<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF
1934 (AMENDMENT NO. 1)
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
<TABLE>
<S> <C>
Check the appropriate box:
|X| Preliminary Proxy Statement |_| Confidential, For Use of the Commission
|_| Definitive Proxy Statement Only (as Permitted by Rule 14a-6(e)(2))
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant Rule to 14a-11(c) or Rule 14a-12
</TABLE>
TELE-COMMUNICATIONS, INC.
- - ------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- - ------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- - ------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- - ------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and how it was
determined):
- - ------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- - ------------------------------------------------------------------------------
(5) Total fee paid:
- - ------------------------------------------------------------------------------
|_| Fee previously paid with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
- - ------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- - ------------------------------------------------------------------------------
(3) Filing Party:
- - ------------------------------------------------------------------------------
(4) Date Filed:
- - ------------------------------------------------------------------------------
<PAGE> 2
TELE-COMMUNICATIONS, INC.
TERRACE TOWER II
5619 DTC PARKWAY
ENGLEWOOD, COLORADO 80111
(303) 267-5500
Dear Stockholder: , 1997
You are cordially invited to attend the annual meeting of stockholders
of Tele-Communications, Inc. (the "Company" or "TCI"), which will be held at
________, _________, ___________, Colorado, on August __, 1997 starting at
10:00 a.m., local time. A notice of the annual meeting, a proxy card, a Proxy
Statement containing important information about the matters to be acted upon
at the annual meeting, and the Company's 1996 Annual Report to Stockholders are
enclosed.
The election of directors will take place at the annual meeting. This
year three directors will be elected, who will hold office until the annual
meeting of stockholders in the year 2000 or until their successors are elected
and qualified. The Proxy Statement contains information with respect to the
nominees, as well as the other directors who continue in office.
In addition to the election of directors, you will be asked to
consider and vote upon a proposal (the "TCI Ventures Group Stock Proposal"), to
amend the terms of the series of the Company's Common Stock, par value $1.00
per share (the "Common Stock") which has been designated as
Tele-Communications, Inc. Series A Telephony Group Common Stock (the "Series A
Telephony Group Common Stock") and Tele-Communications, Inc. Series B Telephony
Group Common Stock (the "Series B Telephony Group Common Stock" and, together
with the "Series A Telephony Group Common Stock", the "Telephony Group Common
Stock"). The Telephony Group Common Stock was authorized by the stockholders
at a special meeting held on March 12, 1997. No shares of Telephony Group
Common Stock have been issued. The Telephony Group Common Stock, if issued,
would have been intended to reflect the separate performance of the Telephony
Group, which initially was to consist of TCI's principal investments in the
domestic wireless and wireline telephony businesses (the "Telephony Business").
A total of 750 million shares of Series A Telephony Group Common Stock and 75
million shares of Series B Telephony Common Stock were authorized.
The TCI Ventures Group Stock Proposal would change the name of the
Telephony Group to the TCI Ventures Group and would redefine the Group to
include TCI's principal international assets and substantially all of TCI's
non-cable and non-programming domestic assets. The two authorized series of
Telephony Group Common Stock would be redesignated as Tele-Communications, Inc.
Series A TCI Ventures Group Common Stock ("Series A TCI Ventures Group Common
Stock") and Tele-Communications, Inc. Series B TCI Ventures Group Common Stock
("Series B TCI Ventures Group Common Stock" and, together with the Series A TCI
Ventures Group Common Stock, the "TCI Ventures Group Common Stock").
The TCI Ventures Group Common Stock, when issued, would be intended to
reflect the separate performance of the TCI Ventures Group. The assets that
will be attributed to the TCI Ventures Group are comprised principally of (i)
TCI's 85% equity interest (representing a 92% voting interest) in
Tele-Communications International, Inc. ("International"), which is the
Company's primary vehicle for the conduct of its international cable, telephony
and programming businesses (other than those international programming
businesses attributed to the Liberty Media Group), (ii) TCI's principal
interests in the Telephony Business, consisting primarily of the Company's
investment in a series of partnerships formed to engage in the business of
providing wireless communications services, using the radio spectrum for
broadband personal communications services ("PCS"), to residential and business
customers nationwide under the Sprint(R) brand (a registered trademark of
Sprint Communications Company, L.P.), the Company's 30% equity interest
(representing a 37% voting interest) in Teleport Communications Group Inc.
("TCG"), a competitive local exchange carrier, and the Company's wholly owned
subsidiary Western Tele-Communications, Inc. ("WTCI"), which provides long
distance transport of video, voice and data traffic and other
telecommunications services to telecommunications carriers on a wholesale basis
using primarily a digital broadband microwave network located throughout a 12
state region, (iii) TCI's 40% equity interest (representing an 85% voting
interest) in United Video Satellite Group, Inc.
<PAGE> 3
("UVSG"), which provides satellite-delivered video, audio, data and program
promotion services to cable television systems, satellite dish owners, radio
stations and private network users, primarily throughout North America, (iv)
TCI's 43% equity interest (representing a 75% voting interest) in At Home
Corporation ("@Home"), a provider of high speed multimedia Internet services,
and the Company's interest in other Internet-related assets, and (v) other
assets, including ETC w/tci, Inc., an 80% owned subsidiary of the Company that
develops and distributes for-profit education, training and communication
services and products, the Company's National Digital Television Center, which
provides digital compression and authorization services to programming
suppliers and to video distribution outlets, and TCI Summitrak of Texas, Inc.
and TCI Summitrak L.L.C., wholly owned subsidiaries of the Company that
provide an integrated network-based information management system currently to
certain of TCI's cable systems with plans to expand the service to include
third parties. (Percentage equity and voting interests provided above have
been rounded to the nearest whole number and calculated as of the date of this
letter, except for percentage interests in entities that are not consolidated
subsidiaries which have been calculated as of March 31, 1997.) The stocks of
International, TCG and UVSG are traded on the National Market tier of The
Nasdaq Stock Market.
Unlike the Telephony Group, the TCI Ventures Group would include WTCI,
rather than an option to acquire WTCI, and would not include an option to
acquire TCI's developmental stage domestic cable telephony business nor would
it include any other business that uses TCI's domestic cable plant to
distribute services to customers (e.g., cable, telephony and Internet
services). Such domestic "distribution" businesses will continue to be
attributed to the TCI Group. By way of example, the business of distributing
@Home's Internet service to customers through TCI's cable systems would not be
attributed to the TCI Ventures Group, although the investment in @Home would
be.
The TCI Ventures Group Stock Proposal and the issuance of the TCI
Ventures Group Common Stock are intended to result in greater market recognition
of the value of the TCI Ventures Group, thereby enhancing stockholder value over
the long term, while at the same time enabling the Company's businesses to
preserve the benefits of being part of a consolidated enterprise. In addition,
the businesses that would be attributed to the TCI Group after giving effect to
the creation of the TCI Ventures Group would largely be confined to the
Company's domestic distribution and communications businesses (i.e., the
provision of cable, telephony and Internet services over its domestic cable
network), thereby simplifying the market's analysis of the TCI Group Common
Stock (as defined below). The TCI Ventures Group Stock Proposal should provide
the Company with greater flexibility with regard to raising capital and making
acquisitions and investments, including strategic partnering transactions, with
equity securities specifically related to the TCI Ventures Group. Further, the
TCI Ventures Group Stock Proposal would provide security holders with the
opportunity to invest in separate securities intended specifically to reflect
the TCI Ventures Group and would enable the Company to more effectively tailor
employee benefits plans to provide incentives to the employees in the TCI
Ventures Group.
Currently the Company has four other series of Common Stock
authorized: (i) Tele-Communications, Inc. Series A TCI Group Common Stock (the
"Series A TCI Group Common Stock"), (ii) Tele-Communications, Inc. Series B TCI
Group Common Stock (the "Series B TCI Group Common Stock" and, together with
the Series A TCI Group Common Stock, the "TCI Group Common Stock"), (iii)
Tele-Communications, Inc. Series A Liberty Media Group Common Stock (the
"Series A Liberty Media Group Common Stock"); and (iv) Tele-Communications,
Inc. Series B Liberty Media Group Common Stock (the "Series B Liberty Media
Group Common Stock" and, together with the Series A Liberty Media Group Common
Stock, the "Liberty Media Group Common Stock"). The TCI Group Common Stock
presently is intended to reflect the separate performance of the TCI Group,
which currently is comprised of the Company's domestic cable and telephony
distribution and communications businesses (other than those attributed to the
Telephony Group), international cable, telephony and programming businesses,
technology/venture capital businesses, and any other businesses and assets of
the Company not attributed to either the Liberty Media Group or the Telephony
Group. The TCI Group Common Stock is also currently intended to reflect 100%
of the common stockholders' equity value of the Company attributable to the
Telephony Group. The assets attributed to the TCI Ventures Group are currently
included in the TCI Group and the Telephony Group. The Liberty Media Group
Common Stock is intended to reflect the separate performance of the Liberty
Media Group, which is presently comprised of the Company's businesses, and
investments in entities, that are engaged in the production, acquisition and
distribution through all available formats and media of branded entertainment,
educational and informational programming and software, including multimedia
products, and its investments in entities engaged in electronic retailing,
direct marketing, advertising sales relating to programming services,
infomercials and transaction processing, and the operation of UHF
-2-
<PAGE> 4
television stations. The composition of the Liberty Media Group will not be
affected by the TCI Ventures Group Stock Proposal.
Upon effectiveness of the TCI Ventures Group Stock Proposal, the TCI
Ventures Group will replace the Telephony Group and the assets attributed to
the TCI Ventures Group will no longer be included in the TCI Group. Until
shares of TCI Ventures Group Common Stock are issued as described below,
however, the TCI Group Common Stock will continue to be intended to reflect all
of the common stockholders' equity value of the Company attributable to the TCI
Ventures Group, in addition to the separate performance of the Company's
domestic distribution and communications businesses (other than the investments
attributed to the TCI Ventures Group), and any other businesses and assets of
the Company not attributed to either the Liberty Media Group or the TCI
Ventures Group. The common stockholders' equity value of the Company
attributable to the TCI Ventures Group that, at any relevant time, is
attributed to the TCI Group and, accordingly, not represented by outstanding
TCI Ventures Group Common Stock is referred to as the "Inter-Group Interest" of
the TCI Group in the TCI Ventures Group.
Contemporaneously with the mailing of this Proxy Statement, the
Company is commencing offers (the "Exchange Offers") to exchange shares of
Series A TCI Ventures Group Common Stock and Series B TCI Ventures Group Common
Stock for up to an aggregate of _________ shares of Series A TCI Group Common
Stock and _______ shares of Series B TCI Group Common Stock, respectively,
(representing approximately [28-35%] of the outstanding shares of each such
series) in the ratio of one share of the applicable series of TCI Ventures
Group Common Stock in exchange for each share of the corresponding series of
TCI Group Common Stock properly tendered. The Exchange Offers are being made
on the terms and subject to the conditions set forth in the Offering Circular,
dated __________, 1997 and the related Letter of Transmittal. The Exchange
Offers are subject, among other conditions, to the approval by stockholders of
the TCI Ventures Group Stock Proposal. If such approval is obtained and other
conditions are satisfied, the Company would consummate the Exchange Offers
promptly following the annual meeting.
The aggregate number of shares of TCI Ventures Group Common Stock
being offered in the Exchange Offers is intended initially to represent 100% of
the common stockholders' equity value of the Company attributable to the TCI
Ventures Group. Accordingly, if all of such shares were issued in the Exchange
Offers, the Inter-Group Interest of the TCI Group would be reduced to zero.
If immediately following the consummation of the Exchange Offers the TCI Group
has any remaining Inter-Group Interest in the TCI Ventures Group, the Company
will extinguish such Inter-Group Interest in consideration of the attribution
to the TCI Group of a preferred equity interest in the TCI Ventures Group with
a face amount equal to the market value of the shares of TCI Ventures Group
Common Stock not issued in the Exchange Offers (which shall be deemed to be the
same, on a per share basis, as the market value of the Series A TCI Group
Common Stock on the last trading day preceding the closing of the Exchange
Offers), a dividend rate of 5% per annum (with dividends being payable in kind
until the fifth anniversary of the closing of the Exchange Offers) and a
mandatory redemption obligation on the 15th anniversary of the closing of the
Exchange Offers.
In addition to the shares of TCI Ventures Group Common Stock to be
issued in the Exchange Offers, shares of Series A TCI Ventures Group Common
Stock are being reserved for issuance upon exchange subsequent to the closing
of the Exchange Offers of certain outstanding convertible notes issued by a
subsidiary of the Company. In lieu of a number of shares of Series A TCI Group
Common Stock equal to [28% - 35%] of the number of shares of Series A TCI Group
Common Stock currently issuable upon exchange of such convertible notes, an
equal number of shares of TCI Ventures Group Common Stock would be issued upon
such exchange.
-3-
<PAGE> 5
IT IS IMPORTANT TO NOTE THAT HOLDERS OF TCI GROUP COMMON STOCK,
LIBERTY MEDIA GROUP COMMON STOCK AND TCI VENTURES GROUP COMMON STOCK WHEN
ISSUED WILL BE COMMON STOCKHOLDERS OF THE COMPANY AND WILL BE SUBJECT TO RISKS
ASSOCIATED WITH AN INVESTMENT IN THE COMPANY AND ALL OF ITS BUSINESSES, ASSETS
AND LIABILITIES. THE COMPANY CAN PROVIDE NO ASSURANCE AS TO THE DEGREE TO
WHICH THE MARKET PRICE OF THE TCI VENTURES GROUP COMMON STOCK WILL REFLECT THE
SEPARATE PERFORMANCE OF THE TCI VENTURES GROUP OR AS TO THE IMPACT OF THE
PROPOSAL ON THE MARKET PRICE OF THE TCI GROUP COMMON STOCK OR THE LIBERTY MEDIA
GROUP COMMON STOCK. IN ADDITION, IMPLEMENTATION OF THE TCI VENTURES GROUP
STOCK PROPOSAL WILL MAKE THE CAPITAL STRUCTURE OF THE COMPANY MORE COMPLEX AND
MAY GIVE RISE TO OCCASIONS WHEN THE INTERESTS OF THE HOLDERS OF THE SEPARATE
SERIES OF COMMON STOCK MAY DIVERGE OR APPEAR TO DIVERGE.
In addition to the TCI Ventures Group Stock Proposal, you will also be
asked at the annual meeting to consider and vote upon the approval of an
amendment to the terms of the Liberty Media Group Common Stock to conform the
provision that permits the redemption of the Liberty Media Group Common Stock
for the stock of a subsidiary to the corresponding provision that currently
relates to the Telephony Group Common Stock and that will relate to the TCI
Ventures Group Common Stock if the TCI Ventures Group Common Stock Proposal is
approved (the "Liberty Media Group Amendment Proposal").
The terms of the Liberty Media Group Common Stock currently permit the
Liberty Media Group Common Stock to be redeemed for the stock of a wholly owned
subsidiary of TCI that holds, directly or indirectly, all the assets and
liabilities attributed to the Liberty Media Group. The Liberty Media Group
Amendment Proposal, if approved, would also permit the redemption of the
Liberty Media Group Common Stock for the stock of a less than wholly owned
subsidiary that holds, directly or indirectly, all the assets and liabilities
attributed to the Liberty Media Group, if the Company's ownership and voting
interest in such subsidiary is sufficient to satisfy the requirements of the
Internal Revenue Service for a distribution of the Company's interest in such
subsidiary to the holders of TCI Ventures Group Common Stock to be tax free to
such holders.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE TCI VENTURES GROUP
STOCK PROPOSAL AND THE LIBERTY MEDIA GROUP AMENDMENT PROPOSAL, BELIEVES THE
ADOPTION OF EACH SUCH PROPOSAL IS IN THE BEST INTERESTS OF THE COMPANY AND ITS
STOCKHOLDERS AND RECOMMENDS THAT THE STOCKHOLDERS VOTE IN FAVOR OF EACH SUCH
PROPOSAL.
The proposal of two stockholders, which is expected to be presented at
the Annual Meeting, is also included in the Proxy Statement. The proposal
relates to a request to eliminate the election of directors by classes. For
the reasons set forth in the Proxy Statement, if such proposal is presented at
the Annual Meeting, the Board of Directors recommends a vote against this
stockholder proposal.
Whether or not you are personally able to attend the annual meeting,
please complete, sign and date the enclosed proxy card and return it in the
enclosed prepaid envelope as soon as possible. This action will not limit your
right to vote in person if you wish to attend the annual meeting and vote
personally.
