany tax allocation $ (9,283) (2,342) (11,625)
State and local (1,590) (217) (1,807)
-------- ------ -------
$(10,873) (2,559) (13,432)
======== ====== =======
Year ended December 31, 1995:
Intercompany tax allocation $(25,894) (2,516) (28,410)
State and local (4,171) (238) (4,409)
-------- ------ -------
$(30,065) (2,754) (32,819)
======== ====== =======
Year ended December 31, 1994:
Intercompany tax allocation $ (6,018) (8,835) (14,853)
State and local (2,868) (260) (3,128)
-------- ------ -------
$ (8,886) (9,095) (17,981)
======== ====== =======
</TABLE>
Income tax benefit (expense) differs from the amounts computed by
applying the Federal income tax rate of 35% as a result of the following:
<TABLE>
<CAPTION>
Pacific VII Cable
------------------ ----------------------------------
Years ended
Five months Seven months December 31,
ended ended ------------------
December 31, 1996 July 31, 1996 1995 1994
------------------ -------------- -------- --------
<S> <C> <C> <C> <C>
amounts in thousands
Computed "expected" tax benefit (expense) $ 2,319 (8,432) (23,287) (9,494)
Amortization not deductible for tax purposes (1,053) (3,590) (6,328) (6,145)
State and local income taxes, net of Federal income tax benefit 2,945 (1,253) (2,931) (2,136)
Other, net (37) (157) (273) (206)
------ ------- ------- -------
$ 4,174 (13,432) (32,819) (17,981)
====== ======= ======= =======
</TABLE>
(continued)
II-26
<PAGE>
TCI PACIFIC COMMUNICATIONS, INC. AND SUBSIDIARIES
(see notes 1 and 2)
Notes to 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, 1996 and 1995 are presented below:
<TABLE>
<CAPTION>
Pacific VII Cable
------------- ------------
December 31, December 31,
1996 1995
------------- ------------
<S> <C> <C>
amounts in thousands
Deferred tax assets:
Investments in affiliates, due principally to
differences in basis $ 1,004 --
Other 800 835
---------- ----------
Net deferred tax
assets 1,804 835
---------- ----------
Deferred tax liabilities:
Property and equipment, principally due to
differences in basis and depreciation 26,457 60,558
Franchise costs, principally due to
differences in basis and amortization 1,048,687 --
Property taxes -- 13,230
---------- ----------
Total gross deferred tax liabilities 1,075,144 73,788
---------- ----------
Net deferred tax liability $1,073,340 72,953
========== ==========
</TABLE>
The tax attributes disclosed above are those determined pursuant to the
Tax Sharing Agreement.
(11) Related Party Transactions
--------------------------
Pacific purchases, at TCIC's cost, certain pay television and other
programming through a certain indirect subsidiary of TCIC. Charges for
such programming were $44,532,000 during the five months ended December 31,
1996 and are included in operating expenses in the accompanying financial
statements.
Effective August 1, 1996, TCIC provides certain facilities, services and
personnel to Pacific. The scope of the facilities, personnel and services
to Pacific and the respective charges payable in respect thereof are set
forth in a services agreement entered into among TCI, TCIC and Pacific (the
"Services Agreement"). Pursuant to the Services Agreement, TCIC provides
to Pacific administrative and operational services necessary for the
conduct of its business, including, but not limited to, such services as
are generally performed by TCIC's accounting, finance, corporate, legal and
tax departments. In addition, TCIC makes available to Pacific such general
overall management services and strategic planning services as TCIC and
Pacific have agreed, and provides Pacific with such access to and
assistance from TCIC engineering and construction groups and TCIC's
programming and technology/venture personnel at Pacific's request.
(continued)
II-27
<PAGE>
TCI PACIFIC COMMUNICATIONS, INC. AND SUBSIDIARIES
(see notes 1 and 2)
Notes to Financial Statements
The Services Agreement also provides that, for so long as TCIC continues
to beneficially own shares of Pacific's common stock representing at least
a majority in voting power of the outstanding shares of capital stock of
Pacific entitled to vote generally in the election of directors, TCIC will
continue to provide in the same manner, and on the same basis as is
generally provided from time to time to other participating TCIC
subsidiaries, benefits and administrative services to Pacific's employees.
In this regard, Pacific is allocated that portion of TCIC's compensation
expense attributable to benefits extended to employees of Pacific.
Pursuant to the Services Agreement, Pacific reimburses TCIC for all
direct expenses incurred by TCIC in providing such services and a pro rata
share of all indirect expenses incurred by TCIC in connection with the
rendering of such services, including a pro rata share of the salary and
other compensation of TCIC employees performing services for Pacific and
general overhead expenses. Charges for expenses incurred in connection
with the Services Agreement were $7,982,000 during the five months ended
December 31, 1996, and are included in selling, general and administrative
expenses in the accompanying financial statements. The obligations of TCIC
to provide services under the Services Agreement (other than TCIC's
obligation to allow Pacific's employees to participate in TCIC's employee
benefit plans) will continue in effect until terminated by any party to the
Services Agreement at any time on not less than 60 days' notice.
Prior to the Acquisition, Viacom provided VII Cable with certain general
services, including insurance, legal, financial and other corporate
functions. Charges for these services were made primarily based on the
average of certain specified ratios of revenues, operating income and net
assets. Management believes that the methodologies used to allocate these
charges were reasonable. The charges for such services were $5,750,000,
$13,492,000 and $16,849,000 for the seven months ended July 31, 1996 and
the years ended December 31, 1995 and 1994, respectively, and are included
in selling, general and administrative expenses in the accompanying
financial statements.
Prior to the Acquisition, VII Cable, through the normal course of
business, was involved in transactions with companies owned by or
affiliated with Viacom. VII Cable had agreements to distribute television
programs of such companies, including Showtime Networks Inc., MTV Networks,
Comedy Central and USA Networks. The agreements required VII Cable to pay
license fees based upon the number of customers receiving the service.
Affiliate license fees incurred and paid under these agreements were
$19,858,000, $30,694,000 and $28,582,000 for the seven months ended July
31, 1996 and the years ended December 31, 1995 and 1994, respectively. In
addition, cooperative advertising expenses charged to affiliated companies
were $364,000, $1,350,000 and $1,181,000 for the seven months ended July
31, 1996 and the years ended December 31, 1995 and 1994, respectively.
(continued)
II-28
<PAGE>
TCI PACIFIC COMMUNICATIONS, INC. AND SUBSIDIARIES
(see notes 1 and 2)
Notes to Financial Statements
In addition to the interest expense recorded by VII Cable on borrowings
under the Viacom Credit Agreement and the Credit Agreement described in
note 7, Viacom allocated to VII Cable interest expense of $26,019,000,
$46,363,000 and $35,681,000 during the seven months ended July 31, 1996 and
the years ended December 31, 1995 and 1994, respectively. Such allocated
interest expense is related to Viacom corporate debt and was allocated to
VII Cable on the basis of a percentage of VII Cable's average net assets to
Viacom's average net assets.
Pacific recorded $3,079,000 of interest expense for the five months ended
December 31, 1996 related to debt payable to TCIC.
In 1996, Pacific transferred (the "Transfer") its investment in
TCG San Francisco and TCG Seattle to TCI Development Corporation, a
subsidiary of TCI, in exchange for a $47,300,000 note receivable. Such
note bears interest at 10.5% per annum. No gain or loss was recognized in
connection with the Transfer.
(12) Commitments
-----------
The Company leases business offices, has entered into pole rental
agreements and uses certain equipment under lease arrangements. Rental
expense under such arrangements amounted to $2,771,000, $4,454,000,
$7,704,000 and $7,670,000 during the five months ended December 31, 1996,
the seven months ended July 31, 1996 and the years ended December 31, 1995
and 1994, respectively.
Future minimum lease payments under noncancellable operating leases for
each of the next five years are summarized as follows (amounts in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Years ending
December 31,
------------
1997 $1,675
1998 1,085
1999 805
2000 620
2001 427
</TABLE>
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 1997.
During July 1991, VII Cable received reassessments from ten California
counties of its real and personal property, related to a June 1987
acquisition, which could result in substantially higher California property
tax liabilities. VII Cable is appealing the reassessments. At July 31,
1996, VII Cable had paid $44,083,000 related to real and personal property
taxes which were, along with any potential future liability related to
periods prior to July 31, 1996, transferred to New VII on July 31, 1996 as
part of the First Distribution.
(continued)
II-29
<PAGE>
TCI PACIFIC COMMUNICATIONS, INC. AND SUBSIDIARIES
(see notes 1 and 2)
Notes to Financial Statements
In the ordinary course of business, VII Cable entered into long-term
affiliation agreements with programming services which required that VII
Cable carry and pay for programming and meet certain performance
requirements.
(13) Quarterly Financial Information (Unaudited)
-------------------------------------------
<TABLE>
<CAPTION>
VII Cable Pacific
------------------------- ----------------------
1 month 2 months
1st 2nd ended ended 4th
Quarter Quarter July 31 September 30 Quarter
------- ------- ------- ------------ -------
<S> <C> <C> <C> <C> <C>
amounts in thousands
1996
----
Revenue 118,321 121,348 40,961 82,008 133,542
Operating income 20,547 24,251 7,468 15,683 22,119
Net earnings (loss) 3,390 5,414 1,856 (901) (1,551)
VII Cable
----------------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
------- ------- ------- -------
amounts in thousands
1995
----
Revenue 107,381 111,211 119,617 109,997
Operating income 19,750 21,969 24,124 21,019
Net earnings (loss) 19,634 3,977 4,243 5,860
</TABLE>
II-30
<PAGE>
PART III.
Item 10. Directors and Executive Officers of the Registrant.
- -------- --------------------------------------------------
The following lists the directors and executive officers of TCI Pacific
Communications, Inc. ("Pacific" or the "Company"), their birth dates, a
description of their business experience and positions held with the Company as
of March 12, 1997. All officers are appointed for an indefinite term, serving
at the pleasure of the Board of Directors.
<TABLE>
<CAPTION>
Name Positions
- --------------------------- ---------------------------------------------------
<S> <C>
Leo J. Hindery, Jr. President and director of Pacific since March
Born October 31, 1947 1997. In March of 1997, Mr. Hindery joined
Tele-Communications, Inc. ("TCI") as its
President. Mr. Hindery was previously founder,
Managing General Partner and Chief Executive
Officer of InterMedia Partners and its affiliated
entities since 1988. Mr. Hindery was also named
President and a director of TCI Communications,
Inc. ("TCIC") in March of 1997.
John C. Malone Director of Pacific since July, 1996. Director of
Born March 7, 1941 TCIC since 1973; Chief Executive Officer of TCIC
from March of 1992 to October of 1994 and
President of TCIC from 1973 to October of 1994;
TCI director since June of 1994; Chairman of the
Board of TCI from November of 1996; Chief
Executive Officer of TCI since January of 1994;
President of TCI from January 1994 through March
of 1997; is President and a director of many of
TCI's subsidiaries; also a director of BET
Holdings, Inc., The Bank of New York and TCI
Satellite Entertainment, Inc. Chairman of the
Board and a director of Tele-Communications
International, Inc. ("International") since May
1995.
Donne F. Fisher Director of Pacific since July, 1996. Director of
Born May 24, 1938 TCIC since 1980 and of TCI since June of 1994.
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; Executive Vice President of TCI from
January of 1994 through January 1, 1996. On
January 1, 1996, Mr. Fisher resigned his position
of Executive Vice President of TCI; Mr. Fisher
has provided consulting services to TCI since
January, 1996; also a director of General
Communication, Inc., DMX Inc. and United Video
Satellite Group, Inc.
Brendan R. Clouston Senior Vice President and Chief Financial Officer
Born April 28, 1953 of Pacific from March 1997. Previously a director
and President of Pacific from July, 1996 to March
of 1997. Senior Vice President and Chief
Financial Officer of TCIC from March 1997;
President and Chief Executive Officer of TCIC from
October of 1994 to March of 1997; 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; Executive Vice President of TCI since
January of 1994; named Chief Financial Officer of
TCI in March 1997.
</TABLE>
(continued)
III-1
<PAGE>
<TABLE>
<CAPTION>
Name Positions
- --------------------------- ---------------------------------------------------
<S> <C>
Stephen M. Brett Senior Vice President and Secretary of Pacific
Born September 20, 1940 since July, 1996. Appointed Senior Vice President
and General Counsel of TCIC as of December of
1991. Executive Vice President, General Counsel
and Secretary of TCI since January of 1994. Vice
President and Secretary and a director of most of
TCI's subsidiaries.
Gary K. Bracken Senior Vice President of Pacific since July, 1996.
Born July 29, 1939 Controller of TCIC since 1969. Appointed Senior
Vice President of TCIC in December of 1991. Was
named Vice President and Principal Accounting
Officer of TCIC in 1982.
Bernard W. Schotters Senior Vice President and Treasurer of Pacific
Born November 25, 1944 since July, 1996. Appointed Senior Vice
President-Finance and Treasurer of TCIC in
December of 1991. Was appointed Vice
President-Finance of TCIC in 1984. Vice President
and Treasurer of most of TCI's subsidiaries.
</TABLE>
Mr. Barry P. Marshall was Executive Vice President of Pacific since July,
1996. Mr. Marshall was Executive Vice President and Chief Operating Officer of
TCIC from October of 1994 through March, 1997. In March of 1997, Mr. Marshall
resigned his positions with the Company. Mr. Marshall was 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
March of 1986 to March of 1992, was Vice President and Chief Operating Officer
of TCIC's largest regional operating division.
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
Pacific's officers and directors, and persons who own more than ten percent of a
registered class of Pacific'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 Pacific with copies of all Section 16(a) forms they
file.
Based solely on review of the copies of such Forms 3, 4 and 5 and
amendments thereto furnished to Pacific with respect to its most recent fiscal
year, or written representations that no Forms 5 were required, Pacific believes
that, during the year ended December 31, 1996, none of the Section 16(a) filing
requirements applicable to its officers, directors and greater than ten-percent
beneficial owners were filed. However, Messrs. Hindery, Malone, Fisher,
Clouston, Brett, Bracken and Schotters each filed one report subsequent to
December 31, 1996 reflecting no ownership interest in the Company. Mr. Marshall
did not file a report with respect to his ownership in the Company prior to his
resignation. The Company believes, however, that Mr. Marshall had no ownership
interest in the Company.
III-2
<PAGE>
Item 11. Executive Compensation.
- ------- ----------------------
Each of the directors and executive officers of Pacific is serving in such
capacity at the request of, and in his capacity as an officer of, TCI or its
subsidiaries. Such officers are compensated by TCI for their services to TCI
and its subsidiaries, including the Company, and will not receive any additional
compensation from the Company or otherwise for their services to the Company.
The Company will not reimburse TCI for any compensation paid by TCI to its
officers and directors but instead is allocated a comprehensive management fee
for all services provided.
There are no arrangements whereby any of Pacific's directors received
compensation for services as a director during 1996.
The members of TCI's compensation committee are Messrs. Robert A. Naify,
John W. Gallivan and Paul A Gould, all directors of TCI. Pacific has no
separate compensation committee, and compensation decisions relative to Pacific
are determined by TCI's compensation committee.
Dr. Malone is a director of Pacific and is Chairman of the Board and a
member of the compensation committee of International.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
- ------- --------------------------------------------------------------
(a) Security ownership of certain beneficial owners. TCI Pacific
-----------------------------------------------
Communications, Inc. has authorized 6,257,961 shares of Class A common stock
("Class A Stock"), none of which is issued and outstanding. Pacific has
authorized 100 shares of Class B common stock ("Class B Stock"), all of which
was held by TCI Communications, Inc. at January 31, 1997. Additionally, Pacific
has authorized and has issued 6,257,961 shares of 5% Class A Senior Cumulative
Exchangeable Preferred Stock (the "Exchangeable Preferred Stock"). So far as is
known to the Company, no person owns beneficially more than 5% of the
Exchangeable Preferred Stock.
The Exchangeable Preferred Stock does not entitle its holders to voting
rights with respect to general corporate matters, except as provided by law and
except (i) if dividends on the Exchangeable Preferred Stock are in arrears and
unpaid for at least six quarterly dividend periods, in which case the number of
directors constituting the Pacific Board will, without further action, be
increased by two to permit the holders of the shares of Exchangeable Preferred
Stock, voting separately as a class (with the holders of all other shares of
parity stock upon which like voting rights have been conferred and are
exercisable) to elect by a plurality vote two directors, until such time as all
dividends in arrears on the Exchangeable Preferred Stock are paid in full or
(ii) if Pacific seeks to (a) amend, alter or repeal (by merger or otherwise) any
provision of the Amended and Restated Certificate of Incorporation so as to
affect adversely the specified rights, preferences, privileges or voting rights
of holders of shares of the Exchangeable Preferred Stock, (b) issue additional
shares of Exchangeable Preferred Stock, (c) create or issue any class or series
of senior stock or (d) effect any reclassification of the Exchangeable Preferred
Stock (other than a reclassification that solely seeks to change the designation
of the Exchangeable Preferred Stock and does not adversely affect the powers,
preferences or rights of the holders of shares of Exchangeable Preferred Stock
outstanding immediately prior to such reclassification), in each of which event
specified in this clause (ii) the affirmative vote or consent of at least 66
2/3% of shares of Exchangeable Preferred Stock then outstanding, voting or
consenting, as the case may be, separately as one class, would be required.
(continued)
III-3
<PAGE>
(b) Security ownership of management. The following table sets forth, as
--------------------------------
of January 31, 1996, information with respect to the ownership of Pacific's
issued equity securities (Class B Stock and Exchangeable Preferred Stock),
ownership of TCIC's equity securities (TCIC Class A common stock ("TCIC Class A
Stock"), TCIC Class B common stock ("TCIC Class B Stock") and TCIC Cumulative
Exchangeable Preferred Stock, Series A ("TCIC Series A Preferred Stock")) and
ownership of TCI's equity securities (Tele-Communications, Inc. Series A TCI
Group common stock ("TCI Group Series A Stock"), Tele-Communications, Inc.
Series B TCI Group common stock ("TCI Group Series B Stock"), Tele-
Communications, Inc. Series A Liberty Media Group common stock ("Liberty Group
Series A Stock"), Tele-Communications, Inc. Series B Liberty Media Group common
stock ("Liberty Group Series B Stock"), Class B 6% Cumulative Redeemable
Exchangeable Junior Preferred Stock ("Class B Preferred Stock"), Convertible
Preferred Stock, Series C ("Series C Preferred Stock"), Redeemable Convertible
TCI Group Preferred Stock, Series G ("Series G Preferred Stock") and Redeemable
Convertible Liberty Media Group Preferred Stock, Series H ("Series H Preferred
Stock")), by all directors of Pacific, and by all executive officers and
directors of Pacific as a group. Shares issuable upon exercise or vesting of
convertible securities or restricted shares are deemed to be outstanding for the
purpose of computing the percentage ownership and overall voting power of
persons beneficially owning such 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. The number of TCI Group Series A
Stock, TCI Group Series B Stock, Liberty Group Series A Stock and Liberty Group
Series B Stock in the table include interests of the named directors or of
members of the group of directors and executive officers in shares held by the
trustee of TCI's Employee Stock Purchase Plan ("ESPP") and shares held by the
trustee of United Artists Entertainment, Inc.'s Employee Stock Ownership Plan
for their respective accounts. So far as is known to Pacific, 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-4
<PAGE>
<TABLE>
<CAPTION>
Name of Amount and Nature Percent Voting
Title of Class Beneficial Owner of Beneficial Ownership of Class(1) Power(1)
-------------- ---------------- ----------------------- ----------- --------
<S> <C> <C> <C> <C>
Class B John C. Malone -- -- --
Exchangeable
Pref. -- --
TCIC Class A -- -- --
TCIC Class B -- --
TCIC Series A
Pref. -- --
TCI Group
Series A 2,172,711 (2) * 16.9%
TCI Group
Series B 25,287,083 (3)(4) 29.9%
Liberty Group
Series A 3,929,209 (2) 1.7%
Liberty Group
Series B 6,349,270 (3)(4) 30.0%
Class B Pref. 306,000 (3) 18.9%
Series C Pref. -- --
Series G Pref. -- --
Series H Pref. -- --
Class B Donne F. Fisher, -- -- --
Exchangeable individually and
Pref. as co-personal -- --
TCIC Class A representative of -- -- --
TCIC Class B the Estate of -- --
TCIC Series A Bob Magness
Pref. -- --
TCI Group
Series A 4,110,680 (5)(6) * 20.8%
TCI Group
Series B 31,034,936 (5) 36.7%
Liberty Group
Series A 5,423,725 (5)(6) 2.4%
Liberty Group
Series B 7,758,734 (5) 36.6%
Class B Pref. 129,299 (5) 8.0%
Series C Pref. -- --
Series G Pref. -- --
Series H Pref. -- --
</TABLE>
(continued)
III-5
<PAGE>
<TABLE>
<CAPTION>
Name of Amount and Nature Percent Voting
Title of Class Beneficial Owner of Beneficial Ownership of Class(1) Power(1)
-------------- ---------------- ----------------------- ----------- --------
<S> <C> <C> <C> <C>
Class B Brendan R. Clouston -- -- --
Exchangeable
Pref. -- --
TCIC Class A -- -- --
TCIC Class B -- --
TCIC Series A
Pref. -- --
TCI Group
Series A 1,986,496 (7) * *
TCI Group
Series B 230 *
Liberty Group
Series A 332,462 (7) *
Liberty Group
Series B 57 *
Class B Pref. -- *
Series C Pref. -- --
Series G Pref. -- --
Series H Pref. -- --
Class B All directors and -- -- --
Exchangeable executive officers
Pref. as a group -- --
TCIC Class A (7 persons) -- -- --
TCIC Class B -- --
TCIC Series A
Pref. -- --
TCI Group
Series A 10,770,725 (5)(8) 1.8% 37.8%
TCI Group
Series B 56,326,965 (3)(4)(5) 66.5%
Liberty Group
Series A 10,454,690 (3)(5)(8) 4.5%
Liberty Group
Series B 14,109,240 (3)(4)(5) 66.6%
Class B Pref. 437,131 (3)(5) 27.0%
Series C Pref. -- --
Series G Pref. -- --
Series H Pref. -- --
- -------------------------
</TABLE>
* Less than one percent.
(1) Based on 100 shares of Class B Stock, 6,257,961 shares of Exchangeable
Preferred Stock, 811,655 shares of TCIC Class A Stock, 94,447 shares of
TCIC Class B Stock, 4,600,000 shares of TCIC Series A Preferred Stock,
597,497,573 shares of TCI Group Series A Stock (after elimination of shares
of TCI held by subsidiaries of TCI), 84,647,065 shares of TCI Group Series
B Stock, 228,558,926 shares of Liberty Group Series A Stock, 21,187,969
shares of Liberty Group Series B Stock, 1,620,026 shares of Class B
Preferred Stock, 70,575 shares of Series C Preferred Stock, 6,693,177
shares of Series G Preferred Stock and 6,693,177 shares of Series H
Preferred Stock outstanding on January 31, 1996.