Sincerely yours,
John C. Malone
Chairman of the Board
-4-
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS .................................. -i-
PROXY STATEMENT ........................................................... [1]
THE ANNUAL MEETING ........................................................ [1]
Time and Place; Purposes ............................................... [1]
Voting Rights; Votes Required for Approval ............................. [2]
Proxies ................................................................ [3]
No Appraisal Rights .................................................... [4]
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ............ [4]
Security Ownership of Certain Beneficial Owners ........................ [4]
Security Ownership of Management ....................................... [12]
Change of Control ...................................................... [23]
PROPOSALS OF THE BOARD .................................................... [23]
PROPOSAL NO. 1 - ELECTION OF DIRECTORS .................................... [23]
General ................................................................ [23]
Nominees For Election As Directors ..................................... [23]
Directors Whose Term Expires in 1998 ................................... [24]
Directors Whose Term Expires in 1999 ................................... [24]
PROPOSAL NO. 2 - TCI VENTURES GROUP STOCK PROPOSAL ........................ [24]
General ................................................................ [24]
The TCI Ventures Group ................................................. [26]
Background and Reasons for the TCI Ventures Group Stock Proposal ....... [28]
Recommendation of the Board of Directors ............................... [30]
Summary Description of TCI Ventures Group Stock Proposal ............... [30]
Factors to be Considered ............................................... [36]
Management and Allocation Policies ..................................... [45]
Description of TCI Ventures Group Common Stock and Effects on Existing
Common Stock ........................................................ [49]
No Initial Inter-Group Interest in the TCI Ventures Group .............. [66]
Dividend Policy ........................................................ [68]
Stock Transfer Agent and Registrar ..................................... [69]
Inclusion in Nasdaq National Market .................................... [69]
Certain Federal Income Tax Considerations ............................. [69]
Existing Capital Stock ................................................. [72]
Anti-Takeover Considerations ........................................... [73]
PROPOSAL NO. 3 - LIBERTY MEDIA GROUP AMENDMENT ............................ [75]
General ................................................................ [75]
Redemption for Stock of Subsidiary ..................................... [75]
Recommendations of the Board of Directors .............................. [76]
PROPOSAL OF STOCKHOLDER ................................................... [76]
Proposal No. 4 ............................................................ [76]
Board of Directors Statement on Proposal No. 4 ......................... [77]
Recommendation of the Board of Directors ............................... [77]
CONCERNING MANAGEMENT ..................................................... [77]
</TABLE>
<PAGE> 7
<TABLE>
<S> <C>
Executive Officers ..................................................... [77]
Executive Compensation ................................................. [79]
Compensation Committee Interlocks and Insider Participation in
Compensation Decisions .............................................. [91]
Stock Performance Graphs ............................................... [94]
Compensation of Directors .............................................. [95]
Board Meetings ......................................................... [95]
Committees of the Board of Directors ................................... [95]
Certain Relationships and Related Transactions ......................... [96]
INDEPENDENT AUDITORS ...................................................... [104]
INCORPORATION BY REFERENCE ................................................ [104]
AVAILABLE INFORMATION ..................................................... [104]
STOCKHOLDERS PROPOSALS .................................................... [105]
ANNEX I--Index of Certain Defined Terms ................................... I-1
ANNEX II-A--Proposed Amendments to the Restated Certificate of
Incorporation (Implementing the TCI Ventures Group Stock
Proposal) ................................................... II-A-1
ANNEX II-B--Proposed Amendments to the Restated Certificate of
Incorporation (Implementing the Liberty Media Group Amendment
Proposal) ................................................... II-B-1
ANNEX III--Description of TCI Ventures Group .............................. III-1
ANNEX IV--Illustration of Certain Terms ................................... IV-1
ANNEX V--Financial Information ............................................ V-1
Index .................................................................. V-1
Selected Historical and Pro Forma Financial Data ....................... V-3
Condensed Pro Forma Combined Financial Statements ...................... V-7
Tele-Communications, Inc. and Subsidiaries ............................. V-29
TCI Ventures Group ..................................................... V-123
</TABLE>
<PAGE> 8
TELE-COMMUNICATIONS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON _____________ ___, 1997
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders
(including any adjournment or postponement thereof, the "Annual Meeting") of
Tele-Communications, Inc., a Delaware corporation (the "Company"), will be held
at ______________, ____________ , _________, Colorado, starting at 10:00 a.m.,
local time, on _______ __, 1997, for the following purposes:
1. To elect three directors of the Company to hold
office until the 2000 annual meeting of stockholders or until their
successors are elected and qualified ("Election of Directors
Proposal").
2. To consider and vote upon a proposal ("TCI Ventures
Group Stock Proposal") to adopt an amendment to the Company's Restated
Certificate of Incorporation which would (a) redesignate the Tele-
Communications, Inc. Series A Telephony Group Common Stock and the
Tele-Communications, Inc. Series B Telephony Group Common Stock
(collectively, the "Telephony Group Common Stock"), as
Tele-Communications, Inc. Series A TCI Ventures Group Common Stock and
Tele-Communications, Inc. Series B TCI Ventures Group Common Stock,
respectively (collectively, the "TCI Ventures Group Common Stock"),
(b) change the name of the Telephony Group to the TCI Ventures Group
and redefine the assets and liabilities attributed to such Group, (c)
make corresponding changes to the terms of the Tele-Communications,
Inc. Series A TCI Group Common Stock (the "Series A TCI Group Common
Stock"), the Tele-Communications, Inc. Series B TCI Group Common Stock
(the "Series B TCI Group Common Stock" and, together with the Series A
TCI Group Common Stock, the "TCI Group Common Stock"), the
Tele-Communications, Inc. Series A Liberty Media Group Common Stock
(the "Series A Liberty Media Group Common Stock") and the
Tele-Communications, Inc. Series B Liberty Media Group Common Stock
(the "Series B Liberty Media Group Common Stock" and, together with
the Series A Liberty Media Group Common Stock, the "Liberty Media
Group Common Stock"), to reflect the redesignation of the Telephony
Group Common Stock as TCI Ventures Group Common Stock, and (d) provide
for the reservation of shares of Series A TCI Ventures Group Common
Stock for issuance upon exchange of certain convertible notes.
3. To consider and vote upon a proposal ("Liberty Media
Group Amendment Proposal") to adopt an amendment to the Company's
Restated Certificate of Incorporation which would expand the Company's
right to redeem the Liberty Media Group Common Stock for stock of a
subsidiary that holds, directly or indirectly, all the assets and
liabilities of the Liberty Media Group, by permitting redemption for
the stock of a less than wholly owned subsidiary of the Company if the
Company's ownership of and voting interest in such subsidiary is
sufficient to satisfy the requirements of the Internal Revenue Service
for a distribution of the Company's interest in such subsidiary to the
holders of Liberty Media Group Common Stock to be tax free to such
holders.
4. To consider and act upon a proposal of two
stockholders of the Company, if such proposal is brought before the
Annual Meeting, requesting the elimination of election of directors by
classes ("Proposal No. 4"). The proposal is set forth on pages 76 to
77 of the Proxy Statement.
5. To transact such other business as may properly come
before the Annual Meeting.
Holders of record of (i) Series A TCI Group Common Stock, (ii) Series
B TCI Group Common Stock, (iii) Series A Liberty Media Group Common Stock, (iv)
Series B Liberty Media Group Common Stock, (v) Class B 6% Cumulative Redeemable
Exchangeable Junior Preferred Stock (the "Class B Preferred Stock"), (vi)
Convertible Preferred Stock, Series C (the "Series C Preferred Stock"), (vii)
Redeemable Convertible TCI Group Preferred Stock, Series G (the "Series G
Preferred Stock"), and (viii) Redeemable Convertible Liberty Media Group
Preferred Stock, Series H (the "Series H Preferred Stock"), at the close of
business on _____________, 1997, the record date for the Annual Meeting, will
be entitled to notice of the Annual Meeting. Holders of record of the
foregoing securities at the close of business on the record date will be
entitled to vote together as a single class on the Election of Directors
Proposal.
Holders of record of the Series A TCI Group Common Stock, Series B TCI
Group Common Stock, Series A Liberty Media Group Common Stock, Series B Liberty
Media Group Common Stock and Series C Preferred Stock at the close of business
on the record date will be entitled to vote together as a single class on the
TCI Ventures Group Stock Proposal, the Liberty Media Group Amendment Proposal
and Proposal No. 4. In addition, holders of record of
-i-
<PAGE> 9
the Series A Liberty Media Group Common Stock and Series B Liberty Media Group
Common Stock will be entitled to vote as a separate class on the Liberty Media
Group Amendment Proposal. Accordingly, the vote of a holder of record on the
record date of shares of Liberty Media Group Common Stock with respect to the
Liberty Media Group Amendment Proposal will count for both the single class
vote of the TCI Group Common Stock, Liberty Media Group Common Stock and Series
C Preferred Stock, and for the separate class vote of the Liberty Media Group
Common Stock with respect to such proposal. The vote with respect to the
Liberty Media Group Amendment Proposal of a holder of record on the record date
of shares of TCI Group Common Stock or Series C Preferred Stock will only count
for the single class vote with respect to such proposal.
Each holder of record as of the record date of (i) shares of Series A
TCI Group Common Stock, Series A Liberty Media Group Common Stock, Class B
Preferred Stock , Series G Preferred Stock and Series H Preferred Stock is
entitled to cast one vote per share of such class or series held, (ii) the
Series B TCI Group Common Stock and the Series B Liberty Media Group Common
Stock is entitled to cast ten votes per share of such series held, and (iii)
the Series C Preferred Stock is entitled to cast 153 votes per share of such
series held, on each matter on which holders of shares of such class or series
are entitled to vote at the Annual Meeting. In the single class vote, the
affirmative vote (in person or by proxy) of (x) a plurality of the votes of the
shares of Series A TCI Group Common Stock, Series B TCI Group Common Stock,
Series A Liberty Media Group Common Stock, Series B Liberty Media Group Common
Stock, Class B Preferred Stock, Series C Preferred Stock, Series G Preferred
Stock and Series H Preferred Stock entitled to vote is required to approve the
Election of Directors Proposal, (y) at least 66 2/3% of the combined voting
power of the shares of TCI Group Common Stock, Liberty Media Group Common Stock
and Series C Preferred Stock outstanding on the record date is required to
approve the TCI Ventures Group Stock Proposal and the Liberty Media Group
Amendment Proposal, and (z) a majority of the combined voting power of the
shares of TCI Group Common Stock, Liberty Media Group Common Stock and Series C
Preferred Stock, represented in person or by proxy and entitled to vote at the
Annual Meeting is required to approve Proposal No. 4. In the separate class
vote, the affirmative vote (in person or by proxy) of a majority of the
combined voting power of the shares of Liberty Media Group Common Stock
outstanding on the record date is required to approve the Liberty Media Group
Amendment Proposal.
To assure that your interests will be represented at the Annual
Meeting, regardless of whether you plan to attend in person, please complete,
date and sign the enclosed proxy card and return it promptly in the enclosed
return envelope, which requires no postage if mailed in the United States.
This action will not limit your right to vote in person if you wish to attend
the Annual Meeting and vote personally.
By Order of the Board of Directors
Stephen M. Brett
Secretary
Englewood, Colorado
, 1997
PLEASE EXECUTE AND RETURN THE ENCLOSED PROXY PROMPTLY, WHETHER OR NOT YOU
INTEND TO BE PRESENT AT THE ANNUAL MEETING.
-ii-
<PAGE> 10
TELE-COMMUNICATIONS, INC.
TERRACE TOWER II
5619 DTC PARKWAY
ENGLEWOOD, COLORADO 80111
------------------------------
PROXY STATEMENT
------------------------------
FOR ANNUAL MEETING OF STOCKHOLDERS
This Proxy Statement is being furnished in connection with the
solicitation by the Board of Directors of Tele-Communications, Inc., a
Delaware corporation (the "Company" or "TCI") of proxies for use at the annual
meeting of the stockholders of the Company, or at any adjournment or
postponement thereof (the "Annual Meeting"), for the purposes set forth in the
accompanying Notice of Meeting. Proxies are being solicited from the holders
of the following securities of the Company: (i) Tele-Communications, Inc.
Series A TCI Group Common Stock (the "Series A TCI Group Common Stock"), (ii)
Tele-Communications, Inc. Series B TCI Group Common Stock (the "Series B TCI
Group Common Stock" and, together with the Series A TCI Group Common Stock, the
"TCI Group Common Stock"), (iii) Tele-Communications, Inc. Series A Liberty
Media Group Common Stock (the "Series A Liberty Media Group Common Stocks"),
(iv) Tele-Communications, Inc. Series B Liberty Media Group Common Stock (the
"Series B Liberty Media Group Common Stock" and, together with the Series A
Liberty Media Group Common Stock, the "Liberty Media Group Common Stock"), (v)
Class B 6% Cumulative Redeemable Exchangeable Junior Preferred Stock (the
"Class B Preferred Stock"), (vi) Convertible Preferred Stock, Series C (the
"Series C Preferred Stock"), (vii) Redeemable Convertible TCI Group Preferred
Stock, Series G (the "Series G Preferred Stock"), and (viii) Redeemable
Convertible Liberty Media Group Preferred Stock, Series H (the "Series H
Preferred Stock").
THE ANNUAL MEETING
TIME AND PLACE; PURPOSES
The Annual Meeting will be held at ___________, ___________,
___________, Colorado, on __________, __________ __, 1997, starting at 10:00
a.m. local time. At the Annual Meeting, the stockholders of the Company will
be asked to consider and vote upon proposals (i) to elect three directors of
the Company to hold office until the annual meeting of stockholders in the year
2000 or until their successors are elected and qualified ("Election of
Directors Proposal"); (ii) to adopt an amendment to the Company's Restated
Certificate of Incorporation (as heretofore amended the "Company Charter")
which would (a) change the designation of the series of the Company's Common
Stock, par value $1.00 per share (the "Common Stock"), which had been
designated as Tele-Communications, Inc. Series A Telephony Group Common Stock
and the Tele-Communications, Inc. Series B Telephony Group Common Stock
(collectively, the "Telephony Group Common Stock"), to Tele-Communications,
Inc. Series A TCI Ventures Group Common Stock and Tele-Communications, Inc.
Series B TCI Ventures Group Common Stock, respectively (collectively, the "TCI
Ventures Group Common Stock"), (b) change the name of the Telephony Group to
the TCI Ventures Group and redefine the assets and liabilities attributed to
such Group, (c) make corresponding changes to the terms of the Series A TCI
Group Common Stock, the Series B TCI Group Common Stock, the Series A Liberty
Media Group Common Stock, and the Series B Liberty Media Group Common Stock to
reflect the redesignation of the Telephony Group Common Stock as TCI Ventures
Group Common Stock, and (d) provide for the reservation of shares of Series A
TCI Ventures Group Common Stock for issuance upon exchange of certain
convertible notes (the "TCI Ventures Group Stock Proposal"); (iii) to adopt an
amendment to the Company Charter which would expand the Company's right to
redeem the Liberty Media Group Common Stock for stock of a subsidiary that
holds, directly or indirectly, all the assets and liabilities of the Liberty
Media Group, by permitting redemption for the stock of a less than wholly owned
subsidiary of the Company if the Company's ownership of and voting interest in
such subsidiary is sufficient to satisfy the requirements of the Internal
Revenue Service for a distribution of the Company's interest in such subsidiary
to the holders of Liberty Media Group Common Stock to be tax free to such
holders (the "Liberty Media Group Amendment Proposal"); (iv) to consider and
act upon a proposal of two stockholders of the Company, if such
<PAGE> 11
proposal is brought before the Annual Meeting, requesting the elimination of
election of directors by classes ("Proposal No. 4"); and (v) to transact such
other business as may properly come before the Annual Meeting.
This Proxy Statement and the accompanying form of proxy are first
being mailed to the stockholders of the Company on or about
___________________, 1997.
VOTING RIGHTS; VOTES REQUIRED FOR APPROVAL
The Board of Directors has fixed the close of business on ___________
___, 1997 (the "Record Date") as the date for the determination of holders of
shares of TCI Group Common Stock, Liberty Media Group Common Stock, Class B
Preferred Stock, Series C Preferred Stock, Series G Preferred Stock and Series
H Preferred Stock entitled to notice of and to vote at the Annual Meeting.
Only holders of record of such shares at the close of business on the Record
Date are entitled to notice of and to vote at the Annual Meeting.
Holders of record of TCI Group Common Stock, Liberty Media Group
Common Stock, Class B Preferred Stock, Series C Preferred Stock, Series G
Preferred Stock and Series H Preferred Stock at the close of business on the
Record Date will be entitled to vote together as a single class on the Election
of Directors Proposal.
Holders of record of TCI Group Common Stock, Liberty Media Group
Common Stock and Series C Preferred Stock at the close of business on the
Record Date will be entitled to vote together as a single class on the TCI
Ventures Group Stock Proposal, the Liberty Media Group Amendment Proposal and
Proposal No. 4. In addition, holders of record of Liberty Media Group Common
Stock will be entitled to vote as a separate class on the Liberty Media Group
Amendment Proposal. Accordingly, if, for example, you were a record holder of
shares of Liberty Media Group Common Stock on the Record Date, your vote of
such shares with respect to the Liberty Media Group Amendment Proposal will
count for both the single class vote of the TCI Group Common Stock, Liberty
Media Group Common Stock and Series C Preferred Stock, and for the separate
class vote of the Liberty Media Group Common Stock. If you were a record
holder of TCI Group Common Stock or Series C Preferred Stock on the Record
Date, your vote of such shares with respect to the Liberty Media Group
Amendment Proposal will only count for the single class vote of the TCI Group
Common Stock, Liberty Media Group Common Stock and Series C Preferred Stock.
At the close of business on the Record Date, there were: (i)
___________ shares of Series A TCI Group Common Stock outstanding and entitled
to vote at the Annual Meeting, (ii) _________ shares of Series B TCI Group
Common Stock outstanding and entitled to vote at the Annual Meeting, (iii)
__________ shares of Series A Liberty Media Group Common Stock outstanding and
entitled to vote at the Annual Meeting, (iv) _____ shares of Series B Liberty
Media Group Common Stock outstanding and entitled to vote at the Annual
Meeting, (v) _____ shares of Class B Preferred Stock outstanding and entitled
to vote at the Annual Meeting, (vi) __________ shares of Series C Preferred
Stock outstanding and entitled to vote at the Annual Meeting, (viii) ____
shares of Series G Preferred Stock outstanding and entitled to vote at the
Annual Meeting, and (viii) ____ shares of Series H Preferred Stock outstanding
and entitled to vote at the Annual Meeting. Each holder of record as of the
Record Date of: (i) Series A TCI Group Common Stock, Series A Liberty Media
Group Common Stock, Class B Preferred Stock, Series G Preferred Stock and
Series H Preferred Stock is entitled to cast one vote per share of such series
held, (ii) Series B TCI Group Common Stock and Series B Liberty Media Group
Common Stock is entitled to cast ten votes per share of such series held, and
(iii) Series C Preferred Stock is entitled to cast 153 votes per share of such
series held, on each matter on which holders of shares of such class or series
are entitled to vote at the Annual Meeting.
The presence, in person or by proxy, of the holders of a majority of
the combined voting power of the outstanding shares of TCI Group Common Stock,
Liberty Media Group Common Stock, Class B Preferred Stock, Series C Preferred
Stock, Series G Preferred Stock and Series H Preferred Stock entitled to vote
is necessary to constitute a quorum at the Annual Meeting. The Election of
Directors Proposal must be approved by a plurality of the votes cast at the
Annual Meeting with respect to the shares of Series A TCI Group Common Stock,
Series B TCI Group Common Stock, Series A Liberty Media Group Common Stock,
Series B Liberty Media Group Common Stock, Class B Preferred Stock, Series C
Preferred Stock, Series G Preferred Stock and Series H Preferred Stock, that
are represented in person or by proxy and entitled to vote at the Annual
Meeting. The affirmative vote, in person or by proxy, of holders of record of
at least 66 2/3% of the combined voting power of the shares of TCI Group Common
Stock, Liberty Media Group Common Stock and Series C Preferred Stock
outstanding on the Record Date, voting together as a single class, is required
to approve the TCI Ventures Group Stock Proposal. The affirmative vote, in
person or by proxy, of (i) holders
[2]
<PAGE> 12
of record of at least 66 2/3% of the combined voting power of the shares of TCI
Group Common Stock, Liberty Media Group Common Stock and Series C Preferred
Stock outstanding on the Record Date, voting together as a single class, and
(ii) holders of record of a majority of the combined voting power of the shares
of Liberty Media Group Common Stock outstanding on the Record Date, voting as a
separate class, is required to approve the Liberty Media Group Amendment
Proposal. The affirmative vote, in person or by proxy, of a majority of the
combined voting power of the shares of TCI Group Common Stock, Liberty Media
Group Common Stock and Series C Preferred Stock represented in person or by
proxy and entitled to vote at the Annual Meeting, voting as a single class, is
required to approve Proposal No. 4.
The shares of TCI Group Common Stock outstanding on the Record Date
represented an aggregate of _____ votes; the shares of Liberty Media Group
Common Stock outstanding on the Record Date represented an aggregate of _____
votes; the shares of Class B Preferred Stock outstanding on the Record Date
represented an aggregate of ____ votes; the shares of Series C Preferred Stock
outstanding on the Record Date represented an aggregate of ____ votes; the
shares of Series G Preferred Stock outstanding on the Record Date represented
an aggregate of ____ votes, and the shares of Series H Preferred Stock
outstanding on the Record Date represented an aggregate of _____ votes. For a
quorum, shares representing ____ votes in the aggregate will be required to be
present at the meeting in person or by proxy. For the TCI Ventures Group Stock
Proposal to be approved, the Company needs ____ affirmative votes in the
aggregate by holders of shares of TCI Group Common Stock, Liberty Media Group
Common Stock and Series C Preferred Stock entitled to vote (voting together).
For the Liberty Media Group Amendment Proposal to be approved, the Company
needs (i) _____ affirmative votes in the aggregate by holders of shares of TCI
Group Common Stock, Liberty Media Group Common Stock and Series C Preferred
Stock entitled to vote (voting together) and (ii) _______ affirmative votes by
the holders of shares of Liberty Media Group Common Stock entitled to vote.
PROXIES
All shares of TCI Group Common Stock, Liberty Media Group Common
Stock, Class B Preferred Stock, Series C Preferred Stock, Series G Preferred
Stock and Series H Preferred Stock represented by properly executed proxies
received prior to or at the Annual Meeting, and not revoked, will be voted in
accordance with the instructions indicated in such proxies. If no instructions
are indicated, such proxies will be voted FOR the Election of Directors
Proposal, FOR the TCI Ventures Group Stock Proposal and FOR the Liberty Media
Group Amendment Proposal. If, with respect to Proposal No. 4, no instructions
are indicated, such proxies will be voted AGAINST Proposal No. 4 if presented
at the Annual Meeting. So far as the Company's Board of Directors is aware,
the foregoing proposals and Proposal No. 4 are the only matters to be acted
upon at the Annual Meeting. As to any other matter which may properly come
before the Annual Meeting, the persons named in the accompanying proxy card
will vote thereon in accordance with their best judgment. A properly executed
proxy marked "ABSTAIN," although counted for purposes of determining whether
there is a quorum and for purposes of determining the aggregate voting power
and number of shares represented and entitled to vote at the Annual Meeting,
will not be voted and, therefore, except with respect to the Election of
Directors Proposal, will have the same effect as a vote cast against the matter
to which such instruction is indicated. Shares represented by "broker non-
votes" (i.e., shares held by brokers or nominees which are represented at a
meeting but with respect to which the broker or nominee is not empowered to
vote on a particular proposal) will also be counted for purposes of determining
whether there is a quorum at the Annual Meeting but will be deemed shares not
entitled to vote and will not be included for purposes of determining the
aggregate voting power and number of shares represented and entitled to vote on
a particular matter. Such shares will however be counted for purposes of
determining the combined voting power of the shares of TCI Group Common Stock,
Liberty Media Group Common Stock and Series C Preferred Stock outstanding on
the Record Date and, accordingly, will have the same effect as a vote cast
against the TCI Ventures Group Stock Proposal and the Liberty Media Group
Amendment Proposal.
A stockholder may revoke his or her proxy at any time prior to its use
by delivering to the Secretary of the Company a signed notice of revocation or
a later dated signed proxy or by attending the Annual Meeting and voting in
person. Attendance at the Annual Meeting will not in itself constitute the
revocation of a proxy.
The cost of solicitation of proxies will be paid by the Company. In
addition to solicitation by mail, officers and regular employees of the Company
may solicit proxies by telephone, telegram, in person or by other means. Such
persons will receive no additional compensation for such services. Brokerage
houses, nominees, fiduciaries and other custodians will be requested to forward
soliciting material to the beneficial owners of shares held of record by them
and will be reimbursed for their reasonable out-of-pocket expenses in
connection therewith.
[3]
<PAGE> 13
NO APPRAISAL RIGHTS
Under applicable Delaware law, holders of the TCI Group Common Stock,
the Liberty Media Group Common Stock and the Series C Preferred Stock do not
have appraisal rights in connection with the TCI Ventures Group Stock Proposal
or the Liberty Media Group Amendment Proposal.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of March 1, 1997, information with
respect to the ownership of Series A TCI Group Common Stock, Series B TCI Group
Common Stock, Series A Liberty Media Group Common Stock, Series B Liberty Media
Group Common Stock, Class B Preferred Stock, Series C Preferred Stock, Series G
Preferred Stock and Series H Preferred Stock, by each person known to the
Company to own beneficially more than 5% of any such class or series
outstanding on that date. Shares issuable upon exercise of options or
conversion or exchange of convertible or exchangeable securities are deemed to
be outstanding for the purpose of computing the percentage of ownership and
overall voting power of persons beneficially owning such options or convertible
securities, but have not been deemed to be outstanding for the purpose of
computing the percentage ownership or overall voting power of any other person.
Voting power in the table is computed with respect to a general election of
directors and, therefore, the Class B Preferred Stock, the Series G Preferred
Stock and the Series H Preferred Stock are included in the calculation
notwithstanding the fact that the Class B Preferred Stock, the Series G
Preferred Stock and the Series H Preferred Stock do not generally vote with
respect to matters submitted to a vote of stockholders. The number of shares
indicated as owned by John C. Malone, Chairman of the Board and Chief
Executive Officer of the Company, include interests in shares held by the
trustee of TCI's Employee Stock Purchase Plan ("ESPP"). So far as is known to
TCI, the persons indicated below have sole voting and investment power with
respect to the shares indicated as owned by them except as otherwise stated in
the notes to the table and except for the shares held by the trustee of the
ESPP for the benefit of Dr. Malone, which shares are voted at the discretion of
the trustee.
<TABLE>
<CAPTION>
Amount
and
Nature of
Name and Address Beneficial Percent of Voting
Title of Class of Beneficial Owner Ownership Class (1) Power (1)
-------------- ------------------- --------- ----------- ---------
<S> <C> <C> <C> <C>
TCI Group Common Stock Donne F. Fisher,
Series A Director, individually 4,110,681(2) (3) * 20.8%
and as personal co-
Series B representative 31,034,936(2) 36.7%
of the Estate of Bob
Magness
5619 DTC Parkway
Liberty Media Group Englewood, Colorado
Common Stock
Series A 5,423,725(2)(3) 2.4%
Series B 7,758,734(2) 36.6%
Preferred Stock
Class B 129,299(2) 8.0%
Series C --- ---
Series G --- ---
Series H --- ---
TCI Group Common Stock Daniel Ritchie, as
Series A personal 3,524,315(2) * 20.6%
co-representative of the
Series B Estate of Bob Magness 30,785,864(2) 36.4%
2199 South University
Denver, Colorado
</TABLE>
[4]
<PAGE> 14
<TABLE>
<CAPTION>
Amount
and
Nature of
Name and Address Beneficial Percent of Voting
Title of Class of Beneficial Owner Ownership Class (1) Power (1)
-------------- ------------------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Liberty Media Group
Common Stock
Series A 5,169,304(2) 2.3%
Series B 7,696,466(2) 36.3%
Preferred Stock
Class B 125,000(2) 7.7%
Series C --- ---
Series G --- ---
Series H --- ---
TCI Group Common Stock John C. Malone,
Series A Chief Executive Officer 2,173,166(4) * 16.9%
Series B and Chairman of the Board 25,287,083(5)(6) 29.9%
5619 DTC Parkway
Liberty Media Group Englewood, Colorado
Common Stock
Series A 3,929,331(4)(5) 1.7%
Series B 6,349,270(5)(6) 30.0%
Preferred Stock
Class B 306,000(5) 18.9%
Series C --- ---
Series G --- ---
Series H --- ---
TCI Group Common Stock Kearns-Tribune
Series A Corporation 8,792,514(6) 1.5% 6.7%
400 Tribune Building
Series B Salt Lake City, Utah 9,112,500(6) 10.8%
Liberty Media Group
Common Stock
Series A 4,436,254(6) 1.9%
Series B 2,278,125(6) 10.8%
Preferred Stock
Class B 67,536 4.2%
Series C --- ---
Series G --- ---
Series H --- ---
TCI Group Common Stock Kim Magness,
Series A Director, individually 2,155,332(7)(8) * 4.7%
and as personal
representative of
Series B the Estate of Betsy 6,864,212(7) 8.1%
Magness
5619 DTC Parkway
Englewood, Colorado
</TABLE>
[5]
<PAGE> 15
<TABLE>
<CAPTION>
Amount
and
Nature of
Name and Address Beneficial Percent of Voting
Title of Class of Beneficial Owner Ownership Class (1) Power (1)
-------------- ------------------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Liberty Media Group
Common Stock
Series A 1,666,275(7)(8) *
Series B 1,716,053(7) 8.1%
Preferred Stock
Class B --- ---
Series C --- ---
Series G --- ---
Series H --- ---
TCI Group Common Stock The Associated Group,
Series A Inc. 12,479,976(9) 2.1% 5.8%
Series B 200 Gateway Towers 7,071,852(9) 8.4%
Pittsburgh, Pennsylvania
Liberty Media Group
Common Stock
Series A 9,102,436(9) 4.0%
Series B 1,767,963(9) 8.3%
Preferred Stock
Class B --- ---
Series C --- ---
Series G --- ---
Series H --- ---
TCI Group Common Stock The Equitable Companies
Series A Incorporated 32,824,784(10) 5.5% 2.9%
Series B 787 Seventh Avenue --- ---
New York, New York; and
Liberty Media Group The Mutuelles AXA and
Common Stock AXA 101-100 Terrasse
Series A Boieldieu 92042 23,303,041(11) 10.2%
Series B Paris La Defense France --- ---
Preferred Stock
Class B --- ---
Series C --- ---
Series G --- ---
Series H --- ---
</TABLE>
[6]
<PAGE> 16
<TABLE>
<CAPTION>
Amount
and
Nature of
Name and Address Beneficial Percent of Voting
Title of Class of Beneficial Owner Ownership Class (1) Power (1)
-------------- ------------------- --------- ----------- ---------
<S> <C> <C> <C> <C>
TCI Group Common Stock The Capital Group
Series A Companies, Inc. 34,799,410(12) 5.8% 3.3%
Series B 333 South Hope Street --- ---
Los Angeles, California
Liberty Media Group
Common Stock
Series A 28,902,435(13) 12.6%
Series B --- ---
Preferred Stock
Class B --- ---
Series C --- ---
Series G --- ---
Series H --- ---
TCI Group Common Stock J.P. Morgan & Co.
Series A Incorporated 43,044,027(14) 7.2% 2.3%
Series B 60 Wall Street --- ---
New York, New York
Liberty Media Group
Common Stock
Series A --- ---
Series B --- ---
Preferred Stock
Class B --- ---
Series C --- ---
Series G --- ---
Series H --- ---
TCI Group Common Stock Oppenheimer Capital
Series A 200 Liberty Street 41,545,872(15) 7.0% 2.2%
Series B New York, New York --- ---
Liberty Media Group
Common Stock
Series A --- ---
Series B --- ---
Preferred Stock
Class B --- ---
Series C --- ---
Series G --- ---
Series H --- ---
</TABLE>
[7]
<PAGE> 17
<TABLE>
<CAPTION>
Amount
and
Nature of
Name and Address Beneficial Percent of Voting
Title of Class of Beneficial Owner Ownership Class (1) Power (1)
-------------- ------------------- --------- ----------- ---------
<S> <C> <C> <C> <C>
TCI Group Common Stock Bill Daniels
Series A c/o Daniels & Associates 259(16) * *
Series B 3200 Cherry Creek --- ---
Drive South
Denver, Colorado
Liberty Media Group
Common Stock
Series A 96(16) *
Series B --- ---
Preferred Stock
Class B --- ---
Series C 70,575 100.0%
Series G --- ---
Series H --- ---
TCI Group Common Stock Lawrence Flinn Jr.
Series A 209 Taconic Road 1,102,344(16) * *
Series B Greenwich, Connecticut 24,000(16) *
Liberty Media Group
Common Stock
Series A 416,416(16) *
Series B 6,000(16)
Preferred Stock
Class B --- ---
Series C --- ---
Series G 6,186,647(16) 92.4%
Series H 6,186,647(16) 92.4%
</TABLE>
- - ----------------------
* Less than one percent
(1) Based on 598,055,198 shares of Series A TCI Group Common Stock (after
elimination of shares held by subsidiaries of the Company), 84,647,065
shares of Series B TCI Group Common Stock, 228,721,426 shares of
Series A Liberty Media Group Common Stock, 21,187,969 shares of Series
B Liberty Media Group Common Stock, 1,620,026 shares of Class B
Preferred Stock (after elimination of shares held by subsidiaries of
TCI), 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 March 1, 1997.
(2) Messrs. Fisher and Ritchie, as co-personal representatives of the
Estate of Bob Magness, are each deemed to be the beneficial owner of
all shares of Series A TCI Group Common Stock, Series B TCI Group
Common Stock, Series A Liberty Media Group Common Stock, Series B
Liberty Media Group Common Stock and Class B Preferred Stock held of
record by the Estate of Bob Magness. The number of shares held by
Messrs. Fisher
[8]
<PAGE> 18
and Ritchie each includes 1,524,315 shares of Series A TCI Group
Common Stock, 30,785,864 shares of Series B TCI Group Common Stock,
4,419,304 shares of Series A Liberty Media Group Common Stock,
7,696,466 shares of Series B Liberty Media Group Common Stock and
125,000 shares of Class B Preferred Stock of which Mr. Fisher and Mr.
Ritchie are each deemed to be the beneficial owner as co-personal
representative. Additionally, the number of shares in the table
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 Series A
TCI Group Common Stock and 375,000 shares of Series A Liberty Media
Group Common Stock, and 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 TCI Group Common Stock and 375,000 shares of Series
A Liberty Media Group Common Stock. All such options are currently
exercisable and may be exercised at any time on or prior to
November 15, 1997.