(continued)
III-6
<PAGE>
(2) 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
Group Series A Stock and 375,000 shares of Liberty Group Series A Stock.
Options to acquire 800,000 and 300,000 shares of TCI Group Series A Stock
and Liberty Group Series A Stock, respectively, are currently exercisable.
Additionally assumes the exercise in full of stock options granted in
tandem with stock appreciation rights in December of 1995 to acquire
1,000,000 shares of TCI Group Series A Stock and 375,000 shares of Liberty
Group Series A Stock. Options to acquire 200,000 shares of TCI Group
Series A Stock and 75,000 shares of Liberty Group Series A Stock are
currently exercisable.
(3) Includes 1,173,000 shares of TCI Group Series B Stock, 146,625 shares of
Liberty Group Series A Stock, 293,250 shares of Liberty Group Series B
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.
(4) Pursuant to a letter agreement, dated June 17, 1988, the late Mr. Bob
Magness and Kearns - Tribune Corporation each agreed with Dr. Malone that
prior to making a disposition of a significant portion of their respective
holdings of TCI Group Series B Stock or Liberty Group Series B Stock, he or
it would first offer Dr. Malone the opportunity to purchase such shares.
(5) Mr. Fisher, as co-personal representative of the Estate of Bob Magness, is
deemed the beneficial owner of all shares of TCI Group Series A Stock, TCI
Group Series B Stock, Liberty Group Series A Stock Liberty Group Series B
Stock and Class B Preferred Stock held of record by the Estate of Bob
Magness. The number of shares held by Mr. Fisher includes 1,524,315 shares
of TCI Group Series A Stock, 30,785,864 shares of TCI Group Series B Stock,
4,419,304 shares of Liberty Group Series A Stock, 7,696,466 shares of
Liberty Group Series B Stock and 125,000 shares of Class B Preferred Stock
of which Mr. Fisher is deemed beneficial owner as co-personal
representative. Additionally, assumes the exercise in full by the Estate
of Bob Magness of stock options granted in tandem with stock appreciation
rights to Mr. Bob Magness in November of 1992 to acquire 1,000,000 shares
of TCI Group Series A Stock and 375,000 shares of Liberty Group Series A
Stock. Additionally assumes the exercise in full by the Estate of Bob
Magness of stock options granted in tandem with stock appreciation rights
to Mr. Bob Magness in December of 1995 to acquire 1,000,000 shares of
Series A Stock and 375,000 shares of Liberty Series A Stock. All such
options are currently exercisable.
(6) Assumes the exercise in full of stock options granted in tandem with stock
appreciation rights to Mr. Fisher in November of 1994 to acquire 200,000
shares of TCI Group Series A Stock and 75,000 shares Liberty Group Series A
Stock. Options to acquire 80,000 shares of TCI Group Series A Stock and
30,000 shares of Liberty Group Series A Stock are currently exercisable.
Additionally assumes the exercise in full of options granted to Mr. Fisher
in January 1996, pursuant to the Director Stock Option Plan, to acquire
50,000 shares of TCI Group Series A Stock and 18,750 shares of Liberty
Group Series A Stock. Options to acquire 10,000 shares of Series A Stock
and 3,750 shares of Liberty Series A Stock are currently exercisable.
(continued)
III-7
<PAGE>
(7) Assumes the exercise in full of stock options granted in tandem with stock
appreciation rights in November of 1992 to acquire 300,000 shares of TCI
Group Series A Stock and 112,500 shares of Liberty Group Series A Stock.
Options to acquire 200,000 shares of TCI Group Series A Stock and 75,000
shares of Liberty Group Series A Stock are currently exercisable.
Additionally assumes the exercise in full of stock options granted in
tandem with stock appreciation rights in November of 1993 to acquire
375,000 shares of TCI Group Series A Stock and 140,625 shares of Liberty
Group Series A Stock. Options to acquire 250,000 shares of TCI Group
Series A Stock and 93,750 shares of Liberty Group Series A Stock are
currently exercisable. 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 Group Series A Stock and 75,000 shares of
Liberty Group Series A Stock. Options to acquire 80,000 shares of TCI
Group Series A Stock and 30,000 shares of Liberty Group Series A Stock are
currently exercisable. Assumes the exercise in full of stock options
granted in tandem with stock appreciation rights in December of 1995 to
purchase 1,000,000 shares of TCI Group Series A Stock. Options to acquire
200,000 shares of TCI Group Series A Stock are currently exercisable.
Additionally assumes the vesting in full of 100,000 shares of TCI Group
Series A restricted stock. None of the stock is currently vested.
(8) Certain executive officers and directors of Pacific (6 persons, including
Messrs. Malone and Clouston) hold options which were granted in tandem with
stock appreciation rights in November of 1992, to acquire an aggregate of
1,750,000 shares of Series A Stock and an aggregate of 656,250 shares of
Liberty Series A Stock at adjusted purchase prices of $10.75 per share and
$11.16 per share, respectively. Options to acquire 1,360,000 shares of
Series A Stock and 510,000 shares of Liberty Series A Stock are currently
exercisable.
Additionally, certain executive officers (5 persons including Mr. Clouston)
hold stock options granted in tandem with stock appreciation rights in
October and November of 1993 to acquire an aggregate of 825,000 shares of
Series A Stock and an aggregate of 309,375 shares of Liberty Series A Stock
at adjusted purchase prices of $10.75 per share and $11.16 per share,
respectively. Options to acquire 587,500 shares of Series A Stock and
220,313 shares of Liberty Series A Stock are currently exercisable.
Also, certain executive officers and directors (6 persons including Messrs.
Clouston and Fisher) hold stock options which were granted in tandem with
stock appreciation rights in November of 1994 to acquire an aggregate of
800,000 shares of Series A Stock and an aggregate of 300,000 shares of
Liberty Series A Stock at adjusted purchase prices of $14.19 per share and
$14.67 per share, respectively. Options to acquire 320,000 shares of
Series A Stock and 120,000 shares of Liberty Series A Stock are currently
exercisable.
Additionally, certain executive officers and directors (6 persons,
including Messrs. Malone and Clouston) hold stock options which were
granted, in tandem with stock appreciation rights in December of 1995 to
acquire an aggregate of 2,700,000 shares of Series A Stock at an adjusted
purchase price of $14.62 per share. Options to acquire 540,000 shares of
TCI Group Series A Stock are currently exercisable.
(continued)
III-8
<PAGE>
Additionally, certain executive officers and directors (2 persons including
Dr. Malone) hold stock options which were granted, in tandem with stock
appreciation rights in December of 1995 to acquire an aggregate of 487,500
shares of Liberty Series A Stock at an adjusted purchase price of $16.00
per share. Options to acquire 97,500 shares of Liberty Group Series A
Stock are currently exercisable.
Also, certain executive officers (5 persons, including Mr. Clouston) hold
an aggregate of 190,000 shares of Series A restricted stock. None of the
shares are currently vested. One executive officer holds 15,000 shares of
Liberty Group restricted stock. None of the shares are currently vested.
Also, Mr. Fisher holds an option to purchase 50,000 shares of Series A
Stock and 18,750 shares of Liberty Series A Stock at purchase prices of
$16.99 per share and $16.83 per share, respectively. Options to purchase
10,000 shares of Series A Stock and 3,750 shares of Liberty Series A Stock
are currently exercisable.
All of the aforementioned options with tandem stock appreciation rights,
options and restricted stock are reflected in this table assuming the
exercise or vesting in full of such securities.
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.
(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.
Item 13. Certain Relationships and Related Transactions.
- ------- ----------------------------------------------
(a) Transactions with management and others.
---------------------------------------
A consolidated subsidiary of Liberty, Home Shopping Network, Inc. pays a
commission to Pacific for merchandise sales to customers who are subscribers of
Pacific's cable systems. Aggregate commissions to Pacific were $812,000 for the
year ended December 31, 1996.
Pacific purchases, at TCIC's cost, certain pay television and other
programming through a certain indirect subsidiary of TCIC. Charges for such
programming were $44,532,000 during the five months ended December 31, 1996 and
are included in operating expenses in the accompanying financial statements.
Effective August 1, 1996, TCIC provides certain facilities, services and
personnel to Pacific. The scope of the facilities, personnel and services to
Pacific and the respective charges payable in respect thereof are set forth in a
services agreement entered into among TCI, TCIC, and Pacific (the "Services
Agreement"). Pursuant to the Services Agreement, TCIC provides to Pacific
administrative and operational services necessary for the conduct of its
business, including, but not limited to, such services as are generally
performed by TCIC's accounting, finance, corporate, legal and tax departments.
In addition, TCIC makes available to Pacific such general overall management
services and strategic planning services as TCIC and Pacific have agreed, and
provides Pacific with such access to and assistance from TCIC engineering and
construction groups and TCIC's programming and technology/venture personnel at
Pacific's request.
III-9
<PAGE>
The Services Agreement also provides that, for so long as TCIC continues to
beneficially own shares of Pacific's common stock representing at least a
majority in voting power of the outstanding shares of capital stock of Pacific
entitled to vote generally in the election of directors, TCIC will continue to
provide in the same manner, and on the same basis as is generally provided from
time to time to other participating TCIC subsidiaries, benefits and
administrative services to Pacific's employees. In this regard, Pacific is
allocated that portion of TCIC's compensation expense attributable to benefits
extended to employees of Pacific.
Pursuant to the Services Agreement, Pacific reimburses TCIC for all direct
expenses incurred by TCIC in providing such services and a pro rata share of all
indirect expenses incurred by TCIC in connection with the rendering of such
services, including a pro rata share of the salary and other compensation of
TCIC employees performing services for Pacific and general overhead expenses.
Charges for expenses incurred in connection with the Services Agreement were
$7,982,000 during the five months ended December 31, 1996, and are included in
selling, general and administrative expenses in the accompanying financial
statements. The obligations of TCIC to provide services under the Services
Agreement (other than TCIC's obligation to allow Pacific's employees to
participate in TCIC's employee benefit plans) will continue in effect until
terminated by any party to the Services Agreement at any time on not less than
60 days' notice.
Prior to the Acquisition, Viacom Inc. ("Viacom") provided Viacom
International Inc. ("VII Cable") with certain general services, including
insurance, legal, financial and other corporate functions. Charges for these
services were made primarily based on the average of certain specified ratios of
revenues, operating income and net assets. Management believes that the
methodologies used to allocate these charges were reasonable. The charges for
such services were $5,750,000, $13,492,000 and $16,849,000 for the seven months
ended July 31, 1996 and the years ended December 31, 1995 and 1994,
respectively, and are included in selling, general and administrative expenses
in the accompanying financial statements.
Prior to the Acquisition, VII Cable, through the normal course of business,
was involved in transactions with companies owned by or affiliated with Viacom.
VII Cable had agreements to distribute television programs of such companies,
including Showtime Networks Inc., MTV Networks, Comedy Central and USA Networks.
The agreements required VII Cable to pay license fees based upon the number of
customers receiving the service. Affiliate license fees incurred and paid under
these agreements were $19,858,000, $30,694,000 and $28,582,000 for the seven
months ended July 31, 1996 and the years ended December 31, 1995 and 1994,
respectively. In addition, cooperative advertising expenses charged to
affiliated companies were $364,000, $1,350,000 and $1,181,000 for the seven
months ended July 31, 1996 and the years ended December 31, 1995 and 1994,
respectively.
In addition to the interest expense recorded by Viacom International Inc.
on borrowings under a $311 million credit agreement and a $1.7 billion credit
agreement, Viacom allocated to VII Cable interest expense of $26,019,000,
$46,363,000 and $35,681,000 during the seven months ended July 31, 1996 and the
years ended December 31, 1995 and 1994, respectively. Such allocated interest
expense is related to Viacom corporate debt and was allocated to VII Cable on
the basis of a percentage of VII Cable's average net assets to Viacom's average
net assets.
Pacific recorded $3,079,000 of interest expense for the five months ended
December 31, 1996 related to debt payable to TCIC.
In 1996, Pacific transferred (the "Transfer") its investment in TCG San
Francisco and TCG Seattle to TCI Development Corporation, a subsidiary of TCI,
in exchange for a $47,300,000 note receivable. Such note bears interest at 10.5%
per annum. No gain or loss was recognized in connection with the Transfer.
III-10
<PAGE>
The Company believes that the foregoing business dealings with
management during 1996 were based upon terms no less advantageous to Pacific
than those which would be available in dealing with unaffiliated persons.
(b) Certain business relationships
------------------------------
See Item 13(a) above.
(c) Indebtness of management
------------------------
None.
III-11
<PAGE>
PART IV.
<TABLE>
<CAPTION>
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.
--------
<S> <C>
Independent Auditors' Report II-9
Balance Sheets,
December 31, 1996 and 1995 II-11
Statements of Operations,
Five months ended December 31, 1996,
seven months ended July 31, 1996,
years ended December 31, 1995 and 1994 II-12
Statements of Common Stockholder's Equity,
Five months ended December 31, 1996,
seven months ended July 31, 1996,
years ended December 31, 1995 and 1994 II-13 to II-14
Statements of Cash Flows,
Five months ended December 31, 1996,
seven months ended July 31, 1996,
years ended December 31, 1995 and 1994 II-15
Notes to Financial Statements,
December 31, 1996, 1995 and 1994 II-16 to II-30
</TABLE>
IV-1
<PAGE>
(a) (2) Financial Statement Schedules
-----------------------------
Included in Part IV of this Report:
<TABLE>
<CAPTION>
Financial Statement Schedules required to be filed: Page No.
--------
<S> <C>
Independent Auditors' Report IV-5
Schedule I - Condensed Information as to the
Financial Position of the Registrant, December 31, 1996
Condensed Information as to the Operations
and Cash Flows of the Registrant, Five months ended
December 31, 1996 IV-6 to IV-8
Schedule II - Valuation and Qualifying Accounts,
Five months ended December 31, 1996,
seven months ended July 31, 1996, years ended
December 31, 1995 and 1994 IV-9
</TABLE>
IV-2
<PAGE>
(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:
3.1 Restated Certificate of Incorporation, dated as of July 31, 1996.
3.2 Bylaws, adopted as of July 31, 1996.
10 - Material Contracts:
10.1 Parents Agreement, dated as of July 24, 1995, among Viacom, Inc., Tele-
Communications, Inc. and TCI Communications, Inc.
Subscription Agreement, dated as of July 24, 1995, among Viacom
International, Inc., Tele-Communications, Inc. and TCI Communications,
Inc.
Implementation Agreement, dated as of July 24, 1995, between Viacom
International, Inc. and Viacom International Services, Inc.
Incorporated herein by reference to Tele-Communications, Inc.'s
Current Report on Form 8-K, dated July 26, 1995 (Commission File
No. 0-20421).
10.2 Services Agreement, dated as of July 31, 1996, between Tele-
Communications, Inc., TCI Communications, Inc. and TCI Pacific
Communications, Inc.
21 - Subsidiaries of TCI Pacific Communications, Inc.
27 - Financial data schedule
IV-3
<PAGE>
(b) Reports on Form 8-K filed during the quarter ended December 31, 1996:
None.
IV-4
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors and Stockholders
TCI Pacific Communications, Inc.:
Under date of March 24, 1997, we reported on the consolidated balance sheet of
TCI Pacific Communications, Inc. and subsidiaries (a subsidiary of TCI
Communications, Inc.) as of December 31, 1996, and the related consolidated
statements of operations, common stockholder's equity, and cash flows for the
five months ended December 31, 1996, which are included in the December 31, 1996
annual report on Form 10-K. In connection with our audit of the aforementioned
consolidated financial statements, we also audited the related consolidated
financial statement schedules, Schedule I as and for the five months ended
December 31, 1996 and Schedule II for the five months ended December 31, 1996,
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 audit.
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.
KPMG Peat Marwick LLP
Denver, Colorado
March 24, 1997
IV-5
<PAGE>
Schedule I
----------
Page 1 of 3
TCI PACIFIC COMMUNICATIONS, INC. AND SUBSIDIARIES
(see notes 1 and 2)
Condensed Information as to the
Financial Position of the Registrant
December 31, 1996
(amounts in thousands)
<TABLE>
<CAPTION>
Assets
- ------
<S> <C>
Restricted cash 33,664
Investments in and advances to consolidated
susidiaries - eliminated upon consolidation $1,135,332
----------
1,168,996
==========
Common Stockholder's equity
- --------------------------
Exchangeable preferred stock 629,801
Common stockholder's equity (see detail on
page II-11) 539,195
----------
$1,168,996
==========
</TABLE>
IV-6
<PAGE>
Schedule I
----------
Page 2 of 3
TCI PACIFIC COMMUNICATIONS, INC. AND SUBSIDIARIES
(see notes 1 and 2)
Condensed Information as to the
Operations of the Registrant
Five months ended December 31, 1996
(amounts in thousands)
<TABLE>
<CAPTION>
<S> <C>
Selling, general and administrative expenses $ (12)
-------
Loss from operations before share of losses
of consolidated subsidiaries (12)
Share of losses of consolidated subsidiaries (2,440)
-------
Net loss $(2,452)
=======
Dividend requirement on
exchangeable preferred stock (13,079)
-------
Net loss attributable to common
stockholder $(15,531)
========
</TABLE>
IV-7
<PAGE>
Schedule I
----------
Page 3 of 3
TCI PACIFIC COMMUNICATIONS, INC. AND SUBSIDIARIES
(see notes 1 and 2)
Condensed Information as to
Cash Flows of the Registrant
Five months ended December 31, 1996
(amounts in thousands)
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities:
Loss before share of losses of consolidated
subsidiaries $(12)
----
Net cash used in operating activities (12)
----
Cash flows from investing activities:
Reduction in investments in and advances
to consolidated subsidiaries,
net 6,117
------
Net cash provided by investing activities 6,117
------
Cash flows from financing activities:
Payment of preferred stock dividends (9,074)
------
Net cash used in financing activities (9,074)
------
Decrease in cash (2,969)
Cash at beginning of year 36,633
------
Cash at end of year $33,664
======
</TABLE>
See also note 4 to the consolidated financial statements.
IV-8
<PAGE>
Schedule II
-----------
TCI PACIFIC COMMUNICATIONS, INC. AND SUBSIDIARIES
(see notes 1 and 2)
Valuation and Qualifying Accounts
Five months ended December 31, 1996,
seven months ended July 31, 1996,
years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
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 thousands
<S> <C> <C> <C> <C>
Pacific
- -------
Five months ended December 31, 1996:
Allowance for doubtful
receivables - trade $1,826 3,240 3,011 2,055
====== ===== ===== =====
- ------------------------------------------------------------------------------------
VII Cable
- ---------
Seven months ended July 31, 1996:
Allowance for doubtful
receivables - trade $1,689 4,653 4,516 1,826
====== ===== ===== =====
Year ended December 31, 1995:
Allowance for doubtful
receivables - trade $1,251 7,362 6,924 1,689
====== ===== ===== =====
Year ended December 31, 1994:
Allowance for doubtful
receivables - trade $1,791 6,178 6,718 1,251
====== ===== ===== =====
</TABLE>
IV-9
<PAGE>
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 PACIFIC COMMUNICATIONS, INC.
By: /s/ Leo J. Hindery, Jr.
--------------------------------
Leo J. Hindery, Jr.
President
Dated: March 28, 1997
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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ John C. Malone Director March 28, 1997
- -------------------------
John C. Malone
/s/ Leo J. Hindery, Jr. President and Director March 28, 1997
- -------------------------
Leo J. Hindery, Jr.
/s/ Donne F. Fisher Director March 28, 1997
- -------------------------
Donne F. Fisher
/s/ Stephen M. Brett Senior Vice President March 28, 1997
- ------------------------- and Secretary
Stephen M. Brett
/s/ Brendan R. Clouston Senior Vice President and March 28, 1997
- ------------------------- Chief Financial Officer
Brendan R. Clouston (Principal Financial Officer)
/s/ Gary K. Bracken Senior Vice President March 28, 1997
- ------------------------- (Principal Accounting Officer)
Gary K. Bracken
</TABLE>
IV-10
<PAGE>
EXHIBIT INDEX
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:
3 - Articles of Incorporation and Bylaws:
3.1 Restated Certificate of Incorporation, dated as of July 31, 1996.
3.2 Bylaws, adopted as of July 31, 1996.
10 - Material Contracts:
10.1 Parents Agreement, dated as of July 24, 1995, among Viacom, Inc., Tele-
Communications, Inc. and TCI Communications, Inc.
Subscription Agreement, dated as of July 24, 1995, among Viacom
International, Inc., Tele-Communications, Inc. and TCI Communications,
Inc.
Implementation Agreement, dated as of July 24, 1995, between Viacom
International, Inc. and Viacom International Services, Inc.
Incorporated herein by reference to Tele-Communications, Inc.'s
Current Report on Form 8-K, dated July 26, 1995 (Commission File
No. 0-20421).
10.2 Services Agreement, dated as of July 31, 1996, between Tele-
Communications, Inc., TCI Communications, Inc. and TCI Pacific
Communications, Inc.
21 - Subsidiaries of TCI Pacific Communications, Inc.
27 - Financial data schedule
<PAGE>
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
VIACOM INTERNATIONAL INC.
----------------
VIACOM INTERNATIONAL, INC. a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
(1) The name of the Corporation is Viacom International Inc. The original
Certificate of Incorporation of the Corporation was filed on June 2, 1987.
The name under which the Corporation was originally incorporated was
Arsenal Holdings II, Inc. The Certificate of Incorporation of the
Corporation was amended on April 26, 1990.
(2) This Restated Certificate of Incorporation ("Certificate") further
amends and restates in its entirety 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 is
hereby restated to read in its entirety as follows:
ARTICLE I
NAME
The name of the Corporation is TCI Pacific 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., 1013
Centre Road, Wilmington, New Castle County, Delaware 19805-1297. 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.
ARTICLE IV
AUTHORIZED STOCK
The total number of shares of capital stock which the Corporation shall have
authority to issue is twenty-two million, five hundred and sixteen thousand
and twenty-two (22,516,022) shares, of which six million, two hundred and
fifty-eight thousand and sixty-one (6,258,061) shares shall be common stock
("Common Stock") and sixteen million, two hundred and fifty-seven thousand,
nine hundred and sixty-one (16,257,961) shares shall be preferred stock
("Preferred Stock"). Said shares of Common Stock and Preferred Stock shall be
divided into the following classes:
(a) six million, two hundred and fifty-seven thousand, nine hundred and
sixty-one (6,257,961) shares of Common Stock shall be of a class designated
as Class A Common Stock with a par value of $100 per share ("Class A Common
Stock");
<PAGE>
(b) One hundred (100) shares of Common Stock shall be of a class
designated as Class B Common Stock with a par value of $0.01 per share
("Class B Common Stock");
(c) six million two hundred and fifty-seven thousand, nine hundred and
sixty-one (6,257,961) shares of Preferred Stock shall be of a class
designated as Class A Senior Cumulative Exchangeable Preferred Stock with a
par value of $100 per share ("Class A Preferred Stock"); and
(d) ten million (10,000,000) shares of Preferred Stock shall be of a
class designated as Series Preferred Stock with a par value of $0.01 per
share ("Series Preferred Stock").