(3) 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 Series A TCI Group Common Stock and 75,000 shares of
Series A Liberty Media Group Common Stock. Options to acquire 80,000
shares of Series A TCI Group Common Stock and 30,000 shares of Series
A Liberty Media Group Common Stock are currently exercisable.
Additionally assumes the exercise in full of options granted to Mr.
Fisher in January 1996, pursuant to the Company's Director Stock
Option Plan, to acquire 50,000 shares of Series A TCI Group Common
Stock and 18,750 shares of Series A Liberty Media Group Common Stock.
Options to acquire 10,000 shares of Series A TCI Group Common Stock
and 3,750 shares of Series A Liberty Media Group Common Stock are
currently exercisable.
(4) 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 Series A TCI Group Common Stock and 375,000 shares of Series
A Liberty Media Group Common Stock. Options to acquire 800,000 and
300,000 shares of Series A TCI Group Common Stock and Series A Liberty
Media Group Common 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 Series A TCI Group Common Stock and 375,000 shares
of Series A Liberty Media Group Common Stock. Options to acquire
200,000 shares of Series A TCI Group Common Stock and 75,000 shares of
Series A Liberty Media Group Common Stock are currently exercisable.
(5) Includes 1,173,000 shares of Series B TCI Group Common Stock, 146,625
shares of Series A Liberty Media Group Common Stock, 293,250 shares of
Series B Liberty Media Group Common Stock and 6,900 shares of Class B
Preferred Stock held by Dr. Malone's wife, Mrs. Leslie Malone, but Dr.
Malone has disclaimed any beneficial ownership of such shares.
(6) Pursuant to a letter agreement, dated June 17, 1988, the late Mr. Bob
Magness and Kearns-Tribune Corporation ("Kearns") each agreed with Dr.
Malone that prior to making a disposition of a significant portion of
their respective holdings of Series B TCI Group Common Stock or Series
B Liberty Media Group Common Stock, he or it would first offer Dr.
Malone the opportunity to purchase such shares. On April 18, 1997,
Kearns entered into a merger agreement with the Company, pursuant to
which the Company will acquire all of the outstanding capital stock of
Kearns for aggregate consideration of $226 million plus the aggregate
volume of shares of TCI Group Common Stock and Liberty Media Group
Common Stock owned by Kearns, determined on the basis of the average
trading price of such shares during a specified period prior to
closing of the transaction. Pursuant to his agreement with Kearns,
Dr. Malone will be provided the opportunity to acquire the Series B
Liberty Media Group Common Stock owned by Kearns prior to the
consummation of the transactions contemplated by the merger agreement.
To effect such acquisition, Dr. Malone may elect to exchange shares of
Series A TCI Group Common Stock and Series A Liberty Media Group
Common Stock owned by him for any or all of the shares of Series B TCI
Group Common Stock and Series B Liberty Media Group Common Stock,
respectively, owned by Kearns, on a one-for-one basis.
(7) Mr. Kim Magness, as personal representative of the Estate of Betsy
Magness, is the beneficial owner of all shares of Series A TCI Group
Common Stock, Series B TCI Group Common Stock, Series A Liberty Media
Group Common Stock and Series B Liberty Media Group Common Stock held
of record by the Estate of Betsy Magness. The number of shares held
by Mr. Kim Magness includes 2,105,332 shares of Series A TCI Group
Common Stock, 6,346,212 shares of Series B TCI Group Common Stock,
1,582,775 shares of Series A Liberty
[9]
<PAGE> 19
Media Group Common Stock and 1,586,553 shares of Series B Liberty
Media Group Common Stock of which Mr. Magness is beneficial owner as
personal representative.
(8) Assumes the exercise in full of options granted to Mr. Kim Magness in
November of 1994, pursuant to the Company's Director Stock Option
Plan, to acquire 50,000 shares of Series A TCI Group Common Stock and
18,750 shares of Series A Liberty Media Group Common Stock. Options
to acquire 20,000 shares of Series A TCI Group Common Stock and 7,500
shares of Series A Liberty Media Group Common Stock are currently
exercisable.
(9) The number of shares of Series B TCI Group Common Stock and Series B
Liberty Media Group Common Stock in the table is based upon Amendment
No.2 of Schedule 13D, dated May 24, 1996. Such Schedule 13D reflects
that said corporation has shared voting power over such shares. The
number of shares of Series A TCI Group Common Stock and Series A
Liberty Media Group Common stock (as adjusted to reflect the Liberty
Group Stock Dividend) in the table is based upon disclosure made by
The Associated Group, Inc. to the Company.
(10) The number of shares in the table is based upon a Schedule 13G, dated
February 12, 1997, filed by The Equitable Companies Incorporated,
which Schedule 13G reflects that said corporation has sole voting
power over 27,983,325 shares and shared voting power over 986,125
shares of Series A TCI Group Common Stock. No information is given
with respect to voting power over the remaining shares.
(11) The number of shares in the table is based upon a Schedule 13G, dated
February 12, 1997, filed by the Equitable Companies Incorporated, as
adjusted to reflect the stock dividend effective January 14, 1997 of
one share of Series A Liberty Media Group Common Stock for every two
shares of Series A Liberty Media Group Common Stock , and one share of
Series B Liberty Media Group Common Stock for every two shares of
Series B Liberty Media Group Common Stock (the "Liberty Group Stock
Dividend") then owned by holders of Liberty Media Group Common Stock.
The Schedule 13G reflects that such corporation has sole voting power
over 17,960,232 shares and shared voting power over 515,709 shares of
Series A Liberty Media Group Common Stock, each as adjusted for the
Liberty Group Stock Dividend. No information is given with respect to
voting power over the remaining shares.
(12) The number of shares in the table is based upon a Schedule 13G, dated
February 14, 1997, filed by The Capital Group Companies, Inc. The
Capital Group Companies, Inc. is the parent holding company of a group
of investment management companies that hold investment power and, in
some cases, voting power over the securities reported in the Schedule
13G. The investment management companies, which include a bank and
several investment advisers provide investment advisory and management
services for their respective clients which include registered
investment companies and institutional accounts. The Capital Group
Companies, Inc. does not have investment power or voting power over
any of the securities reported herein; however, The Capital Group
Companies, Inc., may be deemed to beneficially own such securities.
Capital Research and Management Company, an investment adviser and
wholly owned subsidiary of The Capital Group Companies, Inc., is the
beneficial owner of 29,960,700 shares of Series A TCI Group Common
Stock as a result of acting as investment adviser to various
investment companies. The remaining shares reported as being
beneficially owned by The Capital Group Companies, Inc. are
beneficially owned by other subsidiaries of The Capital Group
Companies, Inc., none of which by itself owns 5% or more of the
outstanding securities.
(13) The number of shares in the table is based upon a Schedule 13G, dated
February 14, 1997, filed by The Capital Group Companies, Inc., as
adjusted to reflect the Liberty Group Stock Dividend. For a
description of The Capital Group Companies, Inc., see note 12 above.
Capital Research and Management Company, an investment adviser and
wholly owned subsidiary of The Capital Group Companies, Inc., is the
beneficial owner of 22,612,005 shares of Series A Liberty Media Group
Common Stock as a result of acting as investment adviser to various
investment companies. The remaining shares reported as being
beneficially owned by The Capital Group Companies, Inc. are
beneficially owned by other subsidiaries of The Capital Group
Companies, Inc., none of which by itself owns 5% or more of the
outstanding securities.
(14) The number of shares in the table is based upon a Schedule 13G, dated
as of December 31, 1996, filed by J.P. Morgan & Co. Incorporated
which Schedule 13G reflects that said corporation has sole voting
power over
[10]
<PAGE> 20
28,128,668 shares and shared voting power over 525,866 shares of
Series A TCI Group Common Stock. No information is given with respect
to the voting power over the remaining shares.
(15) Based upon disclosure made by Oppenheimer Capital to the Company.
(16) Based upon the Company's review of the record of shareholders provided
by the Company's transfer agent, The Bank of New York.
[11]
<PAGE> 21
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of March 1, 1997, information with
respect to the ownership of: (i) Series A TCI Group Common Stock, Series B TCI
Group Common Stock, Series A Liberty Media Group Common Stock, Series B Liberty
Media Group Common Stock, Class B Preferred Stock, Series C Preferred Stock,
Series G Preferred Stock and Series H Preferred Stock and (ii) the voting
securities of Tele-Communications International, Inc., a majority owned
subsidiary of the Company ("International"), which consist of
Tele-Communications International, Inc. Series A Common Stock ("TINTA Series A
Stock") and Tele-Communications International, Inc. Series B Common Stock
("TINTA Series B Stock"), by all directors and each of the named executive
officers of TCI and by all executive officers and directors of TCI as a group.
Shares issuable upon exercise of options or conversion or exchange of
convertible or exchangeable securities and upon vesting of 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 shares of Series A TCI Group Common Stock, Series B
TCI Group Common Stock, Series A Liberty Media Group Common Stock and Series B
Liberty Media Group Common Stock in the table include interests of the named
directors or executive officers or of members of the group of directors and
executive officers in shares held by the trustee of TCI's ESPP and shares held
by the trustee of United Artists Entertainment Company's Employee Stock
Ownership Plan for their respective accounts. So far as is known to TCI, the
persons indicated below have sole voting and investment power with respect to
the shares indicated as owned by them except as otherwise stated in the notes
to the table and except for the shares held by the trustee of TCI's ESPP for
the benefit of such person, which shares are voted at the discretion of the
trustee.
<TABLE>
<CAPTION>
Amount
and
Nature of Percent Voting
Name of Beneficial of class Power
Title of Class Beneficial Owner Ownership (1)(2) (1)(2)
-------------- ---------------- --------- ------ ------
<S> <C> <C> <C> <C>
TCI Group Common Stock Donne F. Fisher, individually and as
Series A co-personal representative of the 4,110,681(3) * 20.8%
Series B Estate of Bob Magness 31,034,936(3) 36.7%
Liberty Media Group
Common Stock
Series A 5,423,725(3) 2.4%
Series B 7,758,734(3) 36.6%
Preferred Stock
Class B 129,299(3) 8.0%
Series C --- ---
Series G --- ---
Series H --- ---
TINTA Series A Stock 450,000 * *
TINTA Series B Stock --- ---
TCI Group Common Stock John C. Malone
Series A 2,173,166(4) * 16.9%
Series B 25,287,083(4) 29.9%
Liberty Media Group
Common Stock
Series A 3,929,331(4) 1.7%
</TABLE>
[12]
<PAGE> 22
<TABLE>
<CAPTION>
Amount
and
Nature of Percent Voting
Name of Beneficial of class Power
Title of Class Beneficial Owner Ownership (1)(2) (1)(2)
-------------- ---------------- --------- ------ ------
<S> <C> <C> <C> <C>
Series B 6,349,270(4) 30.0%
Preferred Stock
Class B 306,000(4) 18.9%
Series C --- ---
Series G --- ---
Series H --- ---
TINTA Series A Stock 50,000(13) * *
TINTA Series B Stock --- ---
TCI Group Common Stock Kim Magness, individually and as
Series A personal representative of the 2,155,332(5) * 4.7%
Series B Estate of Betsy Magness 6,864,212(5) 8.1%
Liberty Media Group
Common Stock
Series A 1,666,275(5) *
Series B 1,716,053(5) 8.1%
Preferred Stock
Class B --- ---
Series C --- ---
Series G --- ---
Series H --- --- ---
TINTA Series A Stock 2,000 * *
TINTA Series B Stock --- ---
TCI Group Common Stock John W. Gallivan
Series A 52,124(6)(7) * *
Series B --- ---
Liberty Media Group
Common Stock
Series A 19,546(6)(7) *
Series B --- ---
Preferred Stock
Class B 14(6) *
Series C --- ---
Series G --- ---
Series H --- ---
TINTA Series A Stock --- --- ---
TINTA Series B Stock --- ---
</TABLE>
[13]
<PAGE> 23
<TABLE>
<CAPTION>
Amount
and
Nature of Percent Voting
Name of Beneficial of class Power
Title of Class Beneficial Owner Ownership (1)(2) (1)(2)
-------------- ---------------- --------- ------ ------
<S> <C> <C> <C> <C>
TCI Group Common Stock Jerome H. Kern
Series A 2,050,000(8) * *
Series B --- ---
Liberty Media Group
Common Stock
Series A 768,750(8) *
Series B --- ---
Preferred Stock
Class B --- ---
Series C --- ---
Series G --- ---
Series H --- ---
TINTA Series A Stock 50,000(13) * *
TINTA Series B Stock --- ---
TCI Group Common Stock Tony Coehlo
Series A 152,800(9) * *
Series B --- ---
Liberty Media Group
Common Stock
Series A 19,050(9) *
Series B --- ---
Preferred Stock
Class B --- ---
Series C --- ---
Series G --- ---
Series H --- ---
TINTA Series A Stock 1,000 * *
TINTA Series B Stock --- ---
</TABLE>
[14]
<PAGE> 24
<TABLE>
<CAPTION>
Amount
and
Nature of Percent Voting
Name of Beneficial of class Power
Title of Class Beneficial Owner Ownership (1)(2) (1)(2)
-------------- ---------------- --------- ------ ------
<S> <C> <C> <C> <C>
TCI Group Common Stock Robert A. Naify
Series A 23,688,859(10) 3.8% 1.7%
Series B --- ---
Liberty Media Group
Common Stock
Series A 8,883,287(10) 3.7%
Series B --- ---
Preferred Stock
Class B 1,000 *
Series C --- ---
Series G --- --- ---
Series H --- ---
TINTA Series A Stock --- --- ---
TINTA Series B Stock --- ---
TCI Group Common Stock J.C. Sparkman
Series A 279,472(11) * *
Series B --- ---
Liberty Media Group
Common Stock
Series A 112,001(11) *
Series B --- ---
Preferred Stock
Class B --- ---
Series C --- ---
Series G --- ---
Series H --- ---
TINTA Series A Stock --- --- ---
TINTA Series B Stock --- ---
</TABLE>
[15]
<PAGE> 25
<TABLE>
<CAPTION>
Amount
and
Nature of Percent Voting
Name of Beneficial of class Power
Title of Class Beneficial Owner Ownership (1)(2) (1)(2)
-------------- ---------------- --------- ------ ------
<S> <C> <C> <C> <C>
TCI Group Common Stock Paul A. Gould
Series A 127,330(12) * *
Series B 243,824 *
Liberty Media Group
Common Stock
Series A 102,538(12) *
Series B 39,081 *
Preferred Stock
Class B 19,558 1.2%
Series C --- ---
Series G --- ---
Series H --- ---
TINTA Series A Stock 95,000(13) * *
TINTA Series B Stock --- ---
TCI Group Common Stock Leo J. Hindery, Jr.
Series A 1,000,000(14) * *
Series B --- ---
Liberty Media Group
Common Stock
Series A 250,000(14) *
Series B --- ---
Preferred Stock
Class B --- ---
Series C --- ---
Series G --- ---
Series H --- ---
TINTA Series A Stock 50,000(14) * *
TINTA Series B Stock --- ---
</TABLE>
[16]
<PAGE> 26
<TABLE>
<CAPTION>
Amount
and
Nature of Percent Voting
Name of Beneficial of class Power
Title of Class Beneficial Owner Ownership (1)(2) (1)(2)
-------------- ---------------- --------- ------ ------
<S> <C> <C> <C> <C>
TCI Group Common Stock Fred A. Vierra
Series A 581,474(15) * *
Series B --- ---
Liberty Media Group
Common Stock
Series A 211,889(15) *
Series B --- ---
Preferred Stock
Class B 200 *
Series C --- ---
Series G --- ---
Series H --- ---
TINTA Series A Stock 446,000(16) * *
TINTA Series B Stock --- ---
TCI Group Common Stock Brendan R. Clouston
Series A 1,986,498(17) * *
Series B 230 *
Liberty Media Group
Common Stock
Series A 332,463(17) *
Series B 57 *
Preferred Stock
Class B --- ---
Series C --- ---
Series G --- ---
Series H --- ---
TINTA Series A Stock --- --- ---
TINTA Series B Stock --- ---
TCI Group Common Stock Peter R. Barton
Series A 352,566(18) * *
Series B 42 *
Liberty Media Group
Common Stock
Series A 1,615,221(18)(19) *
Series B 10 *
</TABLE>
[17]
<PAGE> 27
<TABLE>
<CAPTION>
Amount
and
Nature of Percent Voting
Name of Beneficial of class Power
Title of Class Beneficial Owner Ownership (1)(2) (1)(2)
-------------- ---------------- --------- ------ ------
<S> <C> <C> <C> <C>
Preferred Stock
Class B 1,374 *
Series C --- ---
Series G --- ---
Series H --- ---
TINTA Series A Stock 1,000 * *
TINTA Series B Stock --- ---
TCI Group Common Stock Larry E. Romrell
Series A 773,529(20) * *
Series B 588 *
Liberty Media Group
Common Stock
Series A 293,884(20) *
Series B 147 *
Preferred Stock
Class B --- ---
Series C --- ---
Series G --- ---
Series H --- ---
TINTA Series A Stock --- --- ---
TINTA Series B Stock --- ---
TCI Group Common Stock All directors and executive officers
Series A as a group (20 persons) 42,264,117(3)(4)(5)( 6.7% 43.9%
Series B 63,435,631(3)(4)(5) 74.9%
Liberty Media Group
Common Stock
Series A 24,479,261(3)(4)(5)( 10.1%
Series B 15,864,531(3)(4)(5) 74.9%
Preferred Stock
Class B 459,277(3)(4)(6) 28.4%
Series C --- ---
Series G --- ---
Series H --- ---
TINTA Series A Stock 1,252,200(22) 1.2% *
TINTA Series B Stock --- --- ---
</TABLE>
___________________________
* Less than one percent.
[18]
<PAGE> 28
(1) See note 1 to the table in " -- Security Ownership of Certain
Beneficial Owners".
(2) Based on 106,740,873 shares of TINTA Series A Stock and 11,700,000
shares of TINTA Series B Stock outstanding on March 1, 1997.
(3) See notes (2) and (3) to the table in " -- Security Ownership of
Certain Beneficial Owners".
(4) See notes (4) through (6) to the table in " -- Security Ownership of
Certain Beneficial Owners".
(5) See notes (7) and (8) to the table in " -- Security Ownership of
Certain Beneficial Owners".
(6) Includes 1,524 shares of Series A TCI Group Common Stock, 571 shares
of Series A Liberty Media Group Common Stock and 14 shares of Class B
Preferred Stock held by Mr. Gallivan's wife. Also, assumes the
exercise in full of options granted pursuant to TCI's Director Stock
Option Plan, to acquire 50,000 shares of Series A TCI Group Common
Stock and 18,750 shares of Series A Liberty Media Group Common Stock.
Options to acquire 20,000 shares of Series A TCI Group Common Stock
and 7,500 shares of Series A Liberty Media Group Common Stock are
currently exercisable.
(7) The number of shares in the table does not include any shares held by
Kearns, of which Mr. Gallivan is an officer.
(8) Assumes the exercise in full of stock options granted in tandem with
stock appreciation rights to acquire 1,500,000 shares of Series A TCI
Group Common Stock and 562,500 shares of Series A Liberty Media Group
Common Stock. Options to acquire 1,100,000 shares and 412,500 shares
of Series A TCI Group Common Stock and Series A Liberty Media Group
Common Stock, respectively, are currently exercisable and the
remainder vest and become exercisable on November 12, 1997. The
options expire on November 12, 1998. Additionally, assumes the
exercise in full of stock options granted in tandem with stock
appreciation rights to acquire 500,000 shares of Series A TCI Group
Common Stock and 187,500 shares of Series A Liberty Media Group Common
Stock. Options to acquire 100,000 shares of Series A TCI Group Common
Stock and 37,500 shares of Series A Liberty Media Group Common Stock
are currently exercisable. Also assumes the exercise in full of stock
options granted in November 1994, pursuant to TCI's Director Stock
Option Plan, to acquire 50,000 shares of Series A TCI Group Common
Stock and 18,750 shares of Series A Liberty Media Group Common Stock.
Options to acquire 20,000 shares of Series A TCI Group Common Stock
and 7,500 shares of Series A Liberty Media Group Common Stock are
currently exercisable.
(9) Assumes the exercise in full of stock options granted in November
1994, pursuant to the Director Stock Option Plan, to acquire 50,000
shares of Series A TCI Group Common Stock and 18,750 shares of Series
A Liberty Media Group Common Stock. Options to acquire 20,000 shares
of Series A TCI Group Common Stock and 7,500 shares of Series A
Liberty Media Group Common Stock are currently exercisable.
Additionally, assumes the exercise in full of stock options granted in
tandem with stock appreciation rights to acquire 100,000 shares of
Series A TCI Group Common Stock. Options to acquire 20,000 shares of
Series A TCI Group Common Stock are currently exercisable.
(10) Mr. Robert Naify received notes, which are currently convertible into
22,446,926 shares of Series A TCI Group Common Stock and 8,417,597
shares of Series A Liberty Media Group Common Stock, as partial
consideration for the sale to TCI of the stock owned by him in United
Artists Communications, Inc. Mr. Naify is also a co-trustee, along
with Mr. Naify's brother, Marshall, and their sister, of a trust for
the benefit of Marshall which holds additional notes convertible into
341,606 shares of Series A TCI Group Common Stock and 128,102 shares
of Series A Liberty Media Group Common Stock. The number of shares
indicated as held by Mr. Naify assumes the conversion of these notes.
Also, assumes the exercise in full of options granted in November
1994, pursuant to the Director Stock Option Plan, to acquire 50,000
shares of Series A TCI Group Common Stock and 18,750 shares of Series
A Liberty Media Group Common Stock. Options to acquire 20,000 shares
of Series A TCI Group Common Stock and 7,500 shares of Series A
Liberty Media Group Common Stock are currently exercisable.
(11) Assumes the exercise in full of options granted in tandem with stock
appreciation rights to acquire 100,000 shares of Series A TCI Group
Common Stock and 37,500 shares of Series A Liberty Media Group Common
Stock. All such options are currently exercisable. Also, assumes the
exercise in full of options granted in December 1996, pursuant to the
Director Stock Option Plan, to acquire 50,000 shares of Series A TCI
Group Common Stock and 18,750 shares of Series A Liberty Media Group
Common Stock. None of these options are exercisable until December
13, 1997.
[19]
<PAGE> 29
(12) Assumes the exercise in full of options granted in December 1996,
pursuant to the Director Stock Option Plan, to acquire 50,000 shares
of Series A TCI Group Common Stock and 18,750 shares of Series A
Liberty Media Group Common Stock. None of these options are
exercisable until December 13, 1997.
(13) Assumes the exercise in full of options granted in April 1996,
pursuant to an option plan of International for its directors who are
not employees, to acquire 50,000 shares of TINTA Series A Stock.
Options to acquire 10,000 shares of TINTA Series A Stock are currently
exercisable.
(14) Assumes the exercise in full of options granted in tandem with stock
appreciation rights in February of 1997 to acquire 1,000,000 shares of
Series A TCI Group Common Stock and 250,000 shares of Series A Liberty
Media Group Common Stock. None of the options are exercisable until
February of 1998. Assumes the exercise in full of options granted in
tandem with stock appreciation rights by TCI in February of 1997 to
acquire 50,000 shares of TINTA Series A Stock owned by TCI. None of
the options are exercisable until February of 1998.
(15) Assumes the exercise in full of stock options granted in tandem with
stock appreciation rights in November 1992 to acquire 100,000 shares
of Series A TCI Group Common Stock and 37,500 shares of Series A
Liberty Media Group Common Stock. Options to acquire 80,000 shares of
Series A TCI Group Common Stock and 30,000 shares of Series A Liberty
Media Group Common Stock are currently exercisable. Also assumes the
exercise in full of stock options granted in tandem with stock
appreciation rights in November of 1993 to acquire 100,000 shares of
Series A TCI Group Common Stock and 37,500 shares of Series A Liberty
Media Group Common Stock. Options to acquire 75,000 shares of Series
A TCI Group Common Stock and 28,125 shares of Series A Liberty Media
Group Common Stock are currently exercisable. Additionally assumes
the exercise in full of stock options granted in tandem with stock
appreciation rights in November of 1994 to acquire 200,000 shares of
Series A TCI Group Common Stock and 75,000 shares of Series A Liberty
Media Group Common Stock. Options to acquire 80,000 shares of Series
A TCI Group Common Stock and 30,000 shares of Series A Liberty Media
Group Common Stock are currently exercisable.
(16) Assumes the exercise in full of options granted in tandem with stock
appreciation rights in December of 1995 to acquire 400,000 shares of
TINTA Series A Stock. Options to acquire 80,000 shares of TINTA
Series A Stock are currently exercisable. Additionally assumes the
vesting in full of 15,000 restricted shares of TINTA Series A Stock.
None of the stock is currently vested.
(17) 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 Series A TCI Group Common Stock and 112,500 shares of Series
A Liberty Media Group Common Stock. Options to acquire 200,000 shares
of Series A TCI Group Common Stock and 75,000 shares of Series A
Liberty Media Group Common 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 Series A TCI Group Common Stock and 140,625 shares
of Series A Liberty Media Group Common Stock. Options to acquire
250,000 shares of Series A TCI Group Common Stock and 93,750 shares of
Series A Liberty Media Group Common 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 Series A TCI Group Common Stock and 75,000 shares of Series
A Liberty Media Group Common Stock. Options to acquire 80,000 shares
of Series A TCI Group Common Stock and 30,000 shares of Series A
Liberty Media Group Common 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 Series A TCI Group Common Stock. Options to acquire 200,000 shares
of Series A TCI Group Common Stock are currently exercisable.
Additionally, assumes the vesting in full of 100,000 restricted shares
of Series A TCI Group Stock. None of the stock is currently vested.
(18) Assumes the exercise in full of stock options granted in tandem with
stock appreciation rights in November of 1994 to purchase 200,000
shares of Series A TCI Group Common Stock and 75,000 shares of Series
A Liberty Media Group Common Stock. Pursuant to an agreement between
the Company and Mr. Barton entered into in connection with his
resignation as President of Liberty Media Corporation, a wholly owned
subsidiary of the Company ("Liberty"), the options granted to Mr.
Barton and described in this note 18 and in note 19 have vested and
are currently exercisable in full.
[20]
<PAGE> 30
(19) Assumes the exercise in full of stock options granted in tandem with
stock appreciation rights in December of 1995 to purchase 1,500,000
shares of Series A Liberty Media Group Common Stock. Such options have
vested and are currently exercisable in full. See note 18 above.
(20) Assumes the exercise in full of stock options granted in tandem with
stock appreciation rights in November of 1992 to acquire 100,000
shares of Series A TCI Group Common Stock and 37,500 shares of Series
A Liberty Media Group Common Stock. Options to acquire 80,000 shares
of Series A TCI Group Common Stock and 30,000 shares of Series A
Liberty Media Group Common Stock are currently exercisable. Also
assumes the exercise in full of stock options granted in tandem with
stock appreciation rights in October of 1993 to acquire 100,000 shares
of Series A TCI Group Common Stock and 37,500 shares of Series A
Liberty Media Group Common Stock. Options to purchase 75,000 shares
of Series A TCI Group Common Stock and 28,125 shares of Series A
Liberty Media Group Common Stock are currently exercisable.
Additionally assumes the exercise in full of stock options granted in
tandem with stock appreciation rights in November of 1994 to acquire
200,000 shares of Series A TCI Group Common Stock and 75,000 shares of
Series A Liberty Media Group Common Stock. Options to purchase 80,000
shares of Series A TCI Group Common Stock and 30,000 shares of Series
A Liberty Media Group Common Stock are currently exercisable. Further
assumes the exercise in full of options granted in tandem with stock
appreciation rights in December of 1995 to acquire 300,000 shares of
Series A TCI Group Common Stock and 112,500 shares of Series A Liberty
Media Group Common Stock. Options to purchase 60,000 shares of Series
A TCI Group Common Stock and 22,500 shares of Series A Liberty Media
Group Common Stock are currently exercisable. Additionally assumes
the vesting in full of 40,000 shares of Series A TCI Group Stock and
15,000 restricted shares of Series A Liberty Media Group Stock. None
of the stock is currently vested.
(21) Certain executive officers and directors of TCI (10 persons, including
Messrs. Malone, Vierra, Romrell, Clouston and Fisher (as co-personal
representative of the Estate of Bob Magness)) hold options which were
granted in tandem with stock appreciation rights in November of 1992,
to acquire an aggregate of 3,025,000 shares of Series A TCI Group
Common Stock and an aggregate of 1,134,375 shares of Series A Liberty
Media Group Common Stock at purchase prices of $10.75 per share and
$11.16 per share, respectively. Options to acquire 2,380,000 shares
of Series A TCI Group Common Stock and 892,500 shares of Series A
Liberty Media Group Common Stock are currently exercisable.
Additionally, certain executive officers (8 persons including Messrs.
Vierra, Romrell and Clouston) hold stock options granted in tandem
with stock appreciation rights in October and November of 1993 to
acquire an aggregate of 1,100,000 shares of Series A TCI Group Common
Stock and an aggregate of 412,500 shares of Series A Liberty Media
Group Common Stock at purchase prices of $10.75 per share and $11.16
per share, respectively. Options to acquire 793,750 shares of Series
A TCI Group Common Stock and 297,656 shares of Series A Liberty Media
Group Common Stock are currently exercisable.
Also, certain executive officers and directors (10 persons including
Messrs. Barton, Romrell, Fisher, Vierra and Clouston) hold stock
options which were granted in tandem with stock appreciation rights in
November of 1994 to acquire an aggregate of 1,450,000 shares of Series
A TCI Group Common Stock and an aggregate of 543,750 shares of Series
A Liberty Media Group Common Stock at purchase prices of $14.19 per
share and $14.67 per share, respectively. Options to acquire 580,000
shares of Series A TCI Group Common Stock and 217,500 shares of Series
A Liberty Media Group Common Stock are currently exercisable.
Additionally, certain executive officers and directors (11 persons,
including Messrs. Malone, Kern, Clouston, Coelho, Romrell and Fisher
(as co-personal representative of the Estate of Bob Magness)) hold
stock options which were granted in tandem with stock appreciation
rights in December of 1995 to acquire an aggregate of 4,650,000 shares
of Series A TCI Group Common Stock at $14.62 per share. Options to
purchase 930,000 shares of Series A TCI Group Common Stock are
currently exercisable.
Additionally, certain executive officers and directors (6 persons,
including Messrs. Fisher (as co-personal representatives of the Estate
of Bob Magness) Malone, Kern, Barton and Romrell) hold stock options
which were granted in tandem with stock appreciation rights in
December of 1995 to acquire an aggregate of 2,662,500 shares of Series
A Liberty Media Group Common Stock at a purchase price of $16.00 per
share. Options to acquire 532,500 shares of Series A Liberty Media
Group Common Stock are currently exercisable.
[21]
<PAGE> 31
Also, certain executive officers (7 persons, including Messrs.
Clouston and Romrell) hold an aggregate of 240,000 restricted shares
of Series A TCI Common Group Stock. None of the shares are currently
vested. Certain executive officers (2 persons, including Mr. Romrell)
hold an aggregate of 30,000 restricted shares of Series A Liberty
Media Group Common Stock. None of the shares are currently vested.
Mr. Kern holds options to acquire 1,500,000 shares of Series A TCI
Group Common Stock and 562,500 shares of Series A Liberty Media Group
Common Stock as described in note 8 above. Mr. Sparkman holds options
to acquire 100,000 shares of Series A TCI Group Common Stock and
37,500 shares of Series A Liberty Media Group Common Stock as
described in note 11 above. Mr. Hindery holds options to acquire
1,000,000 shares of Series A TCI Group Common Stock and 250,000 shares
of Series A Liberty Media Group Common Stock as described in note 14
above.
Pursuant to the Director Stock Option Plan, Messrs. Gallivan, Kim
Magness, Kern, Coelho and Naify hold options to purchase an aggregate
of 250,000 shares of Series A TCI Group Common Stock and an aggregate
of 93,750 shares of Series A Liberty Media Group Common Stock at
purchase prices of $14.19 per share and $14.67 per share,
respectively. Options to purchase an aggregate 100,000 shares of
Series A TCI Group Common Stock and 37,500 shares of Series A Liberty
Media Group Common Stock are currently exercisable. Mr. Fisher holds
an option to purchase 50,000 shares of Series A TCI Group Common Stock
and 18,750 shares of Series A Liberty Media Group Common Stock at
purchase prices of $16.99 and $16.83 per share, respectively. Options
to purchase 10,000 shares of Series A TCI Group Common Stock and 3,750
shares of Series A Liberty Media Group Common Stock are currently
exercisable. Mr. Gould and Mr. Sparkman hold options to purchase an
aggregate of 100,000 shares of Series A TCI Group Common Stock and
37,500 shares of Series A Liberty Media Group Common Stock at purchase
prices of $12.25 and $17.50 per share, respectively. None of these
options are exercisable until December 13, 1997.
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.
(22) Two executive officers, including Mr. Vierra, hold options which were
granted in tandem with stock appreciation rights in December of 1995
to acquire an aggregate of 450,000 shares of TINTA Series A Stock.
Options to acquire 90,000 shares of TINTA Series A Stock are currently
exercisable. Additionally, Mr. Vierra holds 15,000 restricted shares
of TINTA Series A Stock. None of the shares are currently vested.
Additionally, one executive officer holds options granted in tandem
with stock appreciation rights in December of 1995 by TCI to acquire
50,000 shares of its TINTA Series A Stock. Options to acquire 10,000
shares of TINTA Series A Stock are currently exercisable. Messrs.
Malone, Kern and Gould hold options to purchase an aggregate of
150,000 shares of TINTA Series A Stock. Options to acquire an
aggregate of 30,000 shares of TINTA Series A Stock are currently
exercisable. Mr. Hindery holds an option granted by TCI to acquire
50,000 shares of TINTA Series A Stock as described in note 14 above.