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:
SECTION A
COMMON STOCK
Each share of Class A Common Stock and each share of Class B Common Stock of
the Corporation shall, except as otherwise provided in this Section A, be
identical in all respects and shall have equal rights and privileges.
(1) VOTING RIGHTS. Holders of Class A Common Stock and holders of Class B
Common Stock shall each be entitled to one vote 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 shares 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,
of Class B Common Stock or of any other class or series of 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 or the holders of
shares of Class B Common Stock shall be required for the approval of any such
matter.
(2) CONVERSION RIGHTS.
(a) Class A Common Stock. Upon the Conversion Time (as defined below), (i)
each share of Class A Common Stock shall automatically convert into and
represent one share of Class A Preferred Stock and (ii) the shares of Class A
Common Stock so converted shall be restored to the status of authorized but
unissued shares of Class A Common Stock. Shares of Class A Common Stock that
are issued after the Conversion Time shall not be convertible into shares of
Class A Preferred Stock, nor shall they be convertible into any other class or
series of capital stock of the Corporation. Each share of Class A Preferred
Stock into which a share of Class A Common Stock shall have been converted
shall be deemed to have been issued at the opening of business on the date on
which the Conversion Time occurs. As used in this Certificate, the term
"Conversion Time" means the time at which shares of Class B Common Stock are
issued to, and paid for by, TCI Communications, Inc, a Delaware corporation
("TCI Sub"), pursuant to the terms of that certain Subscription Agreement,
dated as of July 24, 1995, among the Corporation, TCI Sub and Tele-
Communications, Inc., a Delaware corporation.
(b) Class B Common Stock. The Class B Common Stock is not convertible into
the Class A Preferred Stock, nor shall it be convertible into any other class
or series of capital stock of the Corporation.
(3) DIVIDENDS. Whenever a dividend is paid to the holders of Class A Common
Stock, the Corporation also shall also pay to the holders of Class B Common
Stock a dividend per share equal to the dividend per share
2
<PAGE>
paid to the holders of the Class A Common Stock, and whenever a dividend is
paid to the holders of Class B Common Stock, the Corporation also shall also
pay to the holders of Class A Common Stock a dividend per share 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) LIQUIDATION AND DISSOLUTION. In the event of a liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary, after
payment or provision for payment of the debts and liabilities of the
Corporation and 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 ratably per
share in the assets of the Corporation remaining for distribution to its
common stockholders.
SECTION B
CLASS A SENIOR CUMULATIVE EXCHANGEABLE PREFERRED STOCK
The Class A Senior Cumulative Exchangeable 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 Certificate
of Designations, the meanings herein specified:
"Affiliate" shall mean any Person that directly or indirectly through one or
more intermediaries controls, is controlled by or is under common control with
the Corporation.
"Average Market Price" as of any Record Date or Redemption Date shall mean
the average of the daily Closing Prices for the period of ten consecutive
Trading Days ending on the third Trading Day preceding such Record Date or
Redemption Date, respectively, appropriately adjusted in such manner as the
Board of Directors in good faith deems appropriate to take into account any
stock dividend on the Series A TCI Group Common Stock, or any subdivision,
split, combination or reclassification of the Series A TCI Group Common Stock
that occurs, or the Ex-Dividend Date for which occurs, during the period
following the first Trading Day in such ten-Trading Day period and ending on
the last full Trading Day immediately preceding the Dividend Payment Date to
which such Record Date relates or such Redemption Date, respectively.
"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 authorized or
obligated by law or executive order to close.
"Cash Equivalent Amount" shall mean an amount equal to 95% of the Average
Market Price per share of Series A TCI Group Common Stock, such Average Market
Price to be determined (i) in the case of a dividend payment, as of the
related Record Date and (ii) in the case of a redemption payment, as of the
related Redemption Date.
"Closing Price" shall mean, on any day, (i) the last sale price (or, if no
sale price is reported on that day, the average of the bid and asked prices)
of a share of Series A TCI Group Common Stock on the Nasdaq National Market on
such day, or (ii), if the primary trading market for the Series A TCI Group
Common Stock is not the Nasdaq National Market, then the closing sale price
regular way on such day, or, in case no such sale takes place on such day, the
reported closing bid price regular way on such day, in each case on the New
York Stock Exchange or, if the Series A TCI Group Common Stock is not listed
or admitted to trading on such Exchange, then on the principal exchange on
which such stock is traded, or (iii) if the Closing Price on such day is not
available pursuant to one of the methods specified above, then the average of
the bid and asked prices for the Series A TCI Group Common Stock on such day
as furnished by any New York Stock Exchange member firm selected from time to
time by the Board of Directors for that purpose.
3
<PAGE>
"Convertible Securities" shall mean rights, options, warrants and other
securities which are exercisable or exchangeable for or convertible into
shares of capital stock at the option of the holder thereof. As used herein,
Convertible Securities for shares of Series A TCI Group Common Stock do not
include the Series B TCI Group Common Stock (whether or not at the time in
question the Series B TCI Group Common Stock is convertible into shares of
Series A TCI Group Common Stock).
"Current Market Price," on the Determination Date for any issuance of
rights, warrants or options or any distribution in respect of which the
Current Market Price is being calculated, shall mean the average of the daily
Closing Prices of the Series A TCI Group Common Stock for the shortest of:
(a) the period of 30 consecutive Trading Days commencing 45 Trading Days
before such Determination Date,
(b) the period commencing on the date next succeeding the first public
announcement of the issuance of rights, warrants or options or the
distribution in respect of which the Current Market Price is being
calculated and ending on the last full Trading Day before such
Determination Date, and
(c) the period, if any, commencing on the date next succeeding the Ex-
Dividend Date with respect to the next preceding issuance of rights,
warrants or options or distribution for which an adjustment is required by
the provisions of subparagraph (5)(b)(i)(D), (ii) or (iii), and ending on
the last full Trading Day before such Determination Date.
If the record date for an issuance of rights, warrants or options or a
distribution for which an adjustment is required by the provisions of
subparagraph (5)(b)(i)(D), (5)(b)(ii) or (5)(b)(iii) (the "preceding
adjustment event") precedes the record date for the issuance or distribution
in respect of which the Current Market Price is being calculated and the Ex-
Dividend Date for such preceding adjustment event is on or after the
Determination Date for the issuance or distribution in respect of which the
Current Market Price is being calculated, then the Current Market Price shall
be adjusted by deducting therefrom the fair market value (on the record date
for the issuance or distribution in respect of which the Current Market Price
is being calculated), as determined in good faith by the Board of Directors,
of the capital stock, rights, warrants or options, assets or debt securities
issued or distributed in respect of each share of Series A TCI Group Common
Stock in such preceding adjustment event. Further, in the event that the Ex-
Dividend Date (or in the case of a subdivision, combination or
reclassification, the effective date with respect thereto) with respect to a
dividend, subdivision, combination or reclassification to which paragraph
(5)(b)(i) (A), (B), (C) or (E) applies occurs during the period applicable for
calculating the Current Market Price, then the Current Market Price shall be
calculated for such period in a manner determined in good faith by the Board
of Directors to reflect the impact of such dividend, subdivision, combination
or reclassification on the Closing Prices of the Series A TCI Group Common
Stock during such period.
"Determination Date" for any issuance of rights, warrants or options or any
dividend or distribution to which paragraph (5)(b)(ii) or (iii) applies shall
mean the earlier of (i) the record date for the determination of stockholders
entitled to receive the rights, warrants or options or the dividend or
distribution to which such paragraph applies and (ii) the Ex-Dividend Date for
such rights, warrants or options or dividend or distribution.
"Dividend Payment Date" shall mean the 15th day of each February, May,
August and November, commencing with November 15, 1996, 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 but excluding
the first Dividend Payment Date and, thereafter, each quarterly period from
and including a Dividend Payment Date to but excluding the next Dividend
Payment Date.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, as
amended from time to time, or any successor statute, and the rules and
regulations promulgated thereunder.
"Exchange Date" shall have the meaning set forth in subparagraph (5)(a).
"Exchange Rate" shall mean the kind and amount of securities, assets or
other property that as of any date are deliverable upon exchange of a share of
Class A Preferred Stock pursuant to the exchange privilege set forth
4
<PAGE>
in paragraph (5). The Exchange Rate of a share of Class A Preferred Stock
shall initially mean 4.810 shares of Series A TCI Group Common Stock for each
share of Class A Preferred Stock, subject to adjustment as set forth in
subparagraph (5)(b). In the event that pursuant to paragraph (5) the Class A
Preferred Stock becomes exchangeable for more than one class or series of
capital stock of the Parent, the term "Exchange Rate," when used with respect
to any such class or series, shall mean the number or fraction of shares or
other units of such capital stock that as of any date would be issued upon
exchange of a share of Class A Preferred Stock.
"Ex-Dividend Date" shall mean the date on which "ex-dividend" trading
commences for a divided, an issuance of rights, warrants or options or a
distribution to which any of subparagraphs (5)(b)(i), (ii) or (iii) applies in
the Nasdaq National Market or on the principal exchange on which the Series A
TCI Group Common Stock is then quoted or traded.
"Initial Exchange Date" shall mean August 1, 2001.
"Initial Redemption Date" shall mean August 15, 2001.
"Issue Date" shall mean the date on which shares of Class A Preferred Stock
are first issued.
"Junior Stock" shall mean (i) each class or series of common stock of the
Corporation, (ii) any other class or series of capital stock of the
Corporation hereafter created, other than (A) any class or series of Parity
Stock (except to the extent provided under clause (iii) hereof) and (B) any
class or series of Senior Stock, and (iii) 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 (iii) 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 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 of Parity Stock.
"Liquidation Preference," measured per share of the Class A Preferred Stock
as of any date of determination, shall mean an amount equal to (a) the par
value of such share ($100) plus (b) an amount equal to all dividends accrued
but unpaid on such share, whether or not such unpaid dividends have been
declared or there are any funds of the Corporation legally available for the
payment of dividends.
"Mandatory Redemption Date" shall mean July 31, 2006.
"Mandatory Redemption Price," as to any share of Class A Preferred Stock
which is to be redeemed on the Mandatory Redemption Date, shall mean the
Liquidation Preference thereof on such date.
"Optional Redemption Price" shall have the meaning set forth in subparagraph
4(b).
"Other Property" shall mean any security (other than Series A TCI Group
Common Stock), assets or other property deliverable upon the surrender of
shares of Class A Preferred Stock for exchange in accordance with the
provisions of paragraph (5).
"Parent" means Tele-Communications, Inc., a Delaware corporation.
"Parity Stock" shall mean the Class A Preferred Stock and 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, whether now existing or hereafter created, 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
5
<PAGE>
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.
"Person" shall mean any individual, corporation, partnership, joint venture,
association, joint stock company, limited liability company, trust,
unincorporated organization, government or agency or political subdivision
thereof, or other entity, whether acting in an individual, fiduciary or other
capacity.
"Preferred Stock Directors" has the meaning set forth in subparagraph
(10)(a).
"Prospectus Condition" shall mean, with respect to any exchange requested by
a holder of Class A Preferred Stock pursuant to paragraph (5)(a), that a
current prospectus (meeting the requirements of Section 10 of the Securities
Act) relating to the Series A TCI Group Common Stock shall have been delivered
to such holder or its designee; provided, however, that the Prospectus
Condition shall be deemed satisfied if the Parent receives (i) an opinion of
counsel (which may be the General Counsel of, or regular outside counsel to,
the Parent) to the effect that neither the Parent nor the Corporation is
required, under the Securities Act or the rules and regulations of the SEC
promulgated thereunder, to deliver a current prospectus in connection with any
exchange of Class A Preferred Stock for shares of Series A TCI Group Common
Stock or (ii) a letter from the Division of Corporation Finance (or other
appropriate division of the SEC) to the effect that such Division will not
raise objection or recommend any enforcement action to the SEC if the neither
the Parent nor the Corporation delivers a current prospectus in connection
with an exchange of Class A Preferred Stock for shares of Series A TCI Group
Common Stock.
"Record Date" for the dividends payable on any Dividend Payment Date shall
mean the first day of the month during which such Dividend Payment Date shall
occur, as and if designated by the Board of Directors.
"Redeemable Capital Stock" has the meaning set forth in subparagraph
(5)(b)(i).
"Redemption Date," as to any share of Class A Preferred Stock, shall mean
(i), for purposes of subparagraph (3)(a), the Mandatory Redemption Date and
(ii), for purposes of subparagraph (3)(b), the date fixed by the Board of
Directors for the redemption of such share; provided, that no such date will
be a Redemption Date unless the applicable of the Mandatory Redemption Price
or the Optional Redemption Price is actually paid in full on such date or the
consideration sufficient for the payment thereof, and for no other purpose,
has been set apart or deposited in trust as contemplated by subparagraph
(3)(f).
"Redemption Notice" shall have the meaning set forth in subparagraph (3)(d).
"Redemption Price," as to any share of Class A Preferred Stock, shall mean
(i), if such share is to be redeemed pursuant to subparagraph (3)(a), the
Mandatory Redemption Price and (ii), if such share is to be redeemed pursuant
to subparagraph (3)(b), the applicable Optional Redemption Price.
"Redemption Securities" shall mean securities of an issuer other than the
Parent that are distributed by the Parent in payment, in whole or in part, of
the call, redemption, exchange or other acquisition price for Redeemable
Capital Stock.
"SEC" shall mean the Securities and Exchange Commission, or any successor
agency.
"Securities 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.
6
<PAGE>
"Senior Stock" shall mean any class or series of capital stock of the
Corporation hereafter created 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
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 so provides.
"Series A TCI Group Common Stock" shall mean the Tele-Communications, Inc.
Series A TCI Group Common Stock, par value $1.00 per share, of Parent, which
term shall include, where appropriate, in the case of any reclassification,
recapitalization or other change in the Series A TCI Group Common Stock, or in
the case of a consolidation or merger of Parent with or into another Person
affecting the Series A TCI Group Common Stock, such capital stock to which a
holder of Series A TCI Group Common Stock shall be entitled upon the
occurrence of such event.
"Series B TCI Group Common Stock" shall mean the Tele-Communications, Inc.
Series B TCI Group Common Stock, par value $1.00 per share, of Parent, which
term shall include, where appropriate, in the case of any reclassification,
recapitalization or other change in the Series B TCI Group Common Stock, or in
the case of a consolidation or merger of Parent with or into another Person
affecting the Series B TCI Group Common Stock, such capital stock to which a
holder of Series B TCI Group Common Stock shall be entitled upon the
occurrence of such event.
"Stock Dividend Amount" shall have the meaning set forth in subparagraph
(2)(c).
"Subsidiary" 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 the Corporation and/or one or
more subsidiaries of the Corporation and (ii) any other entity (other than a
corporation) in which the Corporation and/or one or more subsidiaries of the
Corporation, directly or indirectly, has (x) a majority ownership interest and
(y) the power to elect or direct the election of a majority of the members of
the governing body of such entity. The term "Subsidiary" does include a Wholly
Owned Subsidiary.
"Subsidiary Equity Interest" shall mean (i) capital stock of a Subsidiary
(other than a Wholly Owned Subsidiary) that is a corporation or (ii) a
partnership or other ownership interest of a Subsidiary (other than a Wholly
Owned Subsidiary) that is not a corporation.
"Trading Day" shall mean a day on which the Nasdaq National Market and the
New York Stock Exchange are each open for the transaction of business.
"Wholly Owned Subsidiary" means (i) a corporation all of the capital stock
of which, having voting power under ordinary circumstances to elect directors,
is at the time, directly or indirectly, owned by the Corporation and/or one or
more Wholly Owned Subsidiaries and (ii) any other Person (other than a
corporation) in which the Corporation and/or one or more Wholly Owned
Subsidiaries, directly or indirectly, has (x) the entire ownership interest
and (y) the power to elect or direct the election of all of the members of the
governing body of such Person.
(2) DIVIDENDS.
(a) PAYMENT. The holders of shares of Class A Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors out of
funds legally available therefor, cumulative dividends, in preference to
dividends on any Junior Stock, from the Issue Date at the rate per annum of 5%
of the par value of the
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<PAGE>
Class A Preferred Stock per share ($100), rounded to the nearest cent on the
basis of the total number of shares of Class A Preferred Stock held by a
holder (or a dividend rate per share of $5.00 per annum), and no more, payable
quarterly for each share of Class A Preferred Stock in arrears on each
Dividend Payment Date; provided, however, that, with respect to any Dividend
Period during which a redemption occurs, the Board of Directors may, at its
option, declare accrued dividends to, and pay such dividends on, the related
Redemption Date, in which case such dividends would be payable on such
Redemption Date to the holders of the shares of Class A Preferred Stock as of
a special record date (not to exceed 45 days preceding the payment date) for
such dividend payment. Each dividend on the shares of Class A Preferred Stock
shall be payable to holders of record as they appear on the stock register of
the Corporation on the Record Date for such dividend and, for purposes of
calculating the accrual of dividends, dividends will accrue to, but not
including, the date fixed for payment. For purposes of determining the amount
of dividends "accrued" (i) as of the first Dividend Payment Date and 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 above for actual 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 but excluding the date as of
which such determination is being made, based on a 365-or 366-day year, as the
case may be, and (ii) as of any Dividend Payment Date (other than the first
Dividend Payment Date), such amount shall be calculated on the basis of the
foregoing rate per annum, based on a 360-day year of twelve 30-day months.
Dividends on the shares of Class A Preferred Stock will accrue on a daily
basis (without interest or compounding) whether or not there are unrestricted
funds legally available for the payment of such dividends and whether or not
such dividends are declared. No interest, or sum of money in lieu of interest,
shall be payable in respect of any dividend payment or payments on the Class A
Preferred Stock that may be in arrears. Dividends will cease to accrue in
respect of shares of Class A Preferred Stock on the date of their redemption
or exchange.
Accrued and unpaid dividends for any past Dividend Period or Dividend
Periods may be declared and paid at any time, without reference to any
Dividend Payment Date, to holders of record on such date, not exceeding 45
days preceding the payment date thereof, as may be fixed by the Board of
Directors.
(b) COMPANY'S RIGHT TO ELECT MANNER OF PAYMENT OF DIVIDENDS. Any dividends
may be paid, in the sole discretion of the Board of Directors, (i) out of
funds legally available therefor, (ii) through the delivery of shares of
Series A TCI Group Common Stock or (iii) through any combination of the
foregoing forms of consideration elected by the Board of Directors in its sole
discretion. If any dividend declared by the Board of Directors is to be paid,
in whole or in part, through the delivery of shares of Series A TCI Group
Common Stock, each holder of Class A Preferred Stock shall receive the same
proportion of cash and/or shares of Series A TCI Group Common Stock (except
for cash paid in lieu of fractional shares) delivered in payment of such
dividend to other holders of shares of Class A Preferred Stock.
(c) PAYMENT OF DIVIDENDS BY DELIVERY OF SERIES A TCI GROUP COMMON STOCK. If
the Corporation elects to pay any dividend payment, in whole or in part, by
delivery of shares of Series A TCI Group Common Stock, the amount of such
dividend payment to be paid per share of Class A Preferred Stock in shares of
Series A TCI Group Common Stock (the "Stock Dividend Amount") shall be paid
through the delivery to the holders of record of such shares of Class A
Preferred Stock on the Record Date for such dividend payment of a number of
shares of Series A TCI Group Common Stock determined by dividing the Stock
Dividend Amount by the Cash Equivalent Amount. No fractional shares of Series
A TCI Group Common Stock shall be delivered to a holder of shares of Class A
Preferred Stock, but the Corporation shall instead pay a cash adjustment
determined as provided in paragraph (7).
If the Corporation elects to pay any dividend, in whole in part, through the
delivery of shares of Series A TCI Group Common Stock, the Corporation will
give notice of such determination (which shall include the number of shares of
Series A TCI Group Common Stock and the amount of cash, if any, to be
delivered in respect of each share of Class A Preferred Stock) by publication,
on the Record Date or any special record date for such dividend, of such
election in a daily newspaper of national circulation.
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<PAGE>
The Corporation's right to make any dividend payment (or a designated
portion thereof) through the delivery of shares of Series A TCI Group Common
Stock shall be conditioned upon: (i) the shares of Series A TCI Group Common
Stock to be so delivered being fully paid and nonassessable and free from any
preemptive rights, liens or adverse claims; (ii) the delivery of such shares
of Series A TCI Group Common Stock being exempt from the registration or
qualification requirements of the Securities Act and applicable state
securities laws or, if no such exemption is available, the delivery of such
shares of Series A TCI Group Common Stock having been duly registered or
qualified under the Securities Act and applicable state securities laws; and
(iii) the shares of Series A TCI Group Common Stock to be so delivered being
listed, and upon delivery being eligible for trading, on the Nasdaq National
Market or on a national securities exchange. If the conditions set forth in
this subparagraph (2)(c) have not been satisfied prior to or on the applicable
Dividend Payment Date, then such dividend payment shall be paid solely in
cash. If the Corporation elects to pay any dividend (or a designated portion
thereof) through the delivery of shares of Series A TCI Group Common Stock and
Parent agrees to deliver such shares to the Corporation in order to pay such
dividend, Parent has separately agreed to take such reasonable action which
may be necessary, in the opinion of the Parent's legal counsel, in order to
satisfy the requirements of clauses (i) through (iii) of this subparagraph
(2)(c) in connection with such shares and the delivery thereof.
If the Corporation elects to pay any dividend (or a designated portion
thereof) through the delivery of shares of Series A TCI Group Common Stock and
Parent agrees to deliver such shares to the Corporation in order to pay such
dividend, Parent has also separately agreed after the date on which the
Corporation has declared such a dividend on the Class A Preferred Stock in
shares of Series A TCI Group Common Stock to reserve and keep available, free
from preemptive rights, out of the aggregate of its authorized but unissued
Series A TCI Group Common Stock and its issued Series A TCI Group Common Stock
held in its treasury, for the purpose of paying such declared dividend
pursuant to this paragraph (2), the full number of shares of Series A TCI
Group Common Stock then deliverable in respect of such declared dividend
(assuming for this purpose that all of the outstanding shares of Class A
Preferred Stock are held by a single holder).