No equity securities in any subsidiary of the Company, other than
directors' qualifying shares, are owned by any of the Company's executive
officers or directors, except for those shares of TINTA Series A Stock
reflected in the table above and except that Mr. Kim Magness, a director of the
Company, owns 31 shares of 12% Series C Cumulative Compounding Preferred Stock
("WestMarc Preferred Stock") of WestMarc Communications, Inc. ("WestMarc"), a
wholly-owned subsidiary of TCI; 948 shares of WestMarc Preferred Stock are held
in the Estate of Bob Magness, of which Donne Fisher, a director of the Company,
is a co-personal representative; Dr. Malone, a director and an executive
officer of the Company, owns, as trustee for his children, 68 shares of
WestMarc Preferred Stock; Mr. Larry Romrell, an officer of the Company, owns
103 shares of WestMarc Preferred Stock; Mr. Jerome Kern, a director of the
Company, is deemed to have beneficial ownership over 116 shares of WestMarc
Preferred Stock owned by his wife, Diane D. Kern; and Mr. Clouston, an
executive officer of the Company, pursuant to a restricted stock award, owns 62
shares of WestMarc Preferred Stock. Mr. Clouston also holds options to acquire
1% of the Company's common equity in TCI Telephony Services, Inc. ("TTS-
Delaware"), a wholly owned subsidiary of the Company through which the Company
holds its telephony investments, 1% of the Company's common equity in TCI
Wireline, Inc. ("TCI Wireline"), a wholly owned subsidiary of the Company
through which the Company operates its developmental stages cable telephony
business, and 1% of the Company's common equity in TCI.NET, Inc. ("TCI.NET"),
through which the Company owns certain of its internet service investments and
business. Mr. Romrell was also granted an option to acquire 1% of the
Company's common equity in TCI.NET, Inc. Mr. Coelho owns 1,500 shares of ETC
w/tci, Inc. ("ETC"), a subsidiary of the Company through which it holds certain
of the Company's education-related investments and businesses, representing 15%
of such subsidiary's common equity, and under certain circumstances will be
entitled to increase his percentage ownership to up to 20%.
[22]
<PAGE> 32
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.
PROPOSALS OF THE BOARD
The following proposals will be presented to the Annual Meeting by the
Board of Directors.
PROPOSAL NO. 1 - ELECTION OF DIRECTORS
GENERAL
The persons named in the accompanying proxy will vote for the election
of three (3) directors, with the term of office of each to continue until the
annual meeting of stockholders in the year 2000 or until his successor shall
have been duly elected and qualified, unless authority to vote is withheld.
Donne F. Fisher, Kim Magness and J.C. Sparkman are the three (3) nominees for
election as directors of the Company, and the Company is informed that these
nominees are willing to serve as directors. However, if any such nominee
should decline or shall become unable to serve as a director for any reason,
votes will be cast for a substitute nominee, if any, designated by the Board of
Directors, or, if none is so designated prior to the election, votes will be
cast according to the judgment in such matters of the person or persons voting
the proxy. Messrs. Fisher, Magness and Sparkman are each incumbent directors.
The following lists the three nominees for election as directors of
the Company and the six (6) directors of the Company whose term of office will
continue after the Annual Meeting, including the birth date of each person, the
positions with the Company or principal occupations of each person, certain
other directorships held and the year each person became a director of the
Company. The numbers of shares of Series A TCI Group Common Stock, Series B
TCI Group Common Stock, Series A Liberty Media Group Common Stock, Series B
Liberty Media Group Common Stock, Class B Preferred Stock, Series C Preferred
Stock, Series G Preferred Stock and Series H Preferred Stock, owned
beneficially by each such person as of March 1, 1997 are set forth in "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
NOMINEES FOR ELECTION AS DIRECTORS
DONNE F. FISHER: Born May 24, 1938; director of the Company since June
of 1994; was Executive Vice President of TCI from January of 1994 through
January 1, 1996; has been providing consulting services to TCI since resigning
his position as Executive Vice President on January 1, 1996; Executive Vice
President of TCI Communications, Inc., the predecessor company to TCI and now a
majority owned subsidiary of TCI ("TCIC") from December of 1991 to October of
1994; was previously Senior Vice President of TCIC since 1982 and Treasurer
since 1970; TCIC director since 1980; also a director of TCI Pacific
Communications, Inc. ("TPAC"), General Communication, Inc., DMX Inc. and United
Video Satellite Group, Inc. ("United Video" or "UVSG").
KIM MAGNESS: Born May 17, 1952; director of the Company since June of
1994; TCIC director from 1985 to August of 1994 and since January of 1996.
Manages numerous personal and business investments, and is Chairman and
President of a company developing liners for irrigation canals.
J.C. SPARKMAN: Born September 12, 1932; director of the Company since
December of 1996; was Executive Vice President of TCI from January of 1994
through March of 1995; has been providing consulting services to TCI since his
retirement in March of 1995; was previously Executive Vice President of TCIC
from 1987 to October of 1994; also a director of Shaw Communications, Inc., DMX
Inc. and United Video.
[23]
<PAGE> 33
DIRECTORS WHOSE TERM EXPIRES IN 1998
JOHN W. GALLIVAN: Born June 28, 1915; director of the Company since
June of 1994; Chairman of the Board of Kearns, a newspaper publishing concern;
also a director of Silver King Mining Company; TCIC director from 1980 to
August of 1994 and since January of 1996.
PAUL A. GOULD: Born September 27, 1945; director of the Company since
December of 1996; Managing Director and Executive Vice President of Allen &
Company Incorporated for more than the last five years; also a director of
National Patent Development Corporation, Choice International, United Video and
International.
JEROME H. KERN: Born June 1, 1937; director of the Company since June
of 1994; TCIC director from December of 1993 to August of 1994; director of
International since May of 1995; also is Special Counsel with the law firm of
Baker & Botts, L.L.P., since July 1996; was a senior partner with Baker &
Botts, L.L.P. since September of 1992; prior to joining Baker & Botts, L.L.P.,
was senior partner with the Law Office of Jerome H. Kern from January 1, 1992
to September 1, 1992.
DIRECTORS WHOSE TERM EXPIRES IN 1999
JOHN C. MALONE: Born March 7, 1941; director of the Company since
June of 1994; Chairman of the Board of TCI from November 1996; Chief Executive
Officer of TCI from January of 1994; President of TCI from January of 1994
through March of 1997; Chief Executive officer of TCIC from March of 1992 to
October of 1994 and President of TCIC from 1973 to October of 1994; Chairman of
the Board and director of International since May of 1995; director of TPAC
since July of 1996; is President and a director of many of the Company's
subsidiaries; director of BET Holdings, Inc., The Bank of New York and TCI
Satellite Entertainment, Inc. ("Satellite"); TCIC director since 1973.
TONY COELHO: Born June 15, 1942; director of the Company since June of
1994; TCIC director from March of 1994 to August of 1994; is Chairman of the
Board and Chief Executive Officer of ETC w/tci, since October 1995; Chairman
and Chief Executive Officer of Coelho Associates, L.L.C. since July of 1995;
President and Chief Executive Officer of Wertheim Schroder Investment Services
from 1990 to June of 1995 and Managing Director of Wertheim Schroder & Co.,
Incorporated from 1989 to June of 1995; also a director of AutoLend Group,
Inc., Cyberonics, Inc., ICF Kaiser International, Inc., International
Thoroughbred Breeders, Inc., Service Corporation International and TEI, Inc.
LEO J. HINDERY, JR.: Born October 31, 1947; director of the Company
since May of 1997; President and Chief Operating Officer of TCI from March of
1997; President and director of TCIC from March of 1997; was founder, Managing
General Partner and Chief Executive Officer of InterMedia Partners and its
affiliated entities since 1988; also a director of DMX Inc.
ROBERT A. NAIFY: Born February 17, 1922; director of the Company since
June of 1994; TCIC director from 1987 to August of 1994; also Co-Chairman and a
director of The Todd-AO Corporation.
PROPOSAL NO. 2 - TCI VENTURES GROUP STOCK PROPOSAL
GENERAL
The holders of the TCI Group Common Stock, the Liberty Media Group
Common Stock and the Series C Preferred Stock are being asked to consider and
approve the TCI Ventures Group Stock Proposal, including adoption of the
proposed amendment to the Company Charter set forth in Annex II-A hereto. The
amendment would alter the terms of the series of the Company's Common Stock
that had previously been designated as Tele-Communications, Inc. Series A
Telephony Group Common Stock ("Series A Telephony Group Common Stock") and
Tele-Communications, Inc. Series B Telephony Group Common Stock ("Series B
Telephony Group Common Stock"), to (i) redesignate the Series A Telephony Group
Common Stock as Tele-Communications, Inc. Series A TCI Ventures Group Common
Stock ("Series A TCI Ventures Group Common Stock"), (ii) redesignate the Series
B Telephony Group Common Stock as Tele-Communications, Inc. Series B TCI
Ventures Group Common Stock ("Series B TCI Ventures Group Common Stock"), (iii)
change the name of the Telephony Group to the TCI Ventures Group and redefine
the assets and liabilities attributed to such Group and (iv) provide for the
reservation of shares of Series A TCI Ventures Group Common Stock for issuance
upon exchange of certain convertible notes issued by a subsidiary of the
Company. The amendment would also make corresponding changes to the terms of
the TCI Group Common
[24]
<PAGE> 34
Stock and Liberty Media Group Common Stock to reflect the redesignation of the
Telephony Group Common Stock as TCI Ventures Group Common Stock. Capitalized
terms used in the following description of the TCI Ventures Group Stock
Proposal and not otherwise defined have the meanings ascribed to them elsewhere
in this Proxy Statement. See Annex I--Index of Certain Defined Terms.
The Telephony Group Common Stock was authorized by the stockholders at
a special meeting held on March 12, 1997. No shares of Telephony Group Common
Stock have been issued. The Telephony Group Common Stock, if issued, would
have been intended to reflect the separate performance of the Telephony Group,
which initially was to consist of TCI's principal investments in the domestic
wireless and wireline telephony businesses (the "Telephony Business"). A total
of 750 million shares of Series A Telephony Group Common Stock and 75 million
shares of Series B Telephony Group Common Stock were authorized.
If the TCI Ventures Group Stock Proposal is approved by stockholders,
the Company anticipates filing with the Secretary of State of the State of
Delaware a Certificate of Amendment to the Company Charter including the
amendments in the form set forth in Annex II-A hereto (the "Certificate of
Amendment"). It is currently anticipated that such filing will be made as
promptly as practicable after the Annual Meeting. The Company Charter as
proposed to be amended to reflect the TCI Ventures Group Stock Proposal is
herein referred to as the "Amended Charter." The Board of Directors may
abandon the TCI Ventures Group Stock Proposal in whole, but not in part,
without further action by the stockholders, at any time prior to such filing.
If the TCI Ventures Group Stock Proposal is not approved, the Certificate of
Amendment will not be filed and no shares of TCI Ventures Group Common Stock
will be authorized or issued.
Contemporaneously with the mailing of this Proxy Statement, the
Company is commencing (i) an offer to exchange one share of Series A TCI
Ventures Group Common Stock for each share of Series A TCI Group Common Stock
properly tendered (the "Series A TCI Group Exchange Offer"), up to an aggregate
of ______ shares of Series A TCI Group Common Stock (the "Series A Maximum"),
and (ii) an offer to exchange one share of Series B TCI Ventures Group Common
Stock for each share of Series B TCI Group Common Stock properly tendered (the
"Series B TCI Group Exchange Offer" and, together with the Series A TCI Group
Exchange Offer, the "Exchange Offers"), up to an aggregate of _______ shares of
Series B TCI Group Common Stock (the "Series B Maximum" and, together with the
Series A Maximum, the "Maximum"). The Exchange Offers are being made on the
terms and subject to the conditions set forth in the Offering Circular, dated
_______, 1997, and the related Letter of Transmittal. The Exchange Offers are
subject, among other conditions, to the approval of the TCI Ventures Group
Stock Proposal. If such approval is obtained and other conditions satisfied,
the Company would consummate the Exchange Offers promptly following the filing
of the Certificate of Amendment.
The number of shares of Series A TCI Ventures Group Common Stock and
Series B TCI Ventures Group Common Stock that would be issued upon closing of
the Exchange Offers, if shares of TCI Group Common Stock at least equal to the
Maximum are properly tendered, would be intended initially to represent 100% of
the common stockholders' equity value of the Company attributable to the TCI
Ventures Group. The common stockholders' equity value of the Company
attributable to the TCI Ventures Group that, at any relevant time, is
attributed to the TCI Group and, accordingly, not represented by outstanding
TCI Ventures Group Common Stock is referred to as the "Inter-Group Interest" of
the TCI Group in the TCI Ventures Group. If a number of shares of TCI Ventures
Group Common Stock equal to the Maximum is issued pursuant to the Exchange
Offers, the Inter-Group Interest of the TCI Group in the TCI Ventures Group
would be reduced to zero. If fewer shares than the Maximum are properly
tendered (and, accordingly, the TCI Group would continue to have an Inter-Group
Interest in the TCI Ventures Group immediately following consummation of the
Exchange Offers), the Company will extinguish such Inter-Group Interest in
consideration of the attribution to the TCI Group of a preferred equity
interest in the TCI Ventures Group (the "TCI Ventures Group Preferred
Interest"). The TCI Ventures Group Preferred Interest will have a stated
liquidation value equal to the market value of the shares of TCI Ventures Group
Common Stock not issued in the Exchange Offers (which shall be deemed to be the
same, on a per share basis, as the Market Value of the Series A TCI Group
Common Stock as of the last trading day preceding the closing of the Exchange
Offers), a dividend rate of 5% per annum and a mandatory redemption obligation
on the 15th anniversary of issuance. Accrued dividends on the TCI Ventures
Group Preferred Interest would accumulate and compound annually (but not be
payable currently) until the fifth anniversary of the closing of the Exchange
Offers. On and after such fifth anniversary, accrued dividends would be
payable annually on each anniversary of the closing of the Exchange Offers and
would accumulate and compound to the extent not paid on any such anniversary.
When dividends become payable currently they could be paid either through the
transfer of cash or other assets from the TCI Ventures Group to the TCI Group
or through the reduction of amounts owed by the TCI Group to the TCI Ventures
Group. The TCI Ventures Group Preferred Interest will also be redeemable at
the discretion of the Board of Directors in whole or in part at any time.
Immediately after giving effect to the Exchange Offers and the attribution of
the TCI Ventures
[25]
<PAGE> 35
Group Preferred Interest, the TCI Group will have no Inter-Group Interest in
the TCI Ventures Group. In addition to the shares of TCI Ventures Group Common
Stock to be issued in the Exchange Offers, shares of Series A TCI Ventures
Group Common Stock are being reserved for issuance upon exercise or exchange
subsequent to the closing of the Exchange Offers of certain outstanding
convertible notes issued by a subsidiary of the Company (the "Pre-Exchange
Offer Securities"). In lieu of a number of shares of Series A TCI Group Common
Stock equal to [28% to 35%] of the number of shares of Series A TCI Group
Common Stock currently issuable upon exchange of such convertible notes, an
equal number of shares of TCI Ventures Group Common Stock would be issued upon
the exchange thereof.
The Company may from time to time, by action of its Board of
Directors, (i) offer shares of TCI Ventures Group Common Stock for cash in one
or more public offerings, (ii) issue shares of TCI Ventures Group Common Stock
as consideration for acquisitions or investments, (iii) issue shares of TCI
Ventures Group Common Stock to employees of the Company pursuant to employee
benefit plans or otherwise as compensation, (iv) issue shares as a distribution
to holders of TCI Group Common Stock (to the extent of any then-existing
Inter-Group Interest of the TCI Group in the TCI Ventures Group) or (v) issue
shares of TCI Ventures Group Common Stock for any other proper corporate
purpose. So long as sufficient authorized shares are available, the timing,
sequence, size and terms of such transactions would be determined by the Board
of Directors, without further approval of the stockholders, unless deemed
advisable by the Board of Directors or required by applicable law, regulation
or Nasdaq National Market requirements. For an illustration of certain effects
of the issuance of shares of TCI Ventures Group Common Stock, see Annex
IV--Illustration of Certain Terms.