(d) CREDIT. Any dividend payment made on the shares of Class A Preferred
Stock shall first be credited against the earliest accrued but unpaid dividend
due with respect to the shares of Class A Preferred Stock.
(e) PRO RATA. All dividends paid with respect to the shares of Class A
Preferred Stock shall be paid pro rata to the holders entitled thereto.
(f) PRIORITY. Payment of dividends to the holders of shares of Class A
Preferred Stock shall be subject to the prior preferences and other rights of
any Senior Stock and to the provisions of paragraph (4).
(3) REDEMPTIONS.
(a) MANDATORY REDEMPTION BY THE CORPORATION. The Corporation shall redeem on
the Mandatory Redemption Date all shares of Class A Preferred Stock remaining
outstanding at the Mandatory Redemption Price. If the Corporation is unable to
deliver shares of Series A TCI Group Common Stock in payment of the Mandatory
Redemption Price on the Mandatory Redemption Date, and if funds of the
Corporation legally available for redemption of shares of the Class A
Preferred Stock and any other class or series of Parity Stock then required to
be redeemed are insufficient to redeem the total number of shares of Class A
Preferred Stock remaining outstanding, those funds which are legally available
shall be used to redeem the maximum possible number of shares of Class A
Preferred Stock and each such other class or series of Parity Stock. At any
time and from time to time thereafter when the Corporation is able to deliver
shares of Series A TCI Group Common Stock, or additional funds of the
Corporation are legally available for such purpose, such shares of Series A
TCI Group Common Stock and/or funds shall immediately be used to redeem the
shares of Class A Preferred Stock and of each such other class or series of
Parity Stock which were required to be redeemed that the Corporation failed to
redeem until the balance of such shares have been redeemed. The selection of
shares to be redeemed pursuant to the two immediately preceding sentences
shall be made, as nearly as practicable, 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.
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<PAGE>
(b) OPTIONAL REDEMPTION BY THE CORPORATION. Shares of Class A Preferred
Stock are not redeemable by the Corporation prior to the Initial Redemption
Date. At any time and from time to time on or after the Initial Redemption
Date and prior to the Mandatory Redemption Date, the Corporation shall have
the right to redeem, in whole or from time to time in part, the outstanding
shares of Class A Preferred Stock at the following per share call prices,
together with an amount equal to all dividends accrued but unpaid thereon to
the date fixed for redemption (the "Optional Redemption Price"), if redeemed
during the twelve-month period beginning July 31 of the year indicated below:
<TABLE>
<CAPTION>
CALL
YEAR PRICE
---- -------
<S> <C>
2001.............................................................. $102.50
2002.............................................................. 101.67
2003.............................................................. 100.83
2004 and thereafter............................................... 100.00
</TABLE>
If fewer than all of the 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 by the Corporation pro rata (as nearly as may
be practicable) among all holders of outstanding shares of Class A Preferred
Stock. If shares of Class A Preferred Stock evidenced by a certificate
selected for partial redemption are thereafter exchanged in part pursuant to
paragraph (5) hereof, the shares so exchanged (as far as may be practicable)
will be deemed to be the shares selected for redemption. The Corporation shall
not be required to register a transfer of (i) any shares of Class A Preferred
Stock for a period of 5 Business Days next preceding any selection of shares
of Class A Preferred Stock to be redeemed or (ii) any shares of Class A
Preferred Stock called for redemption.
(c) COMPANY'S RIGHT TO ELECT MANNER OF PAYMENT OF REDEMPTION PRICE. The
Corporation may effect the redemption of shares of Class A Preferred Stock at
the Redemption Price pursuant to subparagraph (3)(a) or (b) above, in the sole
discretion of the Board of Directors, (i) out of funds legally available
therefor, (ii) through the delivery of shares of Series A TCI Group Common
Stock or (iii) through any combination of the foregoing forms of consideration
elected by the Board of Directors in its sole discretion. Each holder whose
shares of Class A Preferred Stock are redeemed shall receive in payment of the
Redemption Price the same proportion of cash and/or shares of Series A TCI
Group Common Stock (except for cash paid in lieu of fractional shares) paid to
other holders of shares of Class A Preferred Stock redeemed on the same
Redemption Date.
(d) NOTICE OF REDEMPTION. The Corporation shall provide notice of any
redemption of shares of Class A Preferred Stock to holders of record of Class
A Preferred Stock to be called for redemption not less than 15 nor more than
60 days prior to the date fixed for such redemption. Such notice (a
"Redemption Notice") shall be provided by mailing notice of such redemption
first class postage prepaid, to each holder of record of shares of Class A
Preferred Stock to be redeemed, at such holder's address as it appears on the
stock register of the Corporation; provided, however, that neither failure to
give such notice nor any defect therein shall affect the validity of the
proceeding for the redemption of any shares of Class A Preferred Stock to be
redeemed except as to the holders to whom the Corporation has failed to give
said notice or whose notice was defective.
In addition to any information required by law or by the applicable rules of
the Nasdaq National Market or any national securities exchange, each
Redemption Notice shall state, as appropriate, the following (and may contain
such other information as the Corporation deems advisable):
(A) the Redemption Date;
(B) that all outstanding shares of Class A Preferred Stock are to be
redeemed or, in the case of a call for redemption of fewer than all
outstanding shares of Class A Preferred Stock, the number of shares held by
such holder to be redeemed;
(C) the applicable Redemption Price and the form or forms of
consideration that the Corporation has elected to pay and/or deliver upon
such redemption and, if more than one form of consideration has been
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<PAGE>
elected by the Corporation, the designated portions of the Redemption Price
to be paid in each form of consideration so elected;
(D) if the Corporation has elected to deliver shares of Series A TCI
Group Common Stock in payment of the Redemption Price (or a designated
portion thereof), the method of determining the number of shares of Series
A TCI Group Common Stock so deliverable as provided in subparagraph (3)(e)
below;
(E) the place or places where certificates for Class A Preferred Stock to
be redeemed are to be surrendered for redemption;
(F) that dividends on the shares of Class A Preferred Stock to be
redeemed shall cease to accrue on the Redemption Date (except as otherwise
provided herein); and
(G) the then current Exchange Rate and the place or places where
certificates for Class A Preferred Stock may be surrendered for exchange
pursuant to paragraph (5), and shall further state that the exchange
privilege will terminate immediately prior to the close of business on the
Redemption Date.
(e) REDEMPTION BY DELIVERY OF SERIES A TCI GROUP COMMON STOCK. If the
Corporation elects to pay, in whole or in part, the Redemption Price in
respect of shares of Class A Preferred Stock through the delivery of shares of
Series A TCI Group Common Stock, then the Corporation shall deliver to each
holder of shares of Class A Preferred Stock to be redeemed on the applicable
Redemption Date a number of shares of Series A TCI Group Common Stock equal to
the aggregate Redemption Price (or designated portion thereof) of such shares
of Class A Preferred Stock divided by the Cash Equivalent Amount. No
fractional shares of Series A TCI Group Common Stock shall be delivered to a
holder of shares of Class A Preferred Stock in payment of the Redemption
Price, but the Corporation shall instead pay a cash adjustment determined as
provided in paragraph (7).
The Corporation's right to elect to pay any Redemption Price (or designated
portion thereof) through the delivery of shares of Series A TCI Group Common
Stock shall be conditioned upon: (i) the Corporation's having timely given a
Redemption Notice setting forth such election; (ii) the shares of Series A TCI
Group Common Stock to be so delivered being fully paid and nonassessable and
free from any preemptive rights, liens or adverse claims; (iii) the delivery
of such shares of Series A TCI Group Common Stock being exempt from the
registration or qualification requirements of the Securities Act and
applicable state securities laws or, if no such exemption is available, the
delivery of such shares of Series A TCI Group Common Stock having been duly
registered or qualified under the Securities Act and applicable state
securities laws; and (iv) the shares of Series A TCI Group Common Stock being
listed, and upon delivery being eligible for trading, on the Nasdaq National
Market or on a national securities exchange. If the conditions set forth in
this subparagraph (3)(e) have not been satisfied prior to or on the Redemption
Date, the Redemption Price to be paid on such Redemption Date shall be paid
solely in cash. If the Corporation elects to pay any Redemption Price (or a
designated portion thereof) through the delivery of shares of Series A TCI
Group Common Stock and Parent agrees to deliver such shares to the Corporation
in order to pay such Redemption Price, Parent has separately agreed to take
such reasonable action which may be necessary, in the opinion of the Parent's
legal counsel, in order to satisfy the requirements of clauses (i) through
(iv) of this subparagraph (3)(e) in connection with such shares and the
delivery thereof.
If the Corporation elects to pay any Redemption Price (or a designated
portion thereof) through the delivery of shares of Series A TCI Group Common
Stock and Parent agrees to deliver such shares to the Corporation in order to
pay such Redemption Price, Parent has also separately agreed after the date on
which the Corporation elects to pay the Redemption Price in shares of Series A
TCI Group Common Stock to reserve and keep available, free from preemptive
rights, out of the aggregate of its authorized but unissued Series A TCI Group
Common Stock and its issued Series A TCI Group Common Stock held in its
treasury, for the purpose of paying the Redemption Price pursuant to this
paragraph (3), the full number of shares of Series A TCI Group Common Stock
then deliverable in respect of such Redemption Price (assuming for this
purpose that all of the outstanding shares of Class A Preferred Stock are held
by a single holder).
(f) DEPOSIT OF FUNDS AND/OR SHARES. If the Redemption Notice with respect to
shares of Class A Preferred Stock to be redeemed pursuant to this paragraph
(3) shall have been timely given by the Corporation, and if on or before the
applicable Redemption Date the Corporation shall have deposited with the
redemption agent for the Class A Preferred Stock (or, if there is no
redemption agent, shall have set apart so as to be available
11
<PAGE>
for such purpose and only such purpose) cash (including cash for any
adjustment in lieu of delivering fractional shares) and/or shares of Series A
TCI Group Common Stock, as applicable, sufficient to pay in full the aggregate
Redemption Price for such shares of Class A Preferred Stock on such Redemption
Date, and provided that all conditions set forth in subparagraph (3)(e) to the
delivery of shares of Series A TCI Group Common Stock shall have been
satisfied (if applicable), then effective as of the close of business on such
Redemption Date, such shares of Class A Preferred Stock shall no longer be
deemed outstanding (notwithstanding that any certificate therefor shall not
have been surrendered for cancellation), dividends with respect to the shares
so called for redemption shall cease to accrue on the Redemption Date (except
that holders of shares of Class A Preferred Stock at the close of business on
a Record Date for any payment of dividends shall be entitled to receive the
dividend payable on such shares on the corresponding Dividend Payment Date
notwithstanding the redemption of such shares following such Record Date and
prior to such Dividend Payment Date) and all rights with respect to the shares
so called for redemption shall forthwith after such date cease and terminate,
except the right of such holders, upon the surrender of certificates
evidencing the shares of Class A Preferred Stock so redeemed, to receive the
cash and/or Series A TCI Group Common Stock, as applicable, payable or
deliverable in payment of the Redemption Price therefor, and the applicable
cash adjustment, if any, in lieu of fractional shares, without interest. Any
cash and/or shares of Series A TCI Group Common Stock so deposited or set
apart which shall remain unclaimed at the end of one year after the Redemption
Date shall be returned or released to the Corporation, after which time the
holders of shares of Class A Preferred Stock called for redemption on such
Redemption Date that remain outstanding after such one-year period shall look
only to the Corporation for the payment of the Redemption Price for such
shares, without interest, unless an applicable escheat or abandoned property
law otherwise requires. If any shares of Class A Preferred Stock so called for
redemption are exchanged, pursuant to paragraph (5), between the date such
cash and/or shares of Series A TCI Group Common Stock are so deposited or set
apart and the close of business on the Redemption Date, then the cash
(including cash for any adjustment in lieu of delivering fractional shares)
and/or shares of Series A TCI Group Common Stock, as applicable, deposited or
set apart for the redemption of such shares so exchanged shall be promptly
thereafter returned or released to the Corporation.
At its election, the Corporation on or prior to any Redemption Date (but no
more than ninety (90) days prior to such Redemption Date) may deposit
immediately available funds and/or shares of Series A TCI Group Common Stock
sufficient to pay the aggregate Redemption Price of the shares of Class A
Preferred Stock called for redemption on such date 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 Redemption Notice as soon as
practicable after receipt of such irrevocable instructions (or to complete
such mailing previously commenced, if it has not already been completed) and
to pay, on and after such Redemption Date or prior thereto, the Redemption
Price of the shares of Class A 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 A Preferred Stock to be
redeemed and from and after the later of the close of business on the date of
such deposit (although prior to such Redemption Date) or the date the
Redemption Notice is mailed, the shares of Class A 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 (x) 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 and (y)
the right to exchange such shares in accordance with paragraph (5) prior to
the close of business on such Redemption Date. Any interest accrued on funds
so deposited shall be paid by the Redemption Agent to the Corporation from
time to time. Any cash and/or shares of Series A TCI Group Common Stock
deposited with the Redemption Agent which shall remain unclaimed at the end of
one year after the Redemption Date shall be returned by the Redemption Agent
to the Corporation, after which return the holders of shares of Class A
Preferred Stock called for redemption on such Redemption Date that remain
outstanding after such one-year period shall look only to the Corporation for
the payment of the Redemption Price for such shares, without interest, unless
an applicable escheat or abandoned property law otherwise
12
<PAGE>
requires. If any shares of Class A Preferred Stock called for redemption on
such Redemption Date are exchanged, in accordance with paragraph (5), between
the date such cash and/or shares of Series A TCI Group Common Stock are so
deposited with the Redemption Agent and the close of business on the
Redemption Date, then the cash (including cash for any adjustment in lieu of
delivering fractional shares) and/or shares of Series A TCI Group Common
Stock, as applicable, so deposited for the redemption of such shares so
exchanged shall be promptly thereafter returned by the Redemption Agent to the
Corporation.
(g) SURRENDER OF CERTIFICATES; STATUS. Each holder of shares of Class A
Preferred Stock to be redeemed shall surrender the certificates evidencing
such shares (properly endorsed or assigned to the Corporation in blank and
with signatures guaranteed, if the Corporation shall so require and the
Redemption Notice shall so state) to the redemption agent (or to the
Corporation if there is no redemption agent) at the place designated in the
Redemption Notice for such redemption and shall thereupon be entitled to
receive the consideration for such shares specified in the Redemption Notice
(subject to subparagraph (3)(e)) in an aggregate amount equal to the
Redemption Price for such shares. In case fewer than all the shares of Class A
Preferred Stock represented by any such surrendered certificate are called for
redemption, a new certificate shall be issued at the expense of the
Corporation representing the unredeemed shares. Holders of shares of Class A
Preferred Stock that are redeemed on any Redemption Date shall not be entitled
to receive dividends declared and paid on any shares of Series A TCI Group
Common Stock deliverable in payment of the Redemption Price (or designated
portion thereof) for such shares of Class A Preferred Stock, and such shares
of Series A TCI Group Common Stock shall not be entitled to vote, until such
shares of Series A TCI Group Common Stock are delivered upon the surrender of
the certificates representing such shares of Class A Preferred Stock. Upon
such surrender, such holders shall be entitled to receive such dividends
declared and paid on such shares of Series A TCI Group Common Stock subsequent
to such Redemption Date and prior to such delivery.
(h) PRIORITY. The right of the Corporation to redeem shares of Series A
Preferred pursuant to this paragraph (3) shall be subject to the prior
preferences and other rights of any Senior Stock and to the provisions of
paragraph (4).
(4) LIMITATIONS ON DIVIDENDS AND REDEMPTIONS IN RESPECT OF COMPANY AND
SUBSIDIARY STOCK.
(a) LIMITATIONS ON JUNIOR STOCK DIVIDENDS. As long as any shares of Class A
Preferred Stock are outstanding, no dividends shall be paid or declared in
cash or otherwise on Junior Stock, nor shall any other distribution be made on
any Junior Stock, unless: (i) full dividends on all Parity Stock have been
paid, or declared and set aside for payment, for all dividend periods
terminating on or prior to the date of such Junior Stock dividend or
distribution payment, to the extent such dividends are cumulative; (ii) the
Corporation has paid or set aside all amounts, if any, then or theretofore
required to be paid or set aside for all purchase, retirement, and sinking
funds, if any, for any Parity Stock; and (iii) the Corporation is not in
default on any of its obligations to redeem any Parity Stock.
(b) LIMITATIONS ON PURCHASES OF JUNIOR STOCK. As long as any shares of Class
A Preferred Stock are outstanding, no shares of any Junior Stock may be
purchased, redeemed, or otherwise acquired by the Corporation or any of its
Subsidiaries (except in connection with a reclassification of any Junior Stock
through the issuance of other Junior Stock and/or Convertible Securities for
shares of Junior Stock and cash in lieu of fractional shares in connection
therewith or the purchase, redemption or other acquisition of any Junior Stock
from any Wholly Owned Subsidiary), nor may any funds be set aside or made
available for any sinking fund for the purchase, redemption or other
acquisition of any Junior Stock, unless: (i) full dividends on all Parity
Stock have been paid, or declared and set aside for payment, for all dividend
periods terminating on or prior to the date of such purchase, redemption or
acquisition, to the extent such dividends are cumulative; (ii) the Corporation
has paid or set aside all amounts, if any, then or theretofore required to be
paid or set aside for all purchase, retirement, and sinking funds, if any, for
any Parity Stock; and (iii) the Corporation is not in default on any of its
obligations to redeem any Parity Stock.
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<PAGE>
(c) JUNIOR STOCK DIVIDENDS OTHERWISE PERMITTED. Subject to the provisions of
subparagraphs (4)(a) and (b), dividends or distributions (payable in cash,
property or securities) may be declared and paid on the shares of any Junior
Stock from time to time and any Junior Stock may be purchased, redeemed or
otherwise acquired by the Corporation or any of its Subsidiaries from time to
time. In the event of the declaration and payment of any such dividends or
distributions, the holders of such Junior Stock will be entitled, to the
exclusion of holders of shares of Class A Preferred Stock, to share therein
according to their respective interests.
(d) LIMITATIONS ON PARITY STOCK DIVIDENDS AND REDEMPTIONS. As long as any
shares of Class A Preferred Stock are outstanding, dividends or other
distributions may not be declared or paid on any Parity Stock, and the
Corporation may not purchase, redeem or otherwise acquire any Parity Stock
(except (x) from any Wholly Owned Subsidiary or (y) in connection with a
mandatory conversion or exchange of such Parity Stock or a conversion or
exchange of such Parity Stock at the option of the holder for securities other
than Parity Stock or Senior Stock and cash in lieu of fractional shares in
connection therewith), unless either: (a)(i) full dividends on all Parity
Stock have been paid, or declared and set aside for payment, for all dividend
periods terminating on or prior to the date of such Parity Stock dividend,
distribution, purchase, redemption or other acquisition payment, to the extent
such dividends are cumulative; (ii) the Corporation has paid or set aside all
amounts, if any, then or theretofore required to be paid or set aside for all
purchase, retirement, and sinking funds, if any, for any Parity Stock; and
(iii) the Corporation is not in default on any of its obligations to redeem
any Parity Stock; or (b) with respect to the payment of dividends only, any
such dividends are declared and paid pro rata so that the amounts of any
dividends declared and paid per share on shares of Class A Preferred Stock and
each other share of such Parity Stock will in all cases bear to each other the
same ratio that accrued and unpaid dividends (including any accumulation with
respect to unpaid dividends for prior dividend periods, if such dividends are
cumulative) per share on shares of Class A Preferred Stock and such other
share of Parity Stock bear to each other.
(e) CERTAIN PERMITTED DIVIDENDS AND REDEMPTIONS. Nothing contained in this
paragraph (4) shall prevent (i) the payment of dividends or the making of
distributions on any Junior Stock solely in shares of Junior Stock and/or
Convertible Securities for shares of Junior Stock (together with a cash
adjustment for fractional shares, if any) 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 through the application of the
proceeds from the sale of, shares of Junior Stock and/or Convertible
Securities for shares of Junior Stock; (ii) the payment of dividends or the
making of distributions on any class or series of Parity Stock solely in
(together with a cash adjustment for fractional shares, if any) (x) shares of
Junior Stock and/or Convertible Securities for shares of Junior Stock or (y)
any securities of Parent (including shares of Series A TCI Group Common
Stock), or the redemption, exchange, purchase or other acquisition of any
class or series of Parity Stock solely in exchange for (together with a cash
adjustment for fractional shares, if any), or through the application of the
proceeds from the sale of, (A) shares of Junior Stock and/or Convertible
Securities for shares of Junior Stock or (B) any securities of Parent
(including shares of Series A TCI Group Common Stock); or (iii) the exchange
of Class A Preferred Stock for shares of Series A TCI Group Common Stock
(together with a cash adjustment for fractional shares, if any) and Other
Property, if any, pursuant to the provisions of paragraph (5).
(f) LIMITATIONS ON SUBSIDIARY EQUITY DIVIDENDS AND REDEMPTIONS. As long as
any shares of Class A Preferred Stock are outstanding, the Corporation shall
not, and shall not permit any Subsidiary to: (i) declare or pay dividends on
any Subsidiary Equity Interest or (ii) purchase, redeem or otherwise acquire
any Subsidiary Equity Interest, or set aside any funds for any sinking fund
for the purchase or redemption of any Subsidiary Equity Interest, unless: (A)
full dividends on the Class A Preferred Stock have been paid, or declared and
set aside for payment, for all Dividend Periods terminating on or prior to the
date of such Subsidiary Equity Interest dividend, distribution, purchase,
redemption or other acquisition payment; and (B) the Corporation is not in
default on any of its obligations to redeem shares of Class A Preferred Stock
under paragraph (3) or to exchange shares of Class A Preferred Stock under
paragraph (5).
(g) CERTAIN PERMITTED SUBSIDIARY EQUITY DIVIDENDS AND REDEMPTIONS. Nothing
contained in this paragraph (4) shall prevent (i) the payment of dividends or
the making of distributions by any Subsidiary on any of its Subsidiary Equity
Interests solely in shares of the same class or series as, or ranking junior
to, such
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Subsidiary Equity Interest ("Permitted Subsidiary Equity Interest") and/or
Convertible Securities for such Permitted Subsidiary Equity Interests
(together with a cash adjustment for fractional shares, if any) or the
redemption, purchase or other acquisition of any such Subsidiary Equity
Interest solely in exchange for (together with a cash adjustment for
fractional shares, if any), or through the application of the proceeds from
the sale of, Permitted Subsidiary Equity Interests or Convertible Securities
for Permitted Subsidiary Equity Interests; (ii) the redemption, purchase or
other acquisition of any such Subsidiary Equity Interest solely in exchange
for (together with a cash adjustment for fractional shares, if any) any
securities of Parent (including shares of Series A TCI Group Common Stock);
(iii) the payment of dividends or the making of distributions by any
Subsidiary on any of its Subsidiary Equity Interests if such dividends or
distributions are required to be made (there being no right of deferral)
pursuant to the terms of any charter document or any partnership, joint
venture, stockholder, acquisition or other agreement in effect on the Issue
Date; or (iv) the redemption, purchase or other acquisition of any such
Subsidiary Equity Interest if such redemption, purchase or other acquisition
is required to be made pursuant to the terms of any charter document or any
partnership, joint venture, stockholder, acquisition or other agreement in
effect on the Issue Date).