THE TCI VENTURES GROUP
The TCI Ventures Group Common Stock, if issued, will be intended to
reflect the separate performance of the TCI Ventures Group. The TCI Ventures
Group would initially consist principally of the following assets and their
related liabilities: (i) TCI's 85% equity interest (representing a 92% voting
interest) in International, which is the Company's primary vehicle for the
conduct of its international cable, telephony and programming businesses (other
than those international programming businesses attributed to the Liberty Media
Group), (ii) TCI's principal interests in the Telephony Business, owned through
its indirect wholly owned subsidiary TTS-Delaware (together with its
consolidated subsidiaries, "TCI Telephony") consisting primarily of the
Company's investment in a series of partnerships formed to engage in the
business of providing wireless communications services, using the radio
spectrum for broadband personal communications services ("PCS"), to residential
and business customers nationwide under the Sprint(R) brand (a registered
trademark of Sprint Communications Company, L.P.) (the "PCS Ventures"), the
Company's 30% equity interest (representing a 37% voting interest) in Teleport
Communications Group Inc. ("Teleport" or "TCG"), a competitive local exchange
carrier, and Western Tele-Communications, Inc. (together with its subsidiaries,
"WTCI"), a wholly owned subsidiary of the Company that provides long distance
transport of video, voice and data traffic and other telecommunications
services to interexchange carriers on a wholesale basis using primarily a
digital broadband microwave network located throughout a 12 state region, (iii)
TCI's 40% equity interest (representing an 85% voting interest) in UVSG, which
provides satellite-delivered video, audio, data and program promotion services
to cable television systems, satellite dish owners, radio stations and private
network users, primarily throughout North America, (iv) TCI's 43% equity
interest (representing a 75% voting interest) in At Home Corporation ("@Home"),
a provider of high speed multimedia Internet services, and (v) other assets,
including ETC w/tci, Inc., an 80% owned subsidiary of the Company that develops
and distributes for-profit education, training and communication services and
products, National Digital Television Center, Inc. ("NDTC"), a wholly owned
subsidiary of the Company that provides digital compression and authorization
services to programming suppliers and to video distribution outlets , and TCI
Summitrak of Texas, Inc. and TCI Summitrak L.L.C. (collectively, "Summitrak"),
wholly owned subsidiaries of the Company that provide an integrated
network-based information management system currently to certain of TCI's cable
systems with plans to expand its service to include third parties. The stocks
of International, TCG and UVSG are traded on the National Market tier of The
Nasdaq Stock Market. The PCS Ventures include Sprint Spectrum Holding Company,
L.P. and MinorCo, L.P. (collectively, "Sprint PCS" or the "Sprint PCS
Partnerships"), and PhillieCo, L.P. ("PhillieCo"). The partners of each of the
Sprint PCS Partnerships are subsidiaries of Sprint Corporation ("Sprint"),
Comcast Corporation ("Comcast"), Cox Communications, Inc. ("Cox") and the
Company. The partners of PhillieCo are subsidiaries of Sprint, Cox and the
Company. The Company, through TCI Telephony, has a 30% interest as a partner
in each of the Sprint PCS Partnerships and a 35% interest as a partner in
PhillieCo. (Percentage equity and voting interests provided above have been
rounded to the nearest whole number and calculated as of the date of this
letter, except for percentage interests in entities that are not consolidated
subsidiaries which have been calculated as of March 31, 1997.) Reference is
made to Annex III for a further description of the TCI Ventures Group and to
Annex V for the combined financial statements of the TCI Ventures Group.
[26]
<PAGE> 36
Unlike the Telephony Group, the TCI Ventures Group would include WTCI,
rather than an option to acquire WTCI, and would not include an option to
acquire TCI's developmental stage domestic cable telephony business the "ResTel
Business" nor would it include any other business that uses TCI's domestic
cable plant to distribute services to customers (e.g., cable, telephony and
Internet services). Such domestic "distribution" businesses will continue to be
attributed to the TCI Group. By way of example, the business of distributing
@Home's Internet service to customers through TCI's cable systems would not be
attributed to the TCI Ventures Group, although the investment in @Home would be.
The TCI Ventures Group would also include such other assets and
liabilities of the TCI Group as the Board of Directors may in the future
determine to attribute to the TCI Ventures Group and such other businesses,
assets and liabilities as the Company or any of its subsidiaries may in the
future acquire for the TCI Ventures Group, as determined by the Board of
Directors. It is currently the intention of the Company that any businesses,
assets and liabilities so attributed to the TCI Ventures Group in the future
would not include assets and liabilities of the Company's domestic programming
businesses and investments or its domestic cable operations (including its
businesses which utilize its cable plant to distribute telephony and Internet
services)
The assets attributed to the TCI Ventures Group are currently included
in the Telephony Group and in the TCI Group, which also includes the Company's
domestic cable and telephony distribution and communications businesses (other
than those currently attributed to the Telephony Group) and any other
businesses and assets of the Company not attributed to either the Liberty Media
Group or the Telephony Group. Because no shares of Telephony Group Common Stock
have been issued, the TCI Group also currently includes, and the TCI Group
Common Stock also is currently intended to reflect, 100% of the common
stockholders' equity value of the Company attributable to the Telephony Group.
The following table presents selected financial data as of December 31, 1996
and for the year then ended of the TCI Group (inclusive of the assets
constituting the TCI Ventures Group as if none of such assets had ever been
attributed to the Telephony Group) and of the TCI Ventures Group, and the
percentage of such TCI Group amounts represented by those of the TCI Ventures
Group. The table should be read together with the more detailed information
and financial statements included in Annexes III and V.
(dollar amounts in millions)
<TABLE>
<CAPTION>
TCI Ventures Group
Tele-Communications, TCI Ventures As A Percentage of
Inc. TCI Group Group TCI Group
-------------------- --------- ------------ ------------------
<S> <C>
YEAR ENDED
DECEMBER 31, 1996:
Revenue ....................... $ 8,022 6,790 926 13.6%
Operating income .............. $ 632 546 (50) n/a
Share of losses ............... $ (473) (469) (368) 78.5%
of affiliates
Net earnings (loss) ......... $ 278 (778) (258) 33.2%
DECEMBER 31, 1996:
Invest in
equity affiliates .......... $ 3,012 2,457 2,069 84.2%
Total assets ................. $30,244 27,154 4,260 15.7%
Total liabilities ............ $22,840 22,179 1,337 6.0%
</TABLE>
- - --------------
Upon effectiveness of the TCI Ventures Group Stock Proposal, if
approved, the TCI Ventures Group will replace the Telephony Group and the
assets and liabilities attributed to the TCI Ventures Group will no longer be
attributed to the TCI Group; however, pending the issuance of shares of TCI
Ventures Group Common Stock in the Exchange Offers, the TCI Group Common Stock
will continue to be intended to reflect all of the common stockholders' equity
value of the Company attributable to the TCI Ventures Group, in addition to the
separate performance of the Company's domestic distribution and
[27]
<PAGE> 37
communications businesses (other than the investments attributed to the TCI
Ventures Group), and any other businesses and assets of the Company not
attributed to either the Liberty Media Group or the TCI Ventures Group.
BACKGROUND AND REASONS FOR THE TCI VENTURES GROUP STOCK PROPOSAL
In late 1994, the Board of Directors of the Company determined to
restructure the Company's businesses into four separate business lines:
Domestic Cable and Communications; Programming; International Cable and
Programming; and Technology/Venture Capital (the "Business Line
Restructuring"). The Board of Directors believed that the division of the
Company's business into four distinct units would enable the Company to benefit
from the focused and entrepreneurial behavior which is more typical of a small
company, while also maintaining the benefits of scale which a large corporation
such as the Company is ordinarily able to achieve; would facilitate increased
investor understanding of the different lines of business; would enhance
opportunities to finance the operations of each division separately, where
appropriate, through financing tailored specifically to the capital needs of
the division in question; and could encourage strategic partnering with other
companies in the same line of business.
The Board of Directors also directed management to study various
methods of enhancing stockholder value. This directive resulted from the Board
of Directors' belief that the Company was undervalued by the capital markets,
in part because the market focused primarily upon the Company's dominant cable
television system business and did not give full value to the other diverse
assets held by the Company. The Board of Directors believed that overall
stockholder value would be enhanced if there were increased recognition in the
investment community of the Company's individual lines of business and the
value of the assets used in such businesses.
Management proceeded to review with its financial advisors potential
actions which the Company could undertake in order to increase market
recognition of the value of the Company's assets used in each of its lines of
business. Among the actions considered by management were a spin-off to the
Company's stockholders of all or part of one or more of its divisions, public
offerings of minority interests in one or more of the divisions and the
issuance of separate securities of the Company the economic attributes of which
would be defined by reference to the performance of one or more of its
divisions (commonly known as "tracking stock" or "targeted stock").
With respect to the Programming line of business, the Board of
Directors determined that the issuance of tracking stock came closest to
meeting the objectives of the Board of Directors. Accordingly, on February 8,
1995, the Board of Directors determined that the creation of the Liberty Media
Group Common Stock and the redesignation of the Company's then-existing common
stock into TCI Group Common Stock was in the best interests of the Company and
its stockholders and made a proposal to such effect to the Company's
stockholders (the "Liberty Media Group Proposal"). At the Company's annual
meeting held on August 3, 1995, the Company's stockholders approved the Liberty
Media Group Proposal, and shares of Liberty Media Group Common Stock were
distributed to holders of TCI Group Common Stock on August 10, 1995.
With respect to the Company's International Cable and Programming line
of business, which currently is included in the TCI Group, the Board of
Directors determined that a public offering of a minority interest in this
division was the appropriate course to take to achieve the Company's
objectives. In July 1995, International, which holds the assets comprising the
International Cable and Programming line of business, completed an initial
public offering of shares representing approximately 18% of its common stock.
Consistent with the Board of Director's directive, management of the
Company also considered the applicability of certain of the strategies proposed
by its financial advisors to the Company's Domestic Cable and Communications
line of business. As an initial step, the operations of the Domestic Cable and
Communications line of business were further subdivided into four strategic
business units (each, an "SBU"): cable, telephony, internet services and
satellite. In November 1996, the Board of Directors declared a distribution to
the holders of TCI Group Common Stock of all of the outstanding shares of
common stock of Satellite, which then held the assets of the satellite SBU.
The distribution was effected on December 4, 1996, resulting in the spin off to
stockholders of all of the Company's interests in the business of distributing
multichannel programming services directly to consumers in the United States
via digital medium power or high power satellites, including the rental and
sale of related customer premises equipment (the "Digital Satellite Business").
Because the Digital Satellite Business and the cable distribution business use
distinct distribution networks to provide the same or similar programming
potentially to the same customer, the separation of the two businesses through
a spin off was both possible and desirable.
[28]
<PAGE> 38
Management then proposed to the Board of Directors that the Company
issue a "tracking stock" or "targeted stock," the economic attributes of which
would be defined by reference to the performance of the Telephony Group, which
would initially be comprised of certain investments of the telephony SBU,
including the Company's interests in the PCS Ventures and in TCG. At a special
meeting of TCI's stockholders held on March 12, 1997, the creation of the
Telephony Group Common Stock was approved. The Board of Directors had proposed
offering shares of Telephony Group Common Stock for cash in an initial public
offering, and the Company filed a registration statement with the Securities
and Exchange Commission (the "SEC") with respect to the shares to be offered.
The Board subsequently determined, however, that market and other conditions
were not favorable to an offering of stock that the market would largely
identify with the wireless PCS business. The PCS business generally was in an
early stage of network construction and service launch and could not yet
demonstrate customer acceptance.
The Board of Directors decided to reevaluate its strategy with respect
to enhancing the market's recognition of the value of its diverse assets.
Rather than creating a tracking stock or selling a minority interest or
spinning off individual lines of business, the Board determined to refine the
TCI Group so that the TCI Group Common Stock would reflect primarily the
Company's dominant cable television system business and other distribution and
communications businesses (such as telephony and Internet services) that use
the Company's domestic cable plant (just as the Liberty Media Group Common
Stock reflects primarily the Company's domestic programming assets), and to
create a new tracking stock that would be intended to reflect the performance
of TCI's international assets and its domestic non-cable and non-programming
assets, many of which businesses are at an early stage of development.
On May 14, 1997, the Board of Directors determined that the TCI
Ventures Group Stock Proposal was in the best interests of the Company and its
stockholders and unanimously declared it advisable and recommended that the
Company's stockholders vote in favor of the TCI Ventures Group Stock Proposal.
The Board of Directors believes that adoption of the TCI Ventures Group Stock
Proposal is in the best interests of the Company and all of its stockholders
for the following reasons:
o The issuance and sale of TCI Ventures Group Common Stock would
result in greater market recognition of the value of the TCI
Ventures Group, thereby enhancing stockholder value over the long
term.
o The TCI Group would be easier for the market to understand and
value once its businesses and assets were largely confined to the
distribution and communications businesses using the Company's
domestic cable plant.
o It would provide the Company greater flexibility with regard to
raising capital for the TCI Ventures Group's businesses and with
regard to making acquisitions and investments for the TCI Ventures
Group, including strategic partnering transactions, independent of
the TCI Group, by using equity securities specifically related to
the TCI Ventures Group.
o The issuance and sale of TCI Ventures Group Common Stock would also
provide investors with the opportunity to invest in separate
securities intended specifically to reflect the TCI Ventures Group
and would enable the Company to more effectively tailor employee
benefit plans to provide incentives to the employees in the TCI
Ventures Group. Although a substantial portion of the value of the
assets of the TCI Ventures Group is represented by the Company's
investments in International, TCG and UVSG and shares of the common
stock of such companies are traded on the Nasdaq National Market,
the issuance and sale of shares of the TCI Ventures Group Common
Stock would offer investors the opportunity to participate in the
Company's substantial equity investment in such companies (which
primarily is represented by high vote stock that is not publicly
traded) and its investments in the PCS Ventures and other companies
that do not have publicly traded equity securities.
o It would permit the Company to obtain the foregoing benefits while
preserving the advantages of continued ownership of the businesses
of the TCI Ventures Group by the Company and the benefits of being
part of a consolidated enterprise, including the absence of certain
costs associated with operation of separate, publicly held
corporations, the advantages of tax consolidation and economies of
scale, and preserving certain restructuring options for the Company
in the future. Unlike the case with separate, publicly held
corporations, however, holders of TCI Ventures Group Common Stock
will continue to be subject to all the risks associated with an
investment in the Company and all of its businesses, assets and
liabilities. See "Factors to be Considered--Stockholders of One
Company; Financial Effects on One Business Could Affect Other
Businesses."
[29]
<PAGE> 39
The issuance of the TCI Ventures Group Common Stock would cause
certain assets and liabilities that were attributable to the TCI Group prior to
such issuance to no longer be attributed to the TCI Group, but rather to be
attributable to the TCI Ventures Group. See "Description of TCI Ventures
Group Common Stock and Effects on Existing Common Stock."
In connection with its approval of the TCI Ventures Group Stock
Proposal, the Board of Directors also evaluated the potentially adverse aspects
of the proposal, including the lack of assurance as to the degree to which the
market price of the TCI Ventures Group Common Stock will reflect the separate
performance of the TCI Ventures Group and the uncertainty as to the impact of
the proposal on the market price of the TCI Group Common Stock and the Liberty
Media Group Common Stock, as well as the fact that implementation of the TCI
Ventures Group Stock Proposal will, to an extent, make the capital structure of
the Company more complex than if the Company's Common Stock consisted solely of
TCI Group Common Stock and Liberty Media Group Common Stock, and may give rise
to occasions when the interests of the holders of TCI Group Common Stock, the
holders of Liberty Media Group Common Stock and the holders of TCI Ventures
Group Common Stock may diverge or appear to diverge. See "Factors to be
Considered--No Assurance as to Market Price" and "Factors to be
Considered--Potential Divergence of Interests; No Specific Procedures for
Resolution." The Board of Directors determined, however, that the positive
aspects of the TCI Ventures Group Stock Proposal outweighed any potentially
adverse aspect.
The Board of Directors will continue to review options that may be
available to the Company to realize additional value from the assets attributed
to the TCI Ventures Group. In determining whether to pursue a particular
option, the Board of Directors, in exercising its business judgment, will
consider various factors, including market conditions, the financial and other
effects of any such option on the Company, the TCI Group, the Liberty Media
Group and the TCI Ventures Group (each, a "Group" and, collectively, the
"Groups") and on the holders of the TCI Group Common Stock, the Liberty Media
Group Common Stock and TCI Ventures Group Common Stock, and the preservation of
its ability to engage in other restructuring options at such time as such
options become desirable.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE TCI VENTURES GROUP
STOCK PROPOSAL AND BELIEVES THAT ITS ADOPTION IS IN THE BEST INTERESTS OF THE
COMPANY AND ITS STOCKHOLDERS. ACCORDINGLY, THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT STOCKHOLDERS VOTE IN FAVOR OF THE TCI VENTURES GROUP STOCK
PROPOSAL.
SUMMARY DESCRIPTION OF TCI VENTURES GROUP STOCK PROPOSAL
The following summarizes certain selected terms of the TCI Ventures
Group Common Stock under the Amended Charter, the changes to the terms of the
TCI Group Common Stock and Liberty Media Group Common Stock under the Amended
Charter and the Inter-Group Interest. These summaries should be read together
with (and are qualified by reference to) the more complete discussion set forth
under "Description of TCI Ventures Group Common Stock and Effects on Existing
Common Stock" and the text of the Certificate of Amendment set forth in Annex
II-A.
TCI Ventures Group Common Stock
Businesses ..................... The TCI Ventures Group consists primarily of
the following assets and their related
liabilities: (i) TCI's 85% equity interest
(representing a 92% voting interest) in
International, (ii) TCI's principal
interests in the Telephony Business,
consisting primarily of the Company's
investments in the PCS Ventures, TCG and
WTCI, (iii) TCI's 40% equity interest
(representing an 85% voting interest) in
UVSG, and TCI's interests in other
technology and education-related ventures
and businesses, (iv) TCI's 43% equity
interest (representing a 75% voting
interest) in @Home, and (v) other assets,
including TCI's wholly owned subsidiaries
NDTC and Summitrak. See Annex
III--Description of TCI Ventures Group. The
Company could determine to pursue future
business opportunities through one Group
instead of the other Groups, or jointly
through more than one of the Groups. See
"Management and Allocation Policies."