(h) WAIVER. The provisions of subparagraphs (4)(a), (b), (d) and (f) are for
the sole benefit of the holders of the Class A Preferred Stock and
subparagraphs (4)(a), (b) and (d) are also for the benefit of any other class
or series of Parity Stock having the terms described therein and accordingly,
at any time when (i) there are no shares of any such other class or series of
Parity Stock outstanding or if the holders of each such other 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 the provisions of subparagraphs
(4)(a), (b) or (d) (either generally or in the specific instance), and (ii)
the holders of shares of Class A Preferred Stock shall have waived (as
provided in paragraph (11)) in whole or in part the benefit of the provisions
of subparagraphs (4)(a), (b), (d) or (f) (either generally or in the specific
instance), then such provisions shall not (to the extent waived, in the case
of any partial waiver) restrict the payment of dividends or the making of
distributions on, or the redemption, purchase or other acquisition of any
shares of, Class A Preferred Stock, any other class or series of Parity Stock,
any Junior Stock or any Subsidiary Equity Interest.
(5) EXCHANGE AT OPTION OF HOLDER.
(a) RIGHT TO AND MECHANICS OF EXCHANGE. Subject to the provisions of this
paragraph (5), shares of Class A Preferred Stock are exchangeable, in whole or
from time to time in part, at the option of the holders thereof, at any time
from and after the Initial Exchange Date and prior to the close of business on
the Mandatory Redemption Date, unless previously redeemed, into shares of
Series A TCI Group Common Stock at the Exchange Rate. The right to exchange
shares of Class A Preferred Stock called for redemption shall terminate
immediately prior to the close of business on the related Redemption Date.
In order to exchange shares of Class A Preferred Stock, the holder thereof
shall surrender the certificates evidencing the shares of Class A Preferred
Stock to be exchanged at the office or agency to be maintained by the
Corporation for that purpose, duly endorsed to the Corporation or in blank (or
accompanied by duly executed instruments of 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 written
notice of exchange specifying the number of shares of Class A Preferred Stock
to be exchanged and specifying the name or names (with addresses) in which the
certificate or certificates representing the Series A TCI Group Common Stock
deliverable on such exchange are to be registered, and otherwise in accordance
with exchange procedures established by the Corporation. Each notice of
exchange shall be irrevocable, and each exchange shall be deemed to have been
effected immediately prior to the close of business on the date (the "Exchange
Date") on which (i) all of the requirements for such exchange shall have been
satisfied and (ii) the Parent is able to deliver a current prospectus relating
to the Series A TCI Group Common Stock, if required to satisfy the Prospectus
Condition. The exchange shall be at the Exchange Rate in effect immediately
prior to the close of business on the Exchange Date. If any transfer is
involved in the issuance or delivery of any certificate or certificates for
shares of Series A TCI Group Common Stock in a name other than that of the
registered holder of the shares of Class A Preferred Stock surrendered for
exchange, such holder shall also deliver to the Corporation a sum sufficient
to pay all taxes,
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if any, 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.
As promptly as practicable after the Exchange Date, the Corporation, in
accordance with the provisions of this paragraph (5), shall issue and deliver
at said office or agency to the holder of the shares of Class A Preferred
Stock so surrendered for exchange, or on his or her written order, a
certificate or certificates for the number of full shares of Series A TCI
Group Common Stock issuable upon exchange of such shares in accordance with
the provisions of this paragraph (5), and any fractional interest shall be
settled in accordance with paragraph (7). If required in order to satisfy the
Prospectus Condition, the Corporation shall, or shall cause the Parent to,
deliver to such holder or its designee, together with the certificate for such
shares of Series A TCI Group Common Stock and cash in lieu of any fractional
share, a current prospectus (meeting the requirements of Section 10 of the
Securities Act) relating to the Series A TCI Group Common Stock; provided,
however, that in the event the Parent is unable during any period to deliver a
current prospectus, no exchange shall be effected (and no Exchange Date shall
occur) during such period and any exchange that could otherwise have been
effected during such period shall be deemed to have been effected immediately
prior to the close of business (and the Exchange Date shall be deemed to have
occurred) on the first Business Day that the Parent is able to deliver a
current prospectus relating to the Series A TCI Group Common Stock. The
inability of the Corporation or the Parent to deliver a current prospectus at
any time shall not be deemed a default under this Restated Certificate of
Incorporation. The Parent has separately agreed to use all reasonable efforts
to ensure that it will be able to deliver a current prospectus, if required,
during any period that the holders of shares of Class A Preferred Stock are
entitled to exchange such shares for shares of Series A TCI Group Common
Stock.
The Person in whose name the certificate for shares of Series A TCI Group
Common Stock is issued upon such exchange shall be treated for all purposes as
the stockholder of record of such shares of Series A TCI Group Common Stock as
of the close of business on the Exchange Date; provided, however, that no
surrender of Class A Preferred Stock on any date when the stock transfer books
of the Parent are closed for any purpose shall be effective to constitute the
Person or Persons entitled to receive the shares of Series A TCI Group Common
Stock deliverable upon such exchange as the record holder(s) of such shares of
Series A TCI Group Common Stock on such date, but surrender shall be effective
(assuming all other requirements for the valid exchange of such shares have
been satisfied) to constitute such Person or Persons as the record holder(s)
of such shares of Series A TCI Group Common Stock for all purposes as of the
opening of business on the next succeeding day on which such stock transfer
books are open, and such exchange shall be at the Exchange Rate in effect on
the date that such shares of Class A Preferred Stock were surrendered for
exchange (and such other requirements satisfied) as if the stock transfer
books of the Parent had not been closed on such date. Upon exchange of shares
of Class A Preferred Stock, the rights of the holder of such shares, as a
holder thereof, shall cease.
Holders of shares of Class A Preferred Stock at the close of business on a
Record Date for any payment of declared dividends shall be entitled to receive
the dividend payable on such shares on the corresponding Dividend Payment Date
notwithstanding the effective exchange of such shares following such Record
Date and prior to the corresponding Dividend Payment Date. However, shares of
Class A Preferred Stock surrendered for exchange after the close of business
on a Record Date for any payment of dividends and before the opening of
business on the next succeeding Dividend Payment Date must be accompanied by
payment in cash of an amount equal to the dividend thereon attributable to the
current quarterly Dividend Period which is to be paid on such Dividend Payment
Date (unless such shares are subject to redemption on a Redemption Date
between such Record Date and such Dividend Payment Date). A holder of shares
of Class A Preferred Stock called for redemption on any Dividend Payment Date
shall (if such holder is the registered holder on the applicable Record Date)
receive the dividend on such shares payable on that date and will be able to
exchange such shares after the Record Date for such dividend without paying an
amount equal to such dividend to the Corporation upon exchange. Except as
provided above, upon any exchange of shares of Class A Preferred Stock
pursuant to this paragraph (5), the Corporation shall make no payment or
allowance for unpaid dividends, whether or not in arrears, on exchanged shares
of Class A Preferred Stock and the Parent shall make no payment or allowance
for
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previously declared dividends or distributions on the shares of Series A TCI
Group Common Stock issued upon such exchange (or on any Other Property issued
upon such exchange pursuant to this paragraph (5)).
If the shares of Class A Preferred Stock represented by a certificate
surrendered for exchange are exchanged in part only, the Corporation shall
cause to be issued and delivered to the registered holder, without charge
therefor, a new certificate or certificates representing in the aggregate the
number of unexchanged shares.
(b) EXCHANGE RATE ADJUSTMENTS. The Exchange Rate shall be subject to
adjustment from time to time as provided below in this subparagraph (5)(b).
(i) If the Parent shall, after the Issue Date:
(A) pay a stock dividend or make a distribution on the outstanding
shares of Series A TCI Group Common Stock in shares of Series A TCI
Group Common Stock,
(B) subdivide or split the outstanding shares of Series A TCI Group
Common Stock into a greater number of shares,
(C) combine the outstanding shares of Series A TCI Group Common Stock
into a smaller number of shares,
(D) pay a dividend or make a distribution on the outstanding shares
of Series A TCI Group Common Stock in shares of its capital stock
(other than Series A TCI Group Common Stock), or
(E) issue by reclassification of its outstanding shares of Series A
TCI Group Common Stock (other than a reclassification by way of merger
or binding share exchange that is subject to subparagraph (5)(d)) any
shares of its capital stock,
then, in any such event, the Exchange Rate in effect immediately prior to
the opening of business on the record date for determination of
stockholders entitled to receive such dividend or distribution or the
effective date of such subdivision, split, combination or reclassification,
as the case may be, shall be adjusted so that the holder of any shares of
Class A Preferred Stock shall thereafter be entitled to receive, upon
exchange at the option of such holder, the number of shares of Series A TCI
Group Common Stock or other capital stock (or both) of the Parent which
such holder would have owned or been entitled to receive immediately
following such action if such holder had exchanged his shares of Class A
Preferred Stock immediately prior to the record date for, or effective date
of, as the case may be, such event. Notwithstanding the foregoing, if an
event listed in clause (D) or (E) above would result in the shares of Class
A Preferred Stock being exchangeable for shares or units (or a fraction
thereof) of more than one class or series of capital stock of the Parent
and any such class or series of capital stock provides by its terms a right
in favor of the Parent to call, redeem, exchange or otherwise acquire all
of the outstanding shares or units of such class or series (such class or
series of capital stock being herein referred to as "Redeemable Capital
Stock") for consideration that may include Redemption Securities, then the
Exchange Rate of the Class A Preferred Stock shall not be adjusted pursuant
to this subparagraph (5)(b)(i) and in lieu thereof the adjustment to the
Exchange Rate contemplated by subparagraph (5)(b)(iii) shall be made with
the same effect as if the dividend or distribution of such Redeemable
Capital Stock or the issuance of the additional class or series of such
Redeemable Capital Stock by reclassification had been a distribution of
assets of the Parent.
The adjustment contemplated by this subparagraph (5)(b)(i) shall be made
successively whenever any event listed above shall occur. For a dividend or
distribution, the adjustment shall become effective at the opening of
business on the Business Day next following the record date for such
dividend or distribution. For a subdivision, split, combination or
reclassification, the adjustment shall become effective immediately after
the effectiveness of such subdivision, split, combination or
reclassification.
If after an adjustment pursuant to this subparagraph (5)(b)(i) a holder
of Class A Preferred Stock would be entitled to receive upon exchange
thereof shares of two or more classes or series of capital stock of the
Parent, the Exchange Rate shall thereafter be subject to adjustment upon
the occurrence of an action taken with respect to any such class or series
of capital stock other than Series A TCI Group Common Stock as is
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contemplated by this paragraph (5), on terms comparable to those applicable
to the Series A TCI Group Common Stock pursuant to this paragraph (5).
(ii) If the Parent shall, after the Issue Date, distribute rights,
warrants or options to all or substantially all holders of its outstanding
shares of Series A TCI Group Common Stock entitling them (for a period not
exceeding 45 days from the record date referred to below) to subscribe for
or purchase shares of Series A TCI Group Common Stock (or Convertible
Securities for shares of Series A TCI Group Common Stock) at a price per
share (or having an exercise, exchange or conversion price per share, after
adding thereto an allocable portion of the exercise price of the right,
warrant or option to purchase such Convertible Securities, computed on the
basis of the maximum number of shares of Series A TCI Group Common Stock
issuable upon exercise, exchange or conversion of such Convertible
Securities) less than the Current Market Price on the applicable
Determination Date, then, in any such event, the Exchange Rate shall be
adjusted by multiplying the Exchange Rate in effect immediately prior to
the opening of business on the record date for the determination of
stockholders entitled to receive such distribution by a fraction, of which
the numerator shall be the number of shares of Series A TCI Group Common
Stock outstanding on such record date plus the number of additional shares
of Series A TCI Group Common Stock so offered pursuant to such rights,
warrants or options to the holders of Series A TCI Group Common Stock (and
to holders of Convertible Securities for shares of Series A TCI Group
Common Stock and to holders of Series B TCI Group Common Stock referred to
in the immediately succeeding paragraph of this subparagraph (5)(b)(ii))
for subscription or purchase (or into which the Convertible Securities for
shares of Series A TCI Group Common Stock so offered are exercisable,
exchangeable or convertible), and of which the denominator shall be the
number of shares of Series A TCI Group Common Stock outstanding on such
record date plus the number of additional shares of Series A TCI Group
Common Stock which the aggregate offering price of the total number of
shares of Series A TCI Group Common Stock so offered (or the aggregate
exercise, exchange or conversion price of the Convertible Securities for
shares of Series A TCI Group Common Stock so offered, after adding thereto
the aggregate exercise price of the rights, warrants or options to purchase
such Convertible Securities) to the holders of Series A TCI Group Common
Stock (and to such holders of Convertible Securities for shares of Series A
TCI Group Common Stock and such holders of Series B TCI Group Common Stock)
would purchase at such Current Market Price.
For purposes of this subparagraph (5)(b)(ii), the number of shares of
Series A TCI Group Common Stock outstanding on any applicable record date
shall be deemed to include (i) the maximum number of shares of Series A TCI
Group Common Stock the issuance of which would be necessary to effect the
full exercise, exchange or conversion of all Convertible Securities for
shares of Series A TCI Group Common Stock outstanding on such record date
which are then exercisable, exchangeable or convertible at a price (before
giving effect to any adjustment to such price for the distribution to which
this subparagraph (5)(b)(ii) is being applied) equal to or less than the
Current Market Price per share of Series A TCI Group Common Stock on the
applicable Determination Date, if all of such Convertible Securities were
deemed to have been exercised, exchanged or converted immediately prior to
the opening of business on such record date and (ii) if the Series B TCI
Group Common Stock is then convertible into Series A TCI Group Common
Stock, the maximum number of shares of Series A TCI Group Common Stock the
issuance of which would be necessary to effect the full conversion of all
shares of Series B TCI Group Common Stock outstanding on such record date,
if all of such shares of Series B TCI Group Common Stock were deemed to
have been converted immediately prior to the opening of business on such
record date.
The adjustment contemplated by this subparagraph (5)(b)(ii) shall be made
successively whenever any such rights, warrants or options are distributed,
and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such distribution. If all
of the shares of Series A TCI Group Common Stock (or all of the Convertible
Securities for shares of Series A TCI Group Common Stock) subject to such
rights, warrants or options have not been issued when such rights, warrants
or options expire (or, in the case of rights, warrants or options to
purchase Convertible Securities for shares of Series A TCI Group Common
Stock which have been exercised, if all of the shares of Series A TCI Group
Common Stock issuable upon exercise, exchange or conversion of such
Convertible Securities have not been issued prior to the expiration of the
exercise, exchange or conversion right thereof), then the Exchange
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Rate shall promptly be readjusted to the Exchange Rate which would then be
in effect had the adjustment upon the issuance of such rights, warrants or
options been made on the basis of the actual number of shares of Series A
TCI Group Common Stock (or such Convertible Securities) issued upon the
exercise of such rights, warrants or options (or the exercise, exchange or
conversion of such Convertible Securities).
No adjustment shall be made under this subparagraph (5)(b)(ii) if the
adjusted Exchange Rate would be lower than the Exchange Rate in effect
immediately prior to such adjustment.
(iii) If the Parent shall, after the Issue Date, (x) pay a dividend or
make a distribution to all or substantially all holders of its outstanding
shares of Series A TCI Group Common Stock of any assets or debt securities
or any rights, warrants or options to purchase securities (excluding (A)
dividends or distributions referred to in subparagraph (5)(b)(i) (except as
otherwise provided in clause (y) of this sentence) and distributions of
rights, warrants or options referred to in subparagraph (5)(b)(ii) and (B)
cash dividends, unless such cash dividends are Extraordinary Cash
Dividends), or (y) pay a dividend or make a distribution to all or
substantially all holders of its outstanding shares of Series A TCI Group
Common Stock of Redeemable Capital Stock, or issue Redeemable Capital Stock
by reclassification of the Series A TCI Group Common Stock, and pursuant to
subparagraph (5)(b)(i) such Redeemable Capital Stock is to be treated the
same as a distribution of assets of the Parent subject to this subparagraph
(5)(b)(iii), then, in any such event, the Exchange Rate shall be adjusted
by multiplying the Exchange Rate in effect immediately prior to the opening
of business on (I) the record date for the determination of stockholders
entitled to receive the dividend or distribution or (II) in the case of a
reclassification, the effective date of such reclassification by a
fraction, of which the numerator shall be the total number of shares of
Series A TCI Group Common Stock outstanding on such record date or
immediately prior to such effective date multiplied by the Current Market
Price on the applicable Determination Date, and of which the denominator
shall be the total number of shares of Series A TCI Group Common Stock
outstanding on such record date or immediately prior to such effective date
multiplied by such Current Market Price, less the fair market value (as
determined in good faith by the Board of Directors) on such record date or
effective date of the assets (or Redeemable Capital Stock) or debt
securities or rights, warrants or options so distributed to the holders of
Series A TCI Group Common Stock (and to the holders of Convertible
Securities for shares of Series A TCI Group Common Stock and to the holders
of Series B TCI Group Common Stock referred to in the immediately
succeeding paragraph of this subparagraph (5)(b)(iii) if the dividend or
distribution to which this paragraph (5)(b)(iii) applies is also being made
to such holders).
For purposes of this subparagraph (5)(b)(iii), the number of shares of
Series A TCI Group Common Stock outstanding on any relevant date shall be
deemed to include (i) the maximum number of shares of Series A TCI Group
Common Stock the issuance of which would be necessary to effect the full
exercise, exchange or conversion of all Convertible Securities for Series A
TCI Group Common Stock outstanding on such date which are then exercisable,
exchangeable or convertible at a price (before giving effect to any
adjustment to such price for the dividend or distribution or
reclassification to which this subparagraph (5)(b)(iii) is being applied)
equal to or less than the Current Market Price on the applicable
Determination Date, if all of such Convertible Securities were deemed to
have been exercised, exchanged or converted immediately prior to the
opening of business on such date and (ii) if the Series B TCI Group Common
Stock is then convertible into Series A TCI Group Common Stock, the maximum
number of shares of Series A TCI Group Common Stock the issuance of which
would be necessary to effect the full conversion of all shares of Series B
TCI Group Common Stock outstanding on such date, if all of such shares of
Series B TCI Group Common Stock were deemed to have been converted
immediately prior to the opening of business on such date.
For purposes of this subparagraph (5)(b)(iii), the term "Extraordinary
Cash Dividend" shall mean any cash dividend with respect to the Series A
TCI Group Common Stock the amount of which, together with the aggregate
amount of cash dividends on the Series A TCI Group Common Stock to be
aggregated with such cash dividend in accordance with the following
provisions of this paragraph, equals or exceeds the threshold percentage
set forth in the following sentence. If, upon the date immediately prior to
the Ex-Dividend Date with respect to a cash dividend on Series A TCI Group
Common Stock, the aggregate of the
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amount of such cash dividend together with the amounts of all cash
dividends on the Series A TCI Group Common Stock with Ex-Dividend Dates
occurring in the 365/366 consecutive day period ending on the date prior to
the Ex-Dividend Date with respect to the cash dividend to which this
provision is being applied (other than any such other cash dividends with
Ex-Dividend Dates occurring in such period for which a prior adjustment in
the Exchange Rate was previously made under this subparagraph (5)(b)(iii))
equals or exceeds on a per share basis 10% of the average of the Closing
Prices during the period beginning on the date after the first such Ex-
Dividend Date in such period and ending on the date prior to the Ex-
Dividend Date with respect to the cash dividend to which this provision is
being applied (except that if no other cash dividend has had an Ex-Dividend
Date occurring in such period, the period for calculating the average of
the Closing Prices shall be the period commencing 365/366 days prior to the
date immediately prior to the Ex-Dividend Date with respect to the cash
dividend to which this provision is being applied), such cash dividend
together with each other cash dividend with an Ex-Dividend Date occurring
in such 365-/366-day period that is aggregated with such cash dividend in
accordance with this paragraph shall be deemed to be an Extraordinary Cash
Dividend.
The adjustment pursuant to the foregoing provisions of this subparagraph
(5)(b)(iii) shall be made successively whenever any dividend or
distribution or reclassification to which this subparagraph (5)(b)(iii)
applies is made, and shall become effective immediately after (x), in the
case of a dividend or distribution, the record date for the determination
of stockholders entitled to receive such dividend or distribution or (y),
in the case of a reclassification, the effective date of such
reclassification. No adjustment shall be made under this subparagraph
(5)(b)(iii) if the adjusted Exchange Rate would be lower than the Exchange
Rate in effect immediately prior to such adjustment. In the event that,
with respect to any distribution to which this subparagraph (5)(b)(iii)
would otherwise apply, the denominator of the fraction in the formula set
forth in the first paragraph of this subparagraph (5)(b)(iii) is zero or a
negative number, then the adjustment provided by this subparagraph
(5)(b)(iii) shall not be made. If the Parent makes a distribution to all or
substantially all holders of its Series A TCI Group Common Stock of any of
its assets (including shares of Redeemable Capital Stock that pursuant to
subparagraph 5(b)(i) are to be treated the same as a distribution of assets
of the Parent) or debt securities or any rights, warrants or options to
purchase securities of the Parent that, but for the preceding sentence,
would otherwise result in an adjustment in the Exchange Rate pursuant to
the foregoing provisions of this subparagraph (5)(b)(iii), then, from and
after the record date for determining the holders of Series A TCI Group
Common Stock entitled to receive such distribution, a holder of Class A
Preferred Stock that exchanges such shares in accordance with the
provisions of this paragraph (5) will upon such exchange be entitled to
receive, in addition to the shares of Series A TCI Group Common Stock for
which such shares of Class A Preferred Stock are exchangeable, the kind and
amount of assets or debt securities or rights, warrants or options to
purchase securities of the Parent comprising such distribution that such
holder would have received if such holder had exchanged such shares of
Class A Preferred Stock immediately prior to the record date for
determining the holders of Series A TCI Group Common Stock entitled to
receive such distribution.
(iv) In the event that a holder of Class A Preferred Stock would be
entitled to receive upon exercise of the exchange privilege thereof
pursuant to this paragraph (5) any Redeemable Capital Stock and the Parent
redeems, exchanges or otherwise acquires all of the outstanding shares or
other units of such Redeemable Capital Stock (such event being a
"Redemption Event"), then, from and after the effective date of such
Redemption Event, the holders of shares of Class A Preferred Stock then
outstanding shall be entitled to receive upon the exchange of such shares,
in lieu of shares or units of such Redeemable Capital Stock, the kind and
amount of securities, cash or other assets receivable upon the Redemption
Event by a holder of the number of shares or units of such Redeemable
Capital Stock for which such shares of Class A Preferred Stock could have
been exchanged immediately prior to the effective date of such Redemption
Event (assuming, to the extent applicable, that such holder failed to
exercise any rights of election with respect thereto and received per share
or unit of such Redeemable Capital Stock the kind and amount of securities,
cash or other assets received per share or unit by holders of a plurality
of the non-electing shares or units of such Redeemable Capital Stock), and
(from and after the effective date of such Redemption Event) the
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holders of the Class A Preferred Stock shall have no other exchange rights
under these provisions with respect to such Redeemable Capital Stock.
(v) For purposes of calculating the number of outstanding shares of
Series A TCI Group Common Stock under subparagraphs (5)(b)(ii) and
(5)(b)(iii), any shares of Series A TCI Group Common Stock (i) issuable as
a dividend (including shares that the Corporation has notified the holders
of Class A Preferred Stock will be issued in payment of a dividend (or a
designated portion thereof) pursuant to paragraph (2)) shall be deemed to
have been issued immediately prior to the time of the record date for such
dividend or (ii) issuable in payment of a Redemption Price (or a designated
portion thereof) pursuant to paragraph (3) shall be deemed to have been
issued immediately prior to the related Redemption Date. Shares of Series A
TCI Group Common Stock owned by or held for the account of the Parent or
any of its majority-owned subsidiaries shall not be deemed outstanding for
the purposes of this subparagraph (5)(b).
(vi) In any case in which this subparagraph (5)(b) shall require that an
adjustment be made in the Exchange Rate, the Corporation may, in its sole
discretion, elect to defer the following until after the occurrence of the
event which requires such adjustment: (A) the delivery by the Corporation
to the holder of any Class A Preferred Stock surrendered for exchange the
additional shares of Series A TCI Group Common Stock issuable upon such
exchange over the shares of Series A TCI Group Common Stock issuable before
giving effect to such adjustment and (B) paying to such holder any amount
in cash in lieu of a fractional share of Series A TCI Group Common Stock;
provided, however, that 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 Series A TCI Group Common Stock, and such
cash, upon the occurrence of the event requiring such adjustment.
(vii) All adjustments to the Exchange Rate shall be calculated to the
nearest 1/1000th of a share. No adjustment in the Exchange Rate shall be
required unless such adjustment would require an increase or decrease of at
least one percent therein; provided, however, that any adjustment which by
reason of this subparagraph is not required to be made shall be carried
forward and taken into account in any subsequent adjustment. In addition,
no adjustment need be made for rights to purchase shares of Series A TCI
Group Common Stock or for sales of shares of Series A TCI Group Common
Stock which in either case are made pursuant to a plan providing for
reinvestment of dividends or interest or pursuant to a bona fide employee
stock option or stock purchase plan (x) of the Parent or any wholly owned
subsidiary of the Parent or (y) of the Corporation or any Wholly Owned
Subsidiary. No adjustment need be made for a change in the par value of the
Series A TCI Group Common Stock. To the extent the shares of Class A
Preferred Stock become exchangeable for cash, no adjustment need be made
thereafter as to the cash and no interest shall accrue on such cash.
(viii) The Corporation shall be entitled, at the direction of the Parent
and to the extent permitted by law, to make such increases in the Exchange
Rate, in addition to those referred to above in this subparagraph (5)(b),
as the Parent determines to be advisable in order that any event treated
for federal income tax purposes as a dividend of stock or stock rights will
not be taxable to the holders of any series of TCI common stock.
(ix) There shall be no adjustment to the Exchange Rate in the event of
the issuance of any stock or other securities or assets of the Parent in a
reorganization, acquisition or other similar transaction except as
specifically provided in this paragraph (5). In the event this subparagraph
(5)(b) requires adjustments to the Exchange Rate under more than one of
subparagraph (5)(b)(i)(D), (5)(b)(ii) or (5)(b)(iii), and the record dates
for the dividends or distributions giving rise to such adjustments shall
occur on the same date, then such adjustments shall be made by applying
first, the provisions of subparagraph (5)(b)(i)(D), second, the provisions
of subparagraph (5)(b)(iii) and third, the provisions of subparagraph
(5)(b)(ii).
(x) No adjustment need be made under this subparagraph (5)(b) for a
transaction referred to in subparagraph (5)(b)(i), (ii), (iii) or (iv) if
holders of the Class A Preferred Stock are to participate in the
transaction on a basis and with notice that the Board of Directors in good
faith determines to be fair and appropriate in light of the basis and
notice on which holders of Series A TCI Group Common Stock participate in
the transaction; provided that the basis on which the holders of shares of
Class A Preferred
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Stock are to participate in the transaction shall not be deemed to be fair
if it would require the holder to exchange his shares of Class A Preferred
Stock in order to participate at any time prior to the expiration of the
exchange period for the shares of Class A Preferred Stock specified in
subparagraph (5)(a).
(c) FRACTIONAL SHARES OF CLASS A PREFERRED STOCK. No fractional shares of
Class A Preferred Stock may be tendered for exchange pursuant to this
paragraph (5).
(d) ADJUSTMENT FOR CONSOLIDATION OR MERGER OF PARENT. In case of any
consolidation or merger to which the Parent is a party, or in the case of any
sale or transfer to another corporation of the property of the Parent as an
entirety or substantially as an entirety, or in case of any statutory exchange
of securities with another corporation (other than in connection with a merger
or acquisition) (each of the foregoing being referred to herein as a
"Transaction"), in each case as a result of which shares of Series A TCI Group
Common Stock shall be reclassified or converted into the right to receive
stock, securities or other property (including cash or any combination
thereof), proper provision shall be made so that each share of Class A
Preferred Stock which is not converted into the right to receive stock,
securities or other property in connection with such Transaction shall, after
consummation of such Transaction, be subject to exchange at the option of the
holder into the kind and amount of stock, securities or other property
receivable upon consummation of such Transaction by a holder of the number of
shares of Series A TCI Group Common Stock (and/or any Other Property into
which the Class A Preferred Stock may be exchangeable in accordance with this
paragraph (5)) into which such share of Class A Preferred Stock might have
been exchanged immediately prior to consummation of such Transaction (assuming
in each case that such holder of Series A TCI Group Common Stock (or such
Other Property) failed to exercise rights of election, if any, as to the kind
or amount of stock, securities or other property receivable upon consummation
of such Transaction (provided that if the kind or amount of stock, securities
or other property receivable upon consummation of such Transaction is not the
same for each non-electing share, then the kind and amount of stock,
securities or other property receivable upon consummation of such Transaction
for each non-electing share shall be deemed to be the kind and amount so
receivable per share by a plurality of the non-electing shares)). The kind and
amount of stock or securities into which the shares of Class A Preferred Stock
shall be exchangeable after consummation of such Transaction shall be subject
to adjustment, as nearly as may be practicable, as described in subparagraph
(5)(b) following the date of consummation of such Transaction. The Parent has
separately agreed not to become a party to any Transaction unless the terms
thereof are consistent with this subparagraph (5)(d). The provisions of this
subparagraph (5)(d) shall similarly apply to successive Transactions.
If this subparagraph (5)(d) applies, subparagraphs (5)(b)(i), (ii), (iii)
and (iv) shall not apply.
(e) NOTICE OF ADJUSTMENTS. Whenever the Exchange Rate is adjusted as herein
provided, the Corporation shall:
(1) forthwith compute the adjusted Exchange Rate in accordance herewith
and prepare a certificate signed by an officer of the Corporation setting
forth the adjusted Exchange Rate, the method of calculation thereof in
reasonable detail and the facts requiring such adjustment and upon which
such adjustment is based, which certificate shall be conclusive, final and
binding evidence of the correctness of the adjustment (absent manifest
error), and file such certificate forthwith with the transfer agent for the
shares of Class A Preferred Stock and the Series A TCI Group Common Stock;
and
(2) mail a notice to the holders of the outstanding shares of Class A
Preferred Stock stating that the Exchange Rate has been adjusted, the facts
requiring such adjustment and upon which such adjustment is based and
setting forth the adjusted Exchange Rate, such notice to be mailed at or
prior to the time the Corporation mails an interim statement, if any, to
its stockholders covering the fiscal quarter during which the facts
requiring such adjustment occurred, but in any event within 45 days
following the end of such fiscal quarter.
(f) NOTICE OF CERTAIN TRANSACTIONS. In case, at any time while any of the
shares of Class A Preferred Stock are outstanding,
(1) the Parent takes any action which would require an adjustment to the
Exchange Rate; or
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(2) the Parent shall authorize (x) any consolidation, merger or binding
share exchange to which the Parent is a party and for which approval of any
stockholders of the Parent is required (except for a merger of the Parent
into one of its wholly owned subsidiaries solely for the purpose of
changing the corporate domicile of the Parent to another state of the
United States and in connection with which there is no substantive change
in the rights or privileges of any securities of the Parent other than
changes resulting from differences in the corporate statutes of the then
existing and the new state of domicile), or (y) the sale or transfer of all
or substantially all of the assets of the Parent; or
(3) the Parent shall authorize the voluntary dissolution, liquidation or
winding up of the Parent or the Parent is the subject of an involuntary
dissolution, liquidation or winding up;
then the Corporation shall cause to be filed at each office or agency
maintained for the purpose of exchange of the shares of Class A Preferred
Stock, and shall cause to be mailed to the holders of shares of Class A
Preferred Stock at their last addresses as they shall appear on the stock
register, at least 10 days before the record date (or other date set for
definitive action if there shall be no record date), a notice stating the
action or event for which such notice is being given and the record date for
(or such other date) and the anticipated effective date of such action or
event; provided, however, that any notice required hereunder shall in any
event be given no later than the time that notice is given to the holders of
the Series A TCI Group Common Stock. The failure to give or receive the notice
required by this subparagraph (5)(f) or any defect therein shall not affect
the legality or validity of any action or any vote thereon.
(g) ACTIONS IN RESPECT OF SERIES A TCI GROUP COMMON STOCK. The Corporation
shall take, and the Parent has separately agreed to take, such reasonable
action which may be necessary, in the opinion of the Corporation's or the
Parent's legal counsel, in order that (i) the Corporation may validly and
legally deliver fully paid and nonassessable shares of Series A TCI Group
Common Stock upon any surrender of shares of Class A Preferred Stock for
exchange pursuant to this paragraph (5), (ii) the delivery of shares of Series
A TCI Group Common Stock in accordance with this paragraph (5) is exempt from
the registration or qualification requirements of the Securities Act and
applicable state securities laws or, if no such exemption is available, that
the offer and exchange of such shares of Series A TCI Group Common Stock have
been duly registered or qualified under the Securities Act and applicable
state securities laws, (iii) the shares of Series A TCI Group Common Stock
delivered upon such exchange are listed for trading on the Nasdaq National
Market or on a national securities exchange (upon official notice of issuance)
and (iv) the shares of Series A TCI Group Common Stock delivered upon such
exchange are free of preemptive rights and any liens or adverse claims.
The Parent has separately agreed to at all times reserve and keep available,
free from preemptive rights, out of the aggregate of its authorized but
unissued Series A TCI Group Common Stock and its issued Series A TCI Group
Common Stock held in its treasury, for the purpose of effecting any exchange
of shares of Class A Preferred Stock at the option of the holder pursuant to
this paragraph (5), the full number of shares of Series A TCI Group Common
Stock then deliverable upon the exchange of all then outstanding shares of
Class A Preferred Stock (assuming for this purpose that all of the outstanding
shares of Class A Preferred Stock are held by a single holder).
(6) LIQUIDATION RIGHTS.
(a) PAYMENT OF LIQUIDATION PREFERENCE. In the event of any liquidation,
dissolution, or winding up of the affairs of the Corporation, whether
voluntary or involuntary, the holders of shares of Class A Preferred Stock
then outstanding, after payment or provision for payment of the debts and
other liabilities of the Corporation and the payment or provision for payment
of any distribution on any shares of Senior Stock, and before any distribution
to the holders of Junior Stock or any Parity Stock of the Corporation ranking
junior to the Class A Preferred Stock upon liquidation, dissolution or winding
up, shall be entitled to be paid out of the assets of the Corporation
available for distribution to its stockholders an amount per share of Class A
Preferred Stock in cash equal to the Liquidation Preference. In the event the
assets of the Corporation available for distribution to the holders of the
shares of Class A Preferred Stock upon any dissolution, liquidation or winding
up of the
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Corporation shall be insufficient to pay in full the Liquidation Preference
payable to the holders of outstanding shares of Class A Preferred Stock and
the liquidation preference payable to all other shares of Parity Stock that
rank pari passu with the Class A Preferred Stock upon liquidation, dissolution
or winding up (as set forth in the instrument or instruments creating such
Parity Stock), the holders of shares of Class A Preferred Stock and of all
other shares of such Parity Stock shall share ratably in such distribution of
assets in proportion to the amount which would be payable on such distribution
if the amounts to which the holders of outstanding shares of Class A Preferred
Stock and the holders of outstanding shares of such other Parity Stock were
paid in full. Except as provided in this subparagraph (6)(a), holders of Class
A Preferred Stock shall not be entitled to any distribution in the event of
the liquidation, dissolution or winding up of the affairs of the Corporation.
(b) CERTAIN EVENTS NOT DEEMED LIQUIDATION, ETC. For the purposes of this
paragraph (6), none of the following shall be deemed to be a voluntary or
involuntary liquidation, dissolution or winding up of the Corporation:
(1) the sale, lease, transfer or exchange of all or substantially all of
the assets of the Corporation; or
(2) the consolidation or merger of the Corporation with one or more other
corporations (whether or not the Corporation is the corporation surviving
such consolidation or merger) or the consummation of a statutory binding
share exchange involving the Corporation.
(7) NO FRACTIONAL SHARES OF SERIES A TCI GROUP COMMON STOCK. No fractional
shares of Series A TCI Group Common Stock or scrip shall be issued upon the
exchange of Class A Preferred Stock for Series A TCI Group Common Stock or in
connection with the delivery of shares of Series A TCI Group Common Stock in
payment, in whole or in part, of any dividend or Redemption Price. Whether or
not a fractional share would be delivered to a holder of Class A Preferred
Stock shall be based upon (i), in the case of an exchange pursuant to
paragraph (5), on the total number of shares of Class A Preferred Stock such
holder is at the time exchanging into Series A TCI Group Common Stock and the
total number of shares of Series A TCI Group Common Stock otherwise
deliverable upon such exchange, (ii), in the case of the payment, in whole or
in part, of dividends pursuant to paragraph (2) through the delivery of shares
of Series A TCI Group Common Stock, on the total number of shares of Class A
Preferred Stock at the time held by such holder and the total number of shares
of Series A TCI Group Common Stock otherwise deliverable in respect thereof
and (iii), in the case of the payment, in whole or in part, of a Redemption
Price pursuant to paragraph (3) through the delivery of shares of Series A TCI
Group Common Stock, on the total number of shares of Class A Preferred Stock
at the time held by such holder that are to be redeemed on the related
Redemption Date and the total number of shares of Series A TCI Group Common
Stock otherwise deliverable in respect thereof. In lieu of the issuance of a
fraction of a share of Series A TCI Group Common Stock or scrip, the
Corporation shall pay instead an amount in cash (rounded to the nearest whole
cent) by its check equal to the same fraction of the Closing Price of a share
of Series A TCI Group Common Stock on the Trading Day immediately preceding
the Exchange Date, the Dividend Payment Date or the Redemption Date, as the
case may be.
(8) PAYMENT OF TAXES. The Corporation shall pay any and all documentary,
stamp or similar transfer taxes payable in respect of the delivery of shares
of Series A TCI Group Common Stock pursuant to paragraphs (2), (3) or (5);
provided, however, that the Corporation shall not be required to pay any tax
which may be payable in respect of any registration of transfer involved in
the delivery of shares of Series A TCI Group Common Stock upon an exchange of
shares of Class A Preferred Stock pursuant to paragraph (5) in a name other
than that of the registered holder of such shares of Class A Preferred Stock.
(9) NO PREEMPTIVE RIGHTS. The holders of shares of Class A Preferred Stock
shall have no preemptive rights, including preemptive rights with respect to
any shares of capital stock or other securities of the Corporation convertible
into or carrying rights or options to purchase any such shares.
(10) VOTING RIGHTS. The holders of shares of Class A Preferred Stock shall
have no voting rights, except as otherwise required by law and except as set
forth in this paragraph (10). When and if the holders of Class A Preferred
Stock are entitled to vote by law or pursuant to this paragraph (10), each
holder will be entitled to one
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vote per share. Shares of Class A Preferred Stock held by the Parent or any
majority-owned subsidiary of the Parent shall not be counted for quorum
purposes and shall be deemed shares not entitled to vote on any matter
presented to the holders of Class A Preferred Stock, except to the extent
otherwise required by law.
(a) ELECTION OF PREFERRED STOCK DIRECTORS. (i) If at any time accrued
dividends payable on the shares of Class A Preferred Stock are in arrears and
unpaid in an aggregate amount equal to or exceeding the aggregate amount of
dividends payable thereon for six or more quarterly Dividend Periods (whether
or not consecutive), the holders of the shares of Class A Preferred Stock,
voting separately as a class (with the holders of shares of any other class or
series of Parity Stock upon which like voting rights have been conferred and
are exercisable), shall have the right to vote for the election of two
directors (the "Preferred Stock Directors") to the Board of Directors of the
Corporation, such directors to be in addition to the number of directors
constituting the Board of Directors immediately prior to the accrual of such
right. Such right of the holders of shares of Class A Preferred Stock to vote
for the election of two Preferred Stock Directors shall, when vested, continue
until all dividends in arrears on the shares of Class A Preferred Stock shall
have been paid in full and, when so paid, such right shall cease, subject
always to the same provisions for the vesting of such right of the holders of
the shares of Class A Preferred Stock to elect two Preferred Stock Directors
in the case of future dividend defaults. The Preferred Stock Directors shall
be elected by a plurality of the votes cast by the holders of Class A
Preferred Stock and any other class or series of Parity Stock upon which like
voting rights have been conferred and are exercisable.
(ii) At any time when the holders of shares of the Class A Preferred Stock
(with the holders of any other class or series of Parity Stock upon which like
voting rights have been conferred and are exercisable) are entitled to elect
two Preferred Stock Directors, the Corporation shall, upon the written request
(a "Request") of the holders of record of not less than the greater of (x) 10%
of the outstanding shares of Class A Preferred Stock or (y) 10% of the
outstanding shares of all classes and series of Parity Stock (including the
Class A Preferred Stock) entitled to vote for such Preferred Stock Directors,
call a special meeting of holders of the Class A Preferred Stock (and such
other Parity Stock) for the election of the two Preferred Stock Directors.
Notice of the special meeting shall be given in accordance with the
requirements of Delaware law, and such meeting shall be held not more that 60
days after the Corporation's receipt of the Request. The Preferred Stock
Directors shall be nominated by the Persons who submit the Request, except
that at any meeting after the first meeting at which the Preferred Stock
Directors are elected, the Preferred Stock Directors shall be nominated,
subject to subparagraph (10)(a)(iii) below, by the existing Preferred Stock
Directors. No person may be nominated or may serve as a Preferred Stock
Director unless such person meets all requirements for serving on the Board of
Directors as set forth in any applicable federal statute (including any such
statute administered by the Federal Communications Commission) or the rules
and regulations of any administrative agency promulgated there- under.
(iii) The term of office of each Preferred Stock Director shall terminate on
the earlier of (x) the next annual meeting of stockholders of the Corporation
at which a successor shall have been elected and qualified (irrespective of
whether the Board of Directors is divided into staggered classes) or (y) the
termination of the right of the holders of shares of Class A Preferred Stock
and any such other shares of Parity Stock to vote for Preferred Stock
Directors pursuant to this subparagraph (10)(a). If, prior to the end of the
term of any Preferred Stock Director elected as aforesaid, a vacancy in the
office of such director shall occur, such vacancy shall be filled for the
unexpired term by the appointment by the remaining Preferred Stock Director
elected as aforesaid of a new director for the unexpired term of such former
Preferred Stock Director. If both Preferred Stock Directors so elected by the
holders of shares of Class A Preferred Stock (and such other Parity Stock)
shall cease, at the same time, to serve as directors before their terms shall
expire, the holders of the shares of Class A Preferred Stock (together with
the holders of such other Parity Stock, if any) may, at a special meeting of
the holders called as provided in subparagraph (10)(a)(ii) above, nominate and
elect successors to hold office for the unexpired terms of such Preferred
Stock Directors.
(b) CERTAIN CHANGES TO CHARTER; RECLASSIFICATIONS. For as long as any shares
of Class A Preferred Stock remain outstanding, the affirmative vote of the
holders of at least 66 2/3% of such outstanding shares (voting separately as a
class), given in Person or by proxy at any annual meeting or special meeting
called for such purpose, shall be necessary (A) before the Corporation may
amend, alter or repeal any of the provisions of this
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Restated Certificate of Incorporation of the Corporation which would adversely
affect the powers, preferences or rights of the holders of the shares of Class
A Preferred Stock then outstanding or reduce the minimum time required for any
notice to which holders of shares of Class A Preferred Stock then outstanding
may be entitled; provided, however, that (x) any such amendment, alteration or
repeal that would authorize, create or increase the authorized amount of any
additional shares of Junior Stock or shares of any other class or series of
Parity Stock (whether or not already authorized) and (y) any such amendment
that would increase the number of authorized shares of Preferred Stock (but
not the number of authorized shares of Class A Preferred Stock) or that would
decrease (but not below the number of shares then outstanding) the number of
authorized shares of Preferred Stock (but not the number of authorized shares
of Class A Preferred Stock), shall be deemed not to adversely affect such
powers, preferences or rights and shall not be subject to approval by the
holders of shares of Class A Preferred Stock; and (B) before the Corporation
may reclassify the outstanding shares of Class A Preferred Stock into another
class or series of capital stock of the Corporation (unless such
reclassification solely seeks to change the designation of the Class A
Preferred Stock and would not adversely affect the powers, preferences or
rights of the holders of the shares of Class A Preferred Stock then
outstanding or reduce the minimum time required for any notice to which
holders of shares of Class A Preferred Stock then outstanding may be
entitled); provided, however, that no consent described in clause (A) of this
paragraph of the holders of the shares of Class A Preferred Stock shall be
required if, at or prior to the time when such amendment, alteration or repeal
is to take effect, provision is made for the redemption of all shares of Class
A Preferred Stock at the time outstanding (except that no such provision may
be made prior to the Initial Redemption Date); provided further, however, that
if the Corporation makes such provision but fails to pay the Redemption Price
on the applicable Redemption Date, then the holders of Class A Preferred Stock
shall be entitled to vote on any such amendment, alteration or repeal, and any
such amendment, alteration or repeal taken without the consent of the holders
of at least 66 2/3% of the outstanding shares of Class A Preferred Stock shall
be void.