[30]
<PAGE> 40
The TCI Ventures Group Common Stock is
intended to reflect the separate performance
of the TCI Ventures Group. However, holders
of TCI Ventures Group Common Stock will be
subject to all of the risks associated with
an investment in the Company and all of its
businesses, assets and liabilities. There is
no assurance as to the degree to which the
market value of the TCI Ventures Group
Common Stock will reflect the separate
performance of the TCI Ventures Group.
Dividends and Share
Distributions .................. The Company has never paid cash dividends
on its Common Stock and does not currently
intend to pay cash dividends on any series
of its Common Stock, including the TCI
Ventures Group Common Stock, if authorized.
Dividends on the TCI Ventures Group Common
Stock would be payable out of the lesser of
assets of the Company legally available
therefor and the TCI Ventures Group
Available Dividend Amount. If dividends on
the TCI Ventures Group Common Stock are
paid, equivalent per share dividends will be
concurrently paid on both the Series A TCI
Ventures Group Common Stock and the Series B
TCI Ventures Group Common Stock. For this
purpose, equivalent per share dividends
include, in the case of distributions of
securities, either distributions of
identical securities or distributions of
securities having differences in voting
rights and in certain related rights (which
differences are, in the case of
distributions of securities of the Company
or its subsidiaries (including stock
dividends consisting of TCI Ventures Group
Common Stock), not greater than the
corresponding differences between the Series
A TCI Ventures Group Common Stock and the
Series B TCI Ventures Group Common Stock).
Subject to the foregoing provisions,
dividends may be declared and paid on the
TCI Group Common Stock, the Liberty Media
Group Common Stock and/or the TCI Ventures
Group Common Stock in equal or unequal
amounts, notwithstanding the relationship
between the TCI Group Available Dividend
Amount, the Liberty Media Group Available
Dividend Amount and the TCI Ventures Group
Available Dividend Amount, the respective
amounts of prior dividends paid on, or
liquidation rights of, the TCI Group Common
Stock, the Liberty Media Group Common Stock
or the TCI Ventures Group Common Stock or
any other factor.
Any decision to pay dividends in the future
will depend on the financial condition,
results of operations and business
requirements of the Company as a whole. In
making a determination as to the allocation
of any future dividends between the TCI
Group Common Stock, the Liberty Media Group
Common Stock and the TCI Ventures Group
Common Stock, the Board of Directors expects
to follow a policy under which it will
consider, among other factors, the relative
financial condition, results of operations
and business requirements of the respective
Groups.
Dividend, Redemption and
Conversion Rights Applicable
on Disposition of TCI Ventures
Group Assets ................... If the Company disposes of all or
substantially all of the assets of the TCI
Ventures Group (defined as 80% or more on a
current market value basis), other than in a
transaction referred to in the following
sentence, the Company is required, at its
option, either to (i) distribute to holders
of the TCI Ventures Group Common Stock an
amount in cash and/or securities or other
property equal to their proportionate
interest in the TCI Ventures Group Net
Proceeds of such disposition, either by
special dividend or by redemption of all or
part of the outstanding shares of TCI
Ventures Group Common Stock, or (ii) convert
each
[31]
<PAGE> 41
outstanding share of Series A TCI Ventures
Group Common Stock and Series B TCI Ventures
Group Common Stock into a number (or
fraction) of shares of Series A TCI Group
Common Stock or Series B TCI Group Common
Stock, respectively, equal in each case to
110% of the average daily ratio over the
ten-Trading Day period beginning on the 16th
Trading Day after consummation of the
transaction of the Market Value of one share
of Series A TCI Ventures Group Common Stock
to the Market Value of one share of Series A
TCI Group Common Stock. The Company will not
be required to take any of the foregoing
actions if the disposition of all or
substantially all of the assets of the TCI
Ventures Group occurs in a transaction in
which the Company receives primarily equity
securities of an entity engaged or proposing
to engage primarily in a similar or
complementary business or occurs in
connection with the disposition of all or
substantially all of the properties and
assets of the Company. The proportionate
interest in the TCI Ventures Group Net
Proceeds of a disposition that would be
distributed to holders of TCI Ventures Group
Common Stock would be based on (a) in the
case of a special dividend or partial
redemption following the disposition of less
than all the properties and assets of the
TCI Ventures Group, the TCI Ventures Group
Outstanding Interest Fraction (a measure of
the percentage interest in the TCI Ventures
Group represented by outstanding shares of
TCI Ventures Group Common Stock), or (b) in
the case of a complete redemption following
the disposition of all of the properties and
assets of the TCI Ventures Group, the
Adjusted TCI Ventures Group Outstanding
Interest Fraction (a similar measure that
differs in that it takes into account the
dilutive effect of the Pre-Exchange Offer
Securities). Such a partial redemption could
be effected pro rata among the holders of
such shares or by such other method as may
be determined by the Board of Directors to
be equitable.
Conversion at Option
of Holder ...................... Shares of Series B TCI Ventures Group Common
Stock will be convertible at any time, at
the option of the holder only, into the same
number of shares of Series A TCI Ventures
Group Common Stock. Shares of Series A TCI
Ventures Group Common Stock will not be
convertible into shares of Series B TCI
Ventures Group Common Stock.
Conversion at Option
of Company ..................... The Company may, in the sole discretion of
the Board of Directors, elect at any time to
convert each outstanding share of TCI
Ventures Group Common Stock into a number
(or fraction) of shares of TCI Group Common
Stock equal to the ratio of the value (as
determined on the basis of appraisals
performed by investment banking firms) of
one share of TCI Ventures Group Common Stock
to the average Market Value over a
20-Trading Day period prior to the date such
appraisal process is initiated of one share
of Series A TCI Group Common Stock. In such
a case, shares of Series A TCI Ventures
Group Common Stock would be converted into
Series A TCI Group Common Stock and shares
of Series B TCI Ventures Group Common Stock
would be converted into Series B TCI Group
Common Stock.
Redemption in Exchange
for Stock of Subsidiary ........ The Company could at any time, in the sole
discretion of the Board of Directors, redeem
(without premium) all outstanding shares of
TCI Ventures Group Common Stock in exchange
for a proportionate interest in the
outstanding shares of any one or more
Qualifying Subsidiaries that hold all of the
assets and liabilities attributed to the TCI
Ventures Group. The percentage of the stock
of the Qualifying Subsidiary or Qualifying
Subsidiaries owned by the Company that is
distributable in the redemption would be
based on the Adjusted TCI Ventures Group
Outstanding Interest Fraction. In such a
case, the Board of
[32]
<PAGE> 42
Directors could elect to distribute, with
respect to each such subsidiary, either a
single class of subsidiary stock or two
classes of subsidiary stock having relative
voting rights and differences in certain
related rights not greater than the
corresponding differences between the Series
A TCI Ventures Group Common Stock and the
Series B TCI Ventures Group Common Stock. A
"Qualifying Subsidiary" for this purpose is
a subsidiary of the Company that is either
wholly owned, directly or indirectly, by the
Company or in which the Company's direct or
indirect ownership and voting interest is
sufficient to satisfy the requirements of
the Internal Revenue Service (the "Service")
for a distribution of the Company's interest
in such subsidiary to holders of TCI
Ventures Group Common Stock, which
distribution is tax free to such holders..
A Qualifying Subsidiary may include an
existing subsidiary of the Company or
another subsidiary of the Company created
exclusively for such purpose. To the extent
that any such Qualifying Subsidiary held
assets and/or liabilities in addition to
those attributed to the TCI Ventures Group,
it is expected that in connection with any
such redemption such additional assets or
liabilities would either be attributed to
the TCI Ventures Group or transferred by
such Qualifying Subsidiary to the Company or
to another subsidiary of the Company
attributed to a Group other than the TCI
Ventures Group. In each case, either any
then existing Inter-Group Interest of the
TCI Group in the TCI Ventures Group would be
appropriately adjusted or other
consideration that the Board of Directors
may determine in its discretion to be
appropriate would be paid by one Group to
the other Group. See "Management and
Allocation Policies." The Company currently
holds the assets that would be attributed to
the TCI Ventures Group through several
direct and indirect subsidiaries, a number
of which own other subsidiaries that are
attributed to the TCI Group.
Generally, the charter of a corporation that
has a tracking stock contains a provision
equivalent to the foregoing for the
redemption of such tracking stock in
exchange for the stock of a subsidiary and
the Company Charter includes such a
provision with respect to the Liberty Media
Group Common Stock and the Telephony Group
Common Stock. Although the Board of
Directors determined that it was appropriate
for the Company to have the same flexibility
to redeem the TCI Ventures Group Common
Stock, the Company does not currently have
any plans or proposals to effect any such
redemption if the TCI Ventures Group Common
Stock is authorized and issued. Further, the
Board of Directors has not determined under
what circumstances it might be appropriate
for the Company to do so. The ability of the
Company to exercise its right to redeem the
outstanding shares of TCI Ventures Group
Common Stock in exchange for a proportionate
interest in shares of one or more Qualifying
Subsidiaries may be limited by certain
agreements (including those relating to its
interests in the PCS Ventures and to its
equity interest in TCG), which agreements
generally require that any entity which
holds all or part of such interests remain a
subsidiary of the Company, subject to
certain exceptions.
The Company believes that under current law
a holder of TCI Ventures Group Common Stock
generally would not be entitled to money
damages or other remedies against the
Company or the Board of Directors based on a
decision by the Board of Directors to redeem
the outstanding shares of TCI Ventures Group
Common Stock in accordance with the
procedures described above unless such
redemption otherwise represented a breach by
such directors of their respective fiduciary
or other duties to the stockholders of the
Company as a whole.
Voting Rights .................. The Series A TCI Ventures Group Common Stock
will be entitled to one vote per share and
the Series B TCI Ventures Group Common Stock
will be entitled
[33]
<PAGE> 43
to ten votes per share, voting as one class
with the TCI Group Common Stock, the Liberty
Media Group Common Stock and any Preferred
Stock entitled to vote, except to the extent
separate class or series votes are required
by law or the Amended Charter. The Amended
Charter does not provide for any rights for
the TCI Ventures Group Common Stock to vote
separately from the TCI Group Common Stock
and the Liberty Media Group Common Stock.
Liquidation .................... Holders of shares of Series A TCI Ventures
Group Common Stock and Series B TCI Ventures
Group Common Stock will be entitled to share
(on an equal per share basis) a portion of
the funds of the Company remaining for
distribution to its common stockholders
based on the average daily ratio over a
period of 20 Trading Days prior to the
announcement of the liquidation event of the
aggregate Market Capitalization of the TCI
Ventures Group Common Stock to the aggregate
Market Capitalization of the TCI Group
Common Stock, the Liberty Media Group Common
Stock and the TCI Ventures Group Common
Stock.
Inclusion in Nasdaq
National Market : Nasdaq National Market under the symbols
" " and " ".
EFFECTS ON TCI GROUP COMMON STOCK
AND LIBERTY MEDIA GROUP COMMON STOCK
Businesses ..................... Under the TCI Ventures Group Stock Proposal,
the TCI Group will consist of the Company's
businesses and assets not included in either
the Liberty Media Group or the TCI Ventures
Group, including the Company's domestic
distribution and communications businesses
(other than the investments attributed to
the TCI Ventures Group). The TCI Group will
also include any Inter-Group Interest that
may hereafter be created in the Liberty
Media Group or the TCI Ventures Group. The
businesses included in the Liberty Media
Group will not change under the TCI Ventures
Group Stock Proposal.
Dividends and Share
Distributions .................. Because the businesses included in the TCI
Ventures Group are currently included in the
TCI Group, the TCI Ventures Group Stock
Proposal will affect the determination of,
and could reduce the amount available for
dividends under, the TCI Group Available
Dividend Amount. Under the TCI Ventures
Group Stock Proposal, share distributions on
the TCI Group Common Stock consisting of TCI
Ventures Group Common Stock are permitted to
the extent of the Number of Shares Issuable
with Respect to the TCI Ventures Group
Inter-Group Interest, if any, while share
distributions on the Liberty Media Group
Common Stock consisting of TCI Ventures
Group Common Stock are not permitted.
Liquidation .................... Holders of shares of Series A TCI Group
Common Stock and Series B TCI Group Common
Stock are currently entitled to share (on an
equal per share basis) a portion of the
funds of the Company remaining for
distribution to its common stockholders
based on the average daily ratio over a
period of 20 Trading Days prior to the
announcement of the liquidation, dissolution
or winding up of the Company of the
aggregate Market Capitalization of the TCI
Group Common Stock to the aggregate Market
Capitalization of the TCI Group Common Stock
and the Liberty Media Group Common Stock. If
the TCI Ventures Group Stock Proposal is
approved and shares of TCI Ventures Group
Common Stock are issued, the formula basis
on which holders of shares of TCI Group
Common Stock share in the funds remaining
for distribution to common stockholders will
take into account the Market Capitalization
of the TCI
[34]
<PAGE> 44
Ventures Group Common Stock. Similarly,
holders of shares of Series A Liberty Media
Group Common Stock and Series B Liberty
Media Group Common Stock will be entitled to
share (on an equal per share basis) a
portion of the funds of the Company
remaining for distribution to its common
stockholders based on the average daily
ratio over a period of 20 Trading Days prior
to the announcement of the liquidation event
of the aggregate Market Capitalization of
the Liberty Media Group Common Stock to the
aggregate Market Capitalization of the TCI
Group Common Stock, the Liberty Media Group
Common Stock and the TCI Ventures Group
Common Stock. If the sum of the Market
Capitalization of the TCI Group Common Stock
and the Market Capitalization of the TCI
Ventures Group Common Stock for the relevant
measurement period is greater than what the
Market Capitalization of the TCI Group for
such period would have been if the TCI
Ventures Group Common Stock had not been
authorized, then the portion of the funds of
the Company remaining for distribution to
common stockholders in which the holders of
Liberty Media Group Common Stock would share
would be smaller than it otherwise would
have been.
NO INITIAL INTER-GROUP INTEREST
The aggregate number of shares of TCI Ventures Group Common Stock
being offered in the Exchange Offers is intended initially to represent all of
the common stockholders' equity value of the Company attributable to the TCI
Ventures Group. Accordingly, if all of such shares are issued in the Exchange
Offers, the TCI Group will not have any Inter-Group Interest in the TCI
Ventures Group. If fewer than all of the shares offered are issued, the
remaining Inter-Group Interest would be extinguished in consideration of the
attribution to the TCI Group of the TCI Ventures Group Preferred Interest.
An Inter-Group Interest in the TCI Ventures Group would be created
only if a subsequent transfer of cash or other property from the TCI Group to
the TCI Ventures Group is specifically designated by the Board of Directors as
being made to create an Inter-Group Interest in the TCI Ventures Group (in
contrast to transfers made for other consideration such as transfers as loans
or in purchase and sale transactions) or if outstanding shares of TCI Ventures
Group Common Stock are retired or otherwise cease to be outstanding following
their purchase with funds attributed to the TCI Group. In structuring the
terms of the TCI Ventures Group Stock Proposal, the Board of Directors
determined that the TCI Ventures Group should not be permitted to create an
interest in either the TCI Group or the Liberty Media Group corresponding to
the Inter-Group Interest. The Company Charter does not permit the Liberty
Media Group to create an interest in the TCI Group or the Telephony Group, and
the Amended Charter would not permit the Liberty Media Group to create an
interest in the TCI Ventures Group, corresponding to the Inter-Group Interest.
In making these determinations, the Board of Directors concluded that an
interest corresponding to the Inter-Group Interest held by the TCI Ventures
Group in either the TCI Group or the Liberty Media Group could influence
adversely the ability of the TCI Ventures Group Common Stock to reflect the
separate performance of the TCI Ventures Group, and that an interest
corresponding to the Inter-Group Interest held by the Liberty Media Group in
the TCI Ventures Group could influence adversely the ability of the Liberty
Media Group Common Stock to reflect the separate performance of the Liberty
Media Group.
The amount of any Inter-Group Interest of the TCI Group in the TCI
Ventures Group at any point in time would be expressed in terms of the "Number
of Shares Issuable with Respect to the TCI Ventures Group Inter-Group
Interest," which is intended to provide a measure of any Inter-Group Interest
of the TCI Group in the TCI Ventures Group on a basis comparable to an
investment in shares of TCI Ventures Group Common Stock. In general, if an
Inter-Group Interest in the TCI Ventures Group is created by a transfer of
funds or other assets from the TCI Group to the TCI Ventures Group, the Number
of Shares Issuable with Respect to the TCI Ventures Group Inter-Group Interest
would be increased by an amount determined by dividing the amount of funds or
value of assets transferred by the Market Value of a share of Series A TCI
Ventures Group Common Stock as of the date of such transfer. In the event a
subsequent transfer of funds or other assets from the TCI Group to the TCI
Ventures Group is determined by the Board of Directors to be made in respect of
an increase in the Inter-Group Interest, the Number of Shares Issuable with
Respect to the TCI Ventures Group Inter-Group Interest would be increased by an
amount determined by dividing the amount of the additional funds or value of
the additional assets transferred by the Market