(c) ISSUANCE OF ADDITIONAL CLASS A PREFERRED STOCK; CREATION OF SENIOR
STOCK. For as long as any shares of Class A Preferred Stock remain
outstanding, the affirmative vote of the holders of at least 66 2/3% of such
outstanding shares (voting separately as a class), given in Person or by proxy
at any annual meeting or special meeting called for such purpose, shall be
necessary before the Corporation or the Board of Directors may (x) issue
additional shares of Class A Preferred Stock or (y) create or issue any Senior
Stock; provided, however, that no such consent shall be necessary if, at or
prior to the time of such creation or issue of Senior Stock, provision is made
for the redemption of all of the outstanding shares of Class A Preferred Stock
(except that no such provision may be made prior to the Initial Redemption
Date); provided further, however, that if the Corporation makes such provision
but fails to pay the Redemption Price on the applicable Redemption Date, then
the holders of Class A Preferred Stock shall be entitled to vote on the
creation or issuance of any such Senior Stock, and the creation or issuance of
any such Senior Stock without the consent of the holders of at least 66 2/3%
of the outstanding shares of Class A Preferred Stock shall be void.
(d) NO OTHER VOTE. Except as otherwise set forth in this paragraph (10) or
as required by law, the holders of Class A Preferred Stock shall not have any
relative, participating, optional or other special voting rights and powers
and the consent or vote of such holders shall not be required for the taking
of any corporate action by the Corporation or the Board of Directors.
(11) WAIVER. Any provision of this Article IV, Section B which, for the
benefit of the holders of Class A Preferred Stock, prohibits, limits or
restricts actions by 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 66 2/3% of the number of shares of Class A Preferred Stock
then outstanding, either in writing or by vote at a meeting called for such
purpose at which the holders of Class A Preferred Stock shall vote as a
separate class.
(12) CERTAIN COVENANTS.
(a) TRANSACTIONS WITH AFFILIATES. As long as any shares of Class A Preferred
Stock are outstanding, the Corporation shall not, and shall not permit any
Subsidiary or Wholly Owned Subsidiary to, enter into any
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transaction with an Affiliate unless such transaction is on terms that are no
less favorable to the Corporation or such Subsidiary or Wholly Owned
Subsidiary than those that would reasonably be expected to be obtained in a
comparable transaction with a Person that is not an Affiliate; provided,
however, that the provisions of this subparagraph (12)(a) shall not apply to
transactions (i) between the Corporation and its Subsidiaries or its Wholly
Owned Subsidiaries, (ii) between Subsidiaries, (iii) between Wholly Owned
Subsidiaries or (iv) between Subsidiaries and Wholly Owned Subsidiaries.
(b) SEC REPORTS. As long as any shares of Class A Preferred Stock are
outstanding, the Corporation shall timely file with the SEC copies of such
reports, information and other documents that the Corporation is required to
file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act and,
within 15 days after such filing is required to be made, mail copies of such
reports, information and other documents to the registered holders of the
Class A Preferred Stock. If at any time while shares of Class A Preferred
Stock are outstanding the Corporation is not required to, and does not, have
any class of securities registered under the Exchange Act, then the
Corporation shall prepare comparable reports, information and documents and
mail the same to the registered holders of shares of Class A Preferred Stock
within 15 days after the date the Corporation would have been required to file
such reports, information or other documents with the SEC had the Corporation
continued to have securities registered under the Exchange Act.
(13) STATUS OF REDEEMED OR EXCHANGED SHARES. All shares of Class A Preferred
Stock redeemed or exchanged by the Corporation shall be retired and shall not
be reissued as Class A Preferred Stock.
(14) EXCLUSION OF OTHER RIGHTS. Except as may otherwise be required by law,
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 Article IV, Section B.
SECTION C
SERIES PREFERRED STOCK
The Series Preferred Stock may be issued, from time to time, in one or more
series, with such powers, designations, preferences and relative,
participating, optional or other rights, and qualifications, limitations or
restrictions thereof, as shall be stated and expressed in a resolution or
resolutions providing for the issue of each such series adopted by the Board
of Directors or a duly authorized committee thereof. The Board of Directors
(or committee thereof), in such resolution or resolutions (a copy of which
shall be filed and recorded as required by law), is also expressly authorized
to fix with respect to each series:
(a) 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;
(b) the dividend rate or amounts, if any, for the particular series, 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 and the relative rights of priority, if any, or participation,
if any, with respect to payment of dividends on shares of that series;
(c) the rights of the shares of each series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, and
the relative rights of priority, if any, of payment of shares of each
series;
(d) the right, if any, of the holders of a particular series to convert
or exchange such stock into or for other classes or series of a class of
stock or indebtedness of the Corporation or of another entity, and the
terms and conditions of such conversion or exchange, including provision
for the adjustment of the conversion or exchange rate in such events as the
Board of Directors may determine;
(e) the voting rights, if any, of the holders of a particular series
(which may be in addition to or in lieu of those specified in this
Certificate); and
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(f) the terms and conditions, if any, for the Corporation to purchase or
redeem shares of a particular series.
SECTION D
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 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. 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
ELECTION AND REMOVAL OF DIRECTORS
Directors shall be elected for a one-year term at each annual meeting of
stockholders. Election of directors need not be by written ballot. Directors
may be removed from office with or without cause upon the affirmative vote of
the holders of at least 66 2/3% of the total voting power of the then
outstanding shares of Class A Common Stock, Class B Common Stock and any class
or series of Preferred Stock entitled to vote generally at an election of
directors, voting together as a single class.
SECTION C
NEWLY CREATED DIRECTORSHIPS AND VACANCIES
Subject to the provisions of any Preferred Stock relating to a special
election of directors, 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 until the next annual meeting of
stockholders 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.
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SECTION D
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 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 D. The Corporation shall
be required to indemnify or make advances to 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.
(3) AMENDMENT OR REPEAL.
Any repeal or modification of the foregoing provisions of this Section D
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.
29
<PAGE>
SECTION E
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 a majority 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.
(1) This Restated Certificate of Incorporation was duly adopted by vote of
the sole stockholder of the Corporation in accordance with Sections 242 and
245 of the Delaware General Corporation Law.
(2) Effective upon the filing of this Restated Certificate of Incorporation
with the Secretary of State of the State of Delaware (the "Effective Time"),
the one hundred (100) shares of Common Stock of the Corporation, par value
$0.10 per share, issued and outstanding immediately prior to the Effective
Time ("Old Common Stock") shall thereupon be reclassified as and changed into
six million, two hundred and fifty-seven thousand, nine hundred and sixty-one
(6,257,961) shares of Class A Common Stock. Such shares of Class A Common
Stock shall be fully paid and nonassessable.
Each holder of a certificate representing issued and outstanding shares of
Old Common Stock at the Effective Time shall be entitled upon surrender of
such certificate to the Corporation for cancellation to receive new
certificates representing the number of shares of Class A Common Stock into
which such issued and outstanding shares of Old Common Stock are reclassified
and changed as provided herein.
IN WITNESS WHEREOF, the undersigned has signed this Restated Certificate of
Incorporation this 31st day of July, 1996.
Viacom International Inc.
/s/ Michael D. Fricklas
By: _________________________________
Title: Senior Vice President
Name: Michael D. Fricklas
30
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
TCI PACIFIC COMMUNICATIONS, INC.
(THE "CORPORATION")
ADOPTED AS OF JULY 31, 1996
PREAMBLE
These Bylaws contain provisions for the regulation and management of the
affairs of the Corporation. They are based in part upon provisions of the
Delaware General Corporation Law (the "Law") and the Certificate of
Incorporation (the "Certificate") in effect on the date of adoption. If these
Bylaws conflict with the Law or the Certificate as the result of subsequent
changes in the Law, an intervening amendment of the Certificate or otherwise,
the Law and the Certificate shall govern. In using these Bylaws, reference
should also be made to the then current provisions of the laws of Delaware, the
Law and the Certificate.
ARTICLE I - OFFICES AND CORPORATE SEAL
Section 1. Registered Office. The registered office of the Corporation
---------- ------------------
within the State of Delaware shall be in the City of Wilmington, County of New
Castle. The Corporation may also have an office or offices other than said
registered office at such place or places, either within or without the State of
Delaware, as the Board of Directors (the "Board") shall from time to time
determine or the business of the Corporation may require.
Section 2. Corporate Seal. The seal of the corporation shall have
---------- ---------------
inscribed thereon the word "Seal". The Board shall have power to alter the same
at its pleasure.
ARTICLE II - SHARES AND TRANSFER THEREOF
Section 1. Share Certificates. The shares of the Corporation shall be
---------- -------------------
represented by certificates signed by the Chairman of the Board (the
"Chairman"), the Vice Chairman of the Board (the "Vice Chairman"), the
President, an Executive Vice President, a Senior Vice President or a Vice
President and by the Treasurer, an Assistant Treasurer, the Secretary or an
Assistant Secretary. In case
<PAGE>
any officer who has signed a certificate shall have ceased to be such officer
before the certificate is issued, it may be issued by the Corporation with the
same effect as if such person were such officer at the date of its issue.
Section 2.Issuance of New Certificate. No new certificates evidencing shares
- --------------------------------------
shall be issued unless and until the old certificate or certificates, in lieu of
which the new certificate is issued, shall be surrendered for cancellation,
except as provided in Section 3 of this Article II.
Section 3.Lost or Destroyed Certificates. In case of loss or destruction of any
- -----------------------------------------
certificate of shares, another certificate may be issued in its place upon
satisfactory proof of such loss or destruction and, at the discretion of the
Corporation, upon giving to the Corporation a satisfactory bond of indemnity
issued by a corporate surety in an amount and for a period satisfactory to the
Board.
ARTICLE III - STOCKHOLDERS AND MEETINGS THEREOF
Section 1. Stockholders of Record. Only stockholders of record on the
---------- ----------------------
books of the Corporation shall be entitled to be treated by the Corporation as
holders-in-fact of the shares standing in their respective names, and the
Corporation shall not be bound to recognize any equitable or other claim to, or
interest in, any shares on the part of any other person, firm, or corporation,
whether or not it shall have express or other notice thereof, except as
expressly provided by state law.
Section 2. Location of Stockholder Meetings. Meetings of stockholders
---------- ---------------------------------
shall be held at the principal office of the Corporation or at such other place,
either within or without of the state of its incorporation, as may be designated
in the notice of meeting.
Section 3. Annual Meeting of Stockholders. In the absence of a resolution
---------- -------------------------------
of the Board providing otherwise, the annual meeting of stockholders of the
Corporation for the election of directors, and for the transaction of such other
business as may properly come before the meeting, shall be held on September 1,
if the same is not a legal holiday, and if a legal holiday, then on the next
succeeding business day. If a quorum is not present, the meeting may be
adjourned from time to time.
Section 4. Special Meetings of Stockholders. Special meetings of
---------- ---------------------------------
stockholders may be called by the Chairman, the Vice Chairman, the President,
(or in such person's absence, by an Executive Vice President, or a Senior Vice
President or a Vice President), the Board, or the holders of not less than one-
tenth (1/10) of all shares entitled to vote on the subject matter for which the
meeting is called.
Section 5. Notice of Stockholder Meetings. Written or printed notice
---------- -------------------------------
stating the place, day, and hour of the stockholders' meeting, and in case of a
special meeting of stockholders, the purpose or purposes for which the meeting
is called, shall be delivered not less than ten (10) days nor more than sixty
(60) days before the date of the meeting, either personally or by mail, by or at
the direction of the Chairman, the Vice Chairman, the President, the Secretary,
the Board, or the officer or
<PAGE>
persons calling the meeting, to each stockholder of record entitled to vote at
such meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail addressed to the stockholder at such
person's address as it appears on the stock transfer books of the Corporation,
with postage thereon prepaid. If a quorum for the transaction of business shall
not be represented at the meeting, the meeting shall be adjourned by the
stockholders present.
Section 6. Quorum. A quorum at any meeting of stockholders shall consist
---------- -------
of a majority of the shares of the Corporation entitled to vote thereat,
represented in person or by proxy. If a quorum is present, the affirmative vote
of a majority of the shares represented at the meeting and entitled to vote on
the subject matter shall be the act of the stockholders, unless the vote of a
greater number or voting by classes is required by law, the Certificate or the
Bylaws and except for the election of directors. Directors shall be elected by
a plurality of votes of the shares present in person or represented by proxy at
the meeting and entitled to vote on the election of directors.
Section 7. Proxies. (a) Each stockholder entitled to vote at a meeting of
---------- --------
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for such person
by proxy, but no such proxy shall be voted or acted upon after three (3) years
from its date, unless the proxy provides for a longer period.
(b) Without limiting the manner in which a stockholder may authorize
another person or persons to act for such stockholder by proxy, pursuant to
subsection (a) of this section, the following shall constitute a valid means by
which a stockholder may grant such authority.
(1) A stockholder may execute a writing authorizing another person or
persons to act for such stockholder as proxy. Execution may be
accomplished by the stockholder or its authorized officer, director,
employee, or agent signing such writing or causing such person's signature
to be affixed to such writing by any reasonable means including, but not
limited to, by facsimile signature.
(2) A stockholder may authorize another person or persons to act for the
stockholder as proxy by transmitting or authorizing the transmission of a
telegram, cablegram, or other means of electronic transmission to the
person who will be the holder of the proxy or to a proxy solicitation firm,
proxy support service organization, or like agent duly authorized by the
person who will be the holder of the proxy to receive such transmission,
provided that any such telegram, cablegram, or other means of electronic
transmission must either set forth or be submitted with information from
which it can be determined that the telegram, cablegram, or other
electronic transmission was authorized by the stockholder. If it is
determined that such telegrams, cablegrams, or other electronic
transmissions are valid, the inspectors or, if there are no inspectors,
such other persons making that determination shall specify the information
upon which they relied.
Any copy, facsimile telecommunication, or other reliable reproductions of
the writing of transmission created pursuant to subsection (b) of this section
may be substituted or used in lieu of the
<PAGE>
original writing or transmission for any and all purposes for which the original
writing or transmission could be used, provided that such copy, facsimile
telecommunication, or other reproduction shall be a complete reproduction of the
entire original writing or transmission.
A duly executed proxy shall be irrevocable if it states that it is
irrevocable and if, and only as long, as it is coupled with an interest
sufficient in law to support an irrevocable power.
Section 8. Consent in Lieu of Meeting. Any action required or permitted
---------- ---------------------------
to be taken at any annual or special meeting of stockholders of the Corporation,
may be taken without a meeting, without prior notice and without a vote, if a
consent or consents in writing, setting forth the action so taken shall be
signed and dated by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and voted
and shall be filed with the minutes of proceedings of the stockholders. Prompt
notice of the taking of the corporate action without a meeting by less than
unanimous written consent shall be given to those stockholders or members who
have not consented in writing.
ARTICLE IV - DIRECTORS, POWERS, AND MEETINGS
Section 1. Board of Directors. The business and affairs of the
---------- -------------------
Corporation shall be managed by a board of one or more persons who need not be
stockholders of the Corporation or residents of the state of incorporation
unless required by state law, and who shall be elected at the annual meeting of
stockholders or any adjournment thereof. The number of directors may be
increased or decreased by action of the stockholders from time to time.
Directors shall hold office until the next succeeding annual meeting of
stockholders or until their earlier resignation or removal or until their
successors have been elected and qualified; however, no provision of this
section shall be restrictive upon the right of the Board to fill vacancies or
upon the right of stockholders to remove directors as is hereinafter provided.
Section 2. Annual Meeting of Board of Directors. A regular meeting of the
---------- ------------------------------------
Board for the purpose of electing officers and the transaction of such other
business as may come before the meeting shall be held at the same place as, and
immediately after, the annual meeting of stockholders, and no notice shall be
required in connection therewith.
Section 3. Special Meetings of Board of Directors. Special meetings of
---------- ---------------------------------------
the Board may be called at any time by the Chairman, the Vice Chairman, the
President (or in such person's absence, by an Executive Vice President, a Senior
Vice President or a Vice President), or a majority of the directors in office
and may be held within or outside the state of incorporation. Notice need not
be given. Special meetings of the board may be held at any time that all
directors are present in person, and presence of any director at a meeting shall
constitute waiver of notice of such meeting, except as otherwise provided by
law. Unless specifically required by law, the Certificate, or the Bylaws,
neither
<PAGE>
the business to be transacted at, nor the purpose of, any meeting of the Board
need be specified in the notice or waiver of notice of such meeting.
Section 4. Quorum. A quorum at all meetings of the Board shall consist of
---------- -------
a majority of the number of directors then fixed by the Bylaws or by action of
the Board, but a smaller number may adjourn from time to time without further
notice, until a quorum be secured. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board,
unless the act of a greater number is required by the Certificate, the Bylaws,
or Law.
Section 5. Vacancies. Any vacancy occurring in the Board may be filled by
---------- ----------
the affirmative vote of a majority of the remaining directors though less than a
quorum of the Board. A director elected to fill a vacancy shall be elected for
the unexpired term of such person's predecessor in office, and shall hold such
office until such person's earlier resignation or removal or until such person's
successor has been elected and qualified. Any directorship to be filled by
reason of an increase in the number of directors shall be filled by the
affirmative vote of the directors then in office or by an election at an annual
meeting or at a special meeting of stockholders called for that purpose. A
director chosen to fill a position resulting from an increase in the number of
directors shall hold office until the next annual meeting of stockholders or
until such person's successor has been elected and qualified.
Section 6. Compensation of Directors. Directors may receive such fees as
---------- --------------------------
may be established by appropriate resolution of the Board for attendance at
meetings of the Board, and in addition thereto, may receive reasonable traveling
expense, if any is required, for attendance at such meetings.
Section 7. Executive Committee. The Board may, by resolution passed by a
---------- --------------------
majority of the whole Board, designate an Executive Committee (the "Committee")
to consist of one (1) or more of the directors of the Corporation. The Board
may designate one (1) or more directors as alternate members of the Committee,
who may replace any absent or disqualified member at any meeting of the
Committee. In the absence or disqualification of a member of the Committee, the
member or members present at any meeting and not disqualified from voting,
whether or not such person(s) constitute(s) a quorum, may unanimously appoint
another member of the Board to act at the meeting in the place of any such
absent or disqualified member. The Committee shall have and may exercise to the
fullest extent permitted by the Law, all the powers and authority of the Board
in the management of the business and affairs of the Corporation, may act by and
execute written consents, and may authorize the seal of the Corporation to be
affixed to all papers which may require it.
Section 8. Removal of Directors. Any director or the entire Board may be
---------- ---------------------
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors, except as follows: (1) Unless
the Certificate otherwise provides, in the case of a corporation whose Board is
classified, stockholders may effect such removal only for cause; or, (2) In the
case of a corporation having cumulative voting, if less than the entire Board is
to be removed, no director may be removed without cause if the votes cast
against such person's removal would be sufficient to elect
<PAGE>
such person if then cumulatively voted at an election of the entire Board, or,
if there be classes of directors, at an election of the class of directors which
such person is a part.
Section 9. Meetings by Telephone. Members of the Board may participate in
---------- ----------------------
and act at any meeting of the Board through the use of a conference telephone or
other communications equipment by means of which all persons participating in
the meeting can hear each other. Participation in such a meeting shall
constitute attendance and presence in person at the meeting of the person(s) so
participating.
Section 10. Action Without a Meeting. Any action which is required to be
----------- -------------------------
taken at a meeting of the directors, or of any committee of the directors, may
be taken without a meeting if a consent or consents in writing, setting forth
the action so taken, are signed by all of the members of the board or of the
committee as the case may be. The consents shall be filed in the corporate
records. Action taken is effective when all directors or committee members have
signed the consent, unless the consent specifies a different effective date.
Such consent has the same force and effect as an unanimous vote of the directors
or committee members and may be stated as such in any document.
ARTICLE V - OFFICERS
Section 1. Elective Officers. The elective officers of the Corporation,
---------- ------------------
who need not be directors, shall be a President, one or more Vice Presidents, a
Secretary, and a Treasurer, who shall be elected by the Board at its first
meeting after the annual meeting of stockholders. Unless removed in accordance
with procedures established by state law and the Bylaws, the said officers shall
serve until the next succeeding annual meeting of the Board or until their
respective successors have been elected and qualified. An officer may, unless
prohibited by state law, hold more than one office except that no such officer
shall execute, acknowledge, or verify any instrument in more than one (1)
capacity if any such instrument is required by the Law, by the Bylaws, or by
resolution of the Board, to be executed, acknowledged, or verified by any two
(2) or more officers.
Section 2. Additional Officers. The Board may elect or appoint a
---------- -------------------
Chairman, a Vice Chairman, one or more Executive Vice Presidents, one or more
Senior Vice Presidents, one or more Assistant Vice Presidents, one or more
Assistant Secretaries, one or more Assistant Treasurers, or such other officers
as it may deem advisable, who shall hold office during the pleasure of the
Board, and shall be paid such compensation as may be directed by the Board. The
Chairman, if any, the Vice Chairman, if any, the President, the Executive Vice
President(s), if any, and the Senior Vice President(s), if any, shall
individually or collectively, be known as the "Administrative Officers."
Section 3. Powers and Duties. The officers of the Corporation shall
---------- -----------------
respectively exercise and perform the respective powers, duties, and functions
as are stated below, and as may be assigned to them by the Board.
<PAGE>
(a) Chairman of the Board. The Chairman, if any, shall preside at all
---------------------
meetings of the stockholders and the Board. Except where, by law, the
signature of the President is required, the Chairman shall possess the
same power as the President to sign all certificates, contracts, and
other instruments of the Corporation which may be authorized by the
Board.
(b) Vice Chairman of the Board. The Vice Chairman, if any, shall, in the
--------------------------
absence of the Chairman, preside at all meetings of the stockholders
and the Board. Except where, by law, the signature of the President
is required, the Vice Chairman shall possess the same power as the
President to sign all certificates, contracts, and other instruments
of the Corporation which may be authorized by the Board. In the
absence of the Chairman, the Vice Chairman shall perform all the
duties of the Chairman.
(c) President. The President shall preside at all meetings of the
---------
stockholders and of the Board in the absence of the Chairman and Vice
Chairman. The President, any Executive Vice President, any Senior
Vice President, or any Vice President, unless some other person is
specifically authorized by the Board, shall sign all bonds, deeds,
mortgages, leases, and contracts of the Corporation. The President,
any Executive Vice President, any Senior Vice President, or any Vice
President, unless some other person is specifically authorized by the
Board, shall have full authority on behalf of the Corporation to
attend any meeting, give any waiver, cast any vote, grant any
discretionary or directed proxy to any person, and exercise any other
right of ownership with respect to shares of capital stock or other
securities held by the Corporation and issued by any other corporation
or with respect to any partnership, trust, or similar interest held by
the Corporation. The President shall perform all the duties commonly
incident to the office and such other duties as the Chairman, the Vice
Chairman, or the Board shall designate.
(d) Executive Vice President. The Executive Vice President(s), if any,
------------------------
shall perform such duties as assigned to such person by the Chairman,
the Vice Chairman, the President or the Board. In the absence or
disability of the President, an Executive Vice President shall perform
all duties of the President. If there is more than one person holding
the office of Executive Vice President, the Executive Vice President
designated by the Chairman, the Vice Chairman, the President, or the
Board, shall in the absence or disability of the President perform all
duties of the President.
(e) Senior Vice President. In the absence or disability of an Executive
---------------------
Vice President, a Senior Vice President, shall perform all duties of
an Executive Vice President, and when so acting, shall have all the
powers of and be subject to all the restrictions of an Executive Vice
President. If there is more than one person holding the office of
Senior Vice President, the Senior Vice President designated by
Chairman, the Vice Chairman, the President, any Executive Vice
President, or the Board, shall in the absence or disability of the
President or an Executive Vice President, perform all duties of the
<PAGE>
President or an Executive Vice President. Each Senior Vice President
shall have such other powers and perform such other duties as may from
time to time be assigned to such person by the Chairman, the Vice
Chairman, the President, any Executive Vice President or the Board.
(f) Vice President. In the absence or disability of a Senior Vice
--------------
President, a Vice President, shall perform all duties of a Senior Vice
President, and when so acting, shall have all the powers of and be
subject to all the restrictions of a Senior Vice President. If there
is more than one person holding the office of Vice President, the Vice
President designated by any Administrative Officer or the Board, shall
in the absence or disability of the President, an Executive Vice
President or a Senior Vice President, perform all duties of the
President, an Executive Vice President or a Senior Vice President.
Each Vice President shall have such other powers and perform such
other duties as may from time to time be assigned to such person by
any Administrative Officer or the Board.
(g) Assistant Vice President. An Assistant Vice President, if any, may,
------------------------
at the request of any Administrative Officer, any Vice President, or
the Board, perform all the duties of a Vice President, and when so
acting shall have all the powers of, and be subject to all the
restrictions on a Vice President. An Assistant Vice President shall
perform such other duties as may be assigned to such person by any
Administrative Officer, any Vice President, or the Board.
(h) Secretary. The Secretary shall keep accurate minutes of all meetings
---------
of the stockholders and the Board. The Secretary shall keep, or cause
to be kept, a register of the stockholders of the Corporation and
shall be responsible for the giving of notice of meetings of the
stockholders or of the Board. The Secretary shall be custodian of the
records and of the seal, if any, of the Corporation. The Secretary
shall perform all duties commonly incident to the office and such
other duties as may from time to time be assigned to such person by
any Administrative Officer, any Vice President, or the Board.
(i) Assistant Secretary. An Assistant Secretary, if any, may, at the
-------------------
request of any Administrative Officer, any Vice President, the
Secretary, or the Board, in the absence or disability of the
Secretary, perform all of the duties of the Secretary. If there is
more than one person holding the office of Assistant Secretary, the
Assistant Secretary designated by any Administrative Officer, any Vice
President, the Secretary, or the Board shall in the absence or
disability of the Secretary perform all duties of the Secretary. An
Assistant Secretary shall perform such other duties as may be assigned
to such person by any Administrative Officer, any Vice President, the
Secretary, or the Board.
<PAGE>
(j) Treasurer. The Treasurer, subject to the order of the Board, shall
---------
have the care and custody of the money, funds, valuable papers, and
documents of the Corporation. The Treasurer shall keep accurate books
of accounts of the Corporation's transactions, which shall be the
property of the Corporation, and shall render financial reports and
statements of condition of the Corporation when so requested by any
Administrative Officer, any Vice President, or the Board. The
Treasurer shall perform all duties commonly incident to the office and
such other duties as may from time to time be assigned to such person
by any Administrative Officer, any Vice President, or the Board.
(k) Assistant Treasurer. An Assistant Treasurer, if any, may, at the
-------------------
request of any Administrative Officer, any Vice President, the
Treasurer, or the Board in the absence or disability of the Treasurer,
perform all of the duties of the Treasurer. If there is more than one
person holding the office of Assistant Treasurer, the Assistant
Treasurer designated by any Administrative Officer, any Vice
President, the Treasurer, or the Board shall in the absence or
disability of the Treasurer perform all duties of the Treasurer. The
Assistant Treasurer shall perform such other duties as may be assigned
to such person by any Administrative Officer, any Vice President, the
Treasurer, or the Board.
(l) Additional Officers. Any additional officers elected or appointed by
-------------------
the Board shall have such titles and perform such duties as may be
assigned by the Board.
Section 4. Compensation of Officers. All officers of the Corporation may
---------- ------------------------
receive salaries or other compensation if so ordered and fixed by the Board.
The Board shall have authority to fix salaries in advance for stated periods or
render the same retroactive as the Board may deem advisable.
Section 5. Delegation of Duties. In the event of absence or inability of
---------- --------------------
any officer to act, the Board may delegate the powers or duties, in addition to
any other powers or duties specifically authorized in this Article V, of such
officer to any other officer, director, or person whom it may select.
Section 6. Removal of Officers. Any officer or agent may be removed by
---------- -------------------
the Board, at a meeting called for that purpose, whenever in its judgment the
best interest of the Corporation will be served thereby, but such removal shall
be without prejudice to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall not, of itself, create
contract rights.
ARTICLE VI - FINANCE
Section 1. Deposits and Withdrawals; Notes and Commercial Paper. The
---------- -----------------------------------------------------
monies of the Corporation shall be deposited in the name of the Corporation in
such bank(s) or trust company(ies), as the Board shall designate, and may be
drawn out only on checks signed in the name of the Corporation by such person(s)
as the Board, by appropriate resolution, may direct. Notes and commercial
paper,
<PAGE>
when authorized by the Board, shall be signed in the name of the Corporation by
such officer(s) or agent(s) as shall thereunto be authorized from time to time.
Section 2. Fiscal Year. The fiscal year of the Corporation shall be
---------- ------------
January 1 to December 31 or as determined by resolution of the Board.
ARTICLE VII - WAIVER OF NOTICE
Any stockholder, officer, or director may waive, in writing, any notice
required to be given by state law or under the Bylaws, whether before or after
the time stated therein.
ARTICLE VIII - INDEMNIFICATION
Section 1. General. The Corporation shall indemnify and hold harmless, to
---------- --------
the fullest extent permitted by applicable law as it presently exists or may
hereafter be amended from time to time, 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 such person, or a person for whom such
person 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, nonprofit entity or other enterprise, including service
with respect to employee benefit plans, against all liability and loss suffered
and expenses (including attorneys' fees) judgments, penalties, fines and amounts
paid in settlement actually and actually reasonably incurred by such person in
connection with the proceeding. However, 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 the Corporation. If a person is not wholly successful in defense of a
proceeding but is successful, on the merits or otherwise, as to one or more but
less than all claims, issues or matters in a proceeding, the Corporation shall
indemnify such person against all expenses actually and reasonably incurred in
connection with each successfully resolved claim, issue or matter For purposes
of this Section and without limitation, the termination of any claim, issue or
matter in a proceeding by dismissal, with or without prejudice, shall be deemed
to be a successful result as to such claim, issue or matter.
Section 2. Advances For Expenses. The Corporation shall pay the
---------- ----------------------
reasonable expenses (including attorneys' fees) incurred by a director or
officer of the Corporation 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 a receipt of an undertaking by the director or officer to
repay all expenses (including attorneys' fees) advanced if it should be
ultimately determined that the director or officer is not entitled to be
indemnified under this Article or otherwise. Payment of such expenses incurred
by other employees
<PAGE>
and agents of the Corporation may be made by the Board in its discretion upon
such terms and conditions, if any, as it deems appropriate.
Section 3. Rights Not Exclusive. The rights conferred on any person by
---------- ---------------------
this Article shall not be exclusive of any other rights which such person may
have or hereafter acquire under any statute, provision of the Certificate, these
By-Laws, agreement, vote of stockholders or disinterested directors or
otherwise. The indemnification and advancement of expenses provided for by this
Article shall continue as to a person who has ceased to be a director or officer
and shall inure to the benefit of the heirs, executors and administrators of
such a person.
Section 4. Claims. Notwithstanding any other provision of this Article,
---------- ------
if a claim for indemnification or advancement of expenses under this Article is
not paid in full within sixty 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 advancement of expenses under applicable
law.
Section 5. Other Indemnification. In the event of any payment under this
---------- ---------------------
Article, the Corporation shall be subrogated to the extent of such payment to
all of the rights of recovery of the recipient of the payment, who shall execute
all papers required and take all action necessary to secure such rights,
including execution of such documents as are necessary to enable the Corporation
to bring suit to enforce such rights. The Corporation shall not be liable to
make any payment of amounts otherwise indemnifiable or subject to advancement
hereunder if and to the extent that a person has otherwise actually received
such payment under any insurance policy, contract, agreement or otherwise. To
the extent that the Corporation maintains an insurance policy or policies
providing liability insurance for directors, officers, employees, or agents of
the Corporation or of any other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise which such person serves at the
request of the Corporation, such person shall be covered by such policy or
policies in accordance with its or their terms to the maximum extent of the
coverage available for any such director, officer, employee or agent under such
policy or policies. The Corporation's obligation to indemnify or advance
expenses hereunder to a person who is or was serving at the request of the
Corporation as a director, officer, employee or agent of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
shall be reduced by any amount such person has actually received as
indemnification or advancement of expenses from such other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise.
Section 6. Amendment Or Repeal. Any repeal or modification of the
---------- --------------------
foregoing provisions of this Article 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.
<PAGE>
ARTICLE IX - AMENDMENTS
These by-laws may be altered or repealed, and new by-laws made, by the
Board, but the stockholders may make additional by-laws and may alter and repeal
and by-laws whether adopted by them or otherwise.
<PAGE>
EXHIBIT 10.2
SERVICES AGREEMENT
SERVICES AGREEMENT (this "Agreement"), dated as of July 31, 1996,
between TELE-COMMUNICATIONS, INC, a Delaware corporation ("TCI"), TCI
COMMUNICATIONS, INC., a Delaware corporation ("TCIC" and, together with TCI, the
"TCI Parties") and TCI Pacific Communications, Inc. a Delaware corporation
("Pacific").
WHEREAS, TCI, TCIC and Pacific are parties to a series of transactions
(the "Transactions") which, when consummated, will result in the ownership by
TCI of all of the outstanding common stock of Pacific;
WHEREAS, the TCI Parties and Pacific desire to enter into this
Agreement which sets forth the general terms upon which the TCI Parties shall
furnish certain facilities, services, benefits and personnel to Pacific after
the closing of the Transactions.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereby
agree as follows:
Section 1. Services.
--------
(a) Agreement to Provide Services. At the request of
-----------------------------
Pacific, the TCI Parties shall provide such services to Pacific as may be
necessary for the proper and efficient administration and operation of the
business of Pacific and the business of Pacific's subsidiaries and affiliates
(collectively, the "Services"). The Services shall include, but are not limited
to:
(i) the services typically performed by the TCI
Parties' executive, accounting, finance, corporate, legal and
tax department personnel;
(ii) the furnishing of office space at TCI's corporate
offices in Englewood, Colorado and the furnishing of other
office space and property to Pacific for Pacific's use;
(iii) access to and assistance from TCIC's cable
engineering and construction groups and TCI's programming and
technology/venture personnel; and
(iv) the furnishing of such other management,
supervisory, strategic planning or other services as may be
requested by Pacific.
(b) Fees for the Services. As compensation for the Services
rendered to Pacific pursuant to subsection (a) above, Pacific shall reimburse
the TCI Parties for: (i) all direct expenses incurred by the TCI Parties in
providing the Services described above, provided that the incurrence of such
expenses is consistent with practices generally followed by the TCI Parties in
managing or operating its own business or its subsidiaries' or affiliates'
businesses and (ii) Pacific's pro rata share of the TCI Parties indirect
overhead expenses based on an annual determination by TCI management of the
usage by Pacific of such services during the prior year. Such indirect expenses
shall include (i) the salaries and other compensation of TCI's and TCIC's
officers and employees who perform the Services
<PAGE>
for Pacific (ii) general and administrative overhead expenses, and (iii) the
costs and expenses of TCI's and TCIC's physical facilities that are utilized by
Pacific. The TCI Parties shall keep true, complete and accurate books of account
containing such particulars as may be necessary for the purpose of calculating
the above costs.
Section 2. Employee Benefit Plans. Subject to Section 3 hereunder, TCI
----------------------
shall permit the present and future employees of Pacific and its majority-owned
subsidiaries (collectively, the "Pacific Employees") to participate in each of
the benefit plans listed on Schedule A hereto (the "TCI Plans").
Notwithstanding the foregoing, nothing in this Agreement shall impair TCI's
right to terminate one or more of the TCI Plans or to modify or amend their
terms and conditions, including those that determine the right to participate in
such plans, provided that such modification or amendment is applicable to all
employees of TCI and its subsidiaries, including Pacific. For so long as
Pacific shall remain a participating employer in the TCI Plans, Pacific shall
make the required employer contributions to such plans with respect to the
Pacific Employees and shall, where applicable, deduct and accumulate from
applicable sources the required employee contributions to such plans. The
determination of the total amount of contributions required under each such TCI
Plan shall be made by Pacific from time to time, and Pacific shall remit such
contributions in the manner and at the times prescribed by TCI, consistent with
TCI's normal practices for determining, collecting or otherwise charging out the
respective benefit plan costs of its participating subsidiary corporations.
Section 3. Term.
----
(a) Commencement. This Agreement shall become effective
------------
immediately upon the closing of the Transactions.
(b) Termination.
-----------
(1) The obligations of the TCI Parties to provide the
Services as provided in Section 1 hereof shall remain in effect until terminated
by the TCI Parties at any time on not less than 60 days prior written notice to
Pacific.
(2) The obligation of TCI to permit the Pacific Employees
to participate in the TCI Plans pursuant to Section 2 hereof shall remain in
effect until TCI no longer beneficially owns shares of Pacific's common stock
representing at least a majority in voting power of the outstanding shares of
capital stock of Pacific entitled to vote generally in the election of
directors.
Section 4. Limitation of Liability. TCI, TCIC, their respective
-----------------------
affiliates, directors, officers, employees, agents and permitted assigns (each,
a "TCI Indemnified Party" or together "TCI Idemnified Parties") shall not be
liable (whether such liability is direct or indirect, in contract or tort or
otherwise) to Pacific or any of Pacific's affiliates, directors, officers,
employees, agents, security holders, auditors or permitted assigns, for any
liabilities, claims, damages, losses or expenses including, without limitation,
any special, indirect, incidental or consequential damages ("Losses") arising
out of, related to, or in connection with the Services, except to the extent
that such Losses result from the gross negligence or willful misconduct of TCI
or TCIC, in which case the TCI Parties' liability shall be limited to a refund
of that portion of the amounts actually paid by Pacific hereunder which, as
determined by the TCI Parties, represented the cost to Pacific of the Services
in question. Pacific hereby agrees to indemnify and hold harmless the TCI
Indemnified Parties from and against any and all Losses (including, without
limitation,
-2-
<PAGE>
reasonable fees and expenses of counsel) incurred by or asserted or awarded
against any TCI Indeminified Party arising out of or in connection with or by
reason of the Services provided by the TCI Parties under this Agreement, other
than any liability of the TCI Parties to refund amounts paid by Pacific as
contemplated by the preceding sentence.
Section 5. Miscellaneous.
-------------
(a) Entire Agreement. This Agreement constitutes the entire
----------------
agreement between the parties hereto with respect to the subject matter hereof
and shall supersede all previous negotiations, commitments and writings with
respect to such subject matter.
(b) Governing Law. This Agreement and the legal relations between
-------------
the parties hereto shall be governed by and construed in accordance with the
laws of the State of Colorado, without regard to conflicts of laws rules
thereof.
(c) Notices. All notices, demands and other communications under
-------
this Agreement shall be in writing and shall be deemed to have been duly given:
(i) on the day of service if served personally on the party to whom notices is
to be given; (ii) on the day of transmission if sent via facsimile transmission
to the facsimile number given below, and telephonic confirmation of receipt is
obtained promptly after completion of transmission; (iii) on the day after
delivery by Federal Express or similar overnight courier; or (iv) on the fifth
day after mailing, if mailed to the party to whom notice is to be given, by
first class mail, registered or certified, postage prepaid and properly
addressed, to the party as follows:
If to the TCI Parties:
Tele-Communications, Inc.
5619 DTC Parkway
Englewood, Colorado 80111
Attention: General Counsel
Telecopy: (303) 488-3217
If to Pacific:
TCI Pacific Communications, Inc.
5619 DTC Parkway
Englewood, Colorado 80111
Attention: President
Telecopy: (303) 488-3200
Any party may change its address for the purpose of this Section by
giving the other party written notice of its new address in the
manner set forth above.
(d) Amendment. This Agreement may not be amended or modified in any
---------
respect except by a written agreement signed by the parties hereto.
-3-
<PAGE>
(e) Successors and Assigns; No Third-Party Beneficiaries. This
----------------------------------------------------
Agreement and all of the provisions hereof shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and permitted
assigns. Neither this Agreement nor any of the rights, interests and
obligations hereunder shall be assigned by either party hereto without the prior
written consent of the other party. Nothing contained in this Agreement, except
as expressly set forth, is intended to confer upon any other persons other than
the parties hereto or their respective successors and permitted assigns, any
rights or remedies.
(f) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(g) No Waiver. No waiver by either party hereto of any term or
---------
condition of this Agreement, in any one or more instances, shall operate as a
waiver of such term or condition at any other time.
(h) Interpretation. The Section headings contained in this
--------------
Agreement are solely for the purpose of reference and do not constitute a part
of this Agreement.
(i) Severability. If any provision of this Agreement shall be
------------
invalid or unenforceable, such invalidity or unenforceability shall not render
the entire Agreement invalid. Rather, the Agreement shall be construed as if not
containing the particular invalid or unenforceable provisions, and the rights
and obligations of each party shall be construed and enforced accordingly.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed as of the day and year first written above.
TELE-COMMUNICATIONS, INC.
By: /s/ Stephen M. Brett
--------------------------------
Name: Stephen M. Brett
Title: Executive Vice President
TCI COMMUNICATIONS, INC.
By: /s/ Stephen M. Brett
--------------------------------
Name: Stephen M. Brett
Title: Senior Vice President
TCI PACIFIC COMMUNICATIONS, INC.
By: /s/ Stephen M. Brett
--------------------------------
Name: Stephen M. Brett
Title: Senior Vice President
-4-
<PAGE>
EXHIBIT 21
----------
A table of the subsidiaries of TCI Pacific Communications, Inc. as of December
31, 1996, is set forth below, indicating as to each the state or the
jurisdiction of incorporation or organization and the names under which such
subsidiaries do business (Trade Names). Subsidiaries not included in the table
are inactive or, considered in the aggregate as a single subsidiary, would
not constitute a significant subsidiary.
<TABLE>
<CAPTION>
STATE OR JURISDICTION
SUBSIDIARY OF INCORPORATION TRADE NAMES
OR ORGANIZATION
<S> <C> <C>
Bay Area Interconnect [gp] CA Bay Cable Advertising
BCA
TCI Media Services
Broadview Television Company WA
Cable TV of Marin, Inc. CA
Cable TV Puget Sound, Inc. WA
Channel 3 Everett, Inc. WA
Clear View Cable Systems, Inc. CA
Com-Cable TV, Inc. DE
Community Telecable of Bellevue, Inc. WA TCI of Washington
Community Telecable of Seattle, Inc. WA
Contra Costa Cable Co. WA
Crockett Cable System, Inc. WA
Everett Cablevision, Inc. WA TCI of Washington
Far-West Communications, Inc. OR TCI of Oregon
H-C-G Cablevision, Inc. CA
Marin Cable Television, Inc. CA
Northwest Cable Advertising [gp] NY TV Mart
TCI Media Services
NTT, Inc. TX
Portland Cable Advertising, L.P. [lp] DE
Prime Cable II Systems, Inc. TX
Southwestern Satellite, Inc. TX
TCI Bay Interconnect, Inc. CA
TCI of Dayton, Inc. DE
TCI of Northern California, Inc. CA
TCI Pacific, Inc. DE
TCI Telecom, Inc. DE
TCI TVC, Inc. CA
TCI VCI, Inc. CA
Tele-Vue Systems, Inc. WA TCI of Washington
TCI of Houston
TCI Media Services
Television Signal Corporation CA
United Community Antenna System, Inc. WA TCI of Washington
Vista Television, Inc. WA TCI of Washington
VSC Cable, Inc. DE
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS INCLUDED IN TCI PACIFIC COMMUNICATIONS, INC.'S ANNUAL REPORT ON FORM
10-K FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS. THE SUMMARY FINANCIAL INFORMATION FOR
THE SEVEN MONTH PERIOD ENDED JULY 31, 1996 IS FOR VII CABLE PRIOR TO THE
ACQUISITION. THE SUMMARY FINANCIAL INFORMATION FOR THE FIVE MONTH PERIOD ENDED
DECEMBER 31, 1996 IS FOR TCI PACIFIC COMMUNICATIONS, INC. SUBSEQUENT TO THE
ACQUISITION.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 7-MOS 5-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 AUG-1-1996
<PERIOD-END> JUL-31-1996 DEC-31-1996
<CASH> 0 33,664
<SECURITIES> 0 0
<RECEIVABLES> 0 18,986
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 0 390,556
<DEPRECIATION> 0 11,373
<TOTAL-ASSETS> 0 3,440,561
<CURRENT-LIABILITIES> 0 0
<BONDS> 0 1,151,884
0 629,801
0 0
<COMMON> 0 0
<OTHER-SE> 0 539,195
<TOTAL-LIABILITY-AND-EQUITY> 0 3,440,561
<SALES> 0 0
<TOTAL-REVENUES> 280,630 215,550
<CGS> 0 0
<TOTAL-COSTS> 108,652 74,516
<OTHER-EXPENSES> 51,580 44,643
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 30,908 43,566
<INCOME-PRETAX> 24,092 (6,626)
<INCOME-TAX> 13,432 (4,174)
<INCOME-CONTINUING> 10,660 (2,452)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 10,660 (2,452)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
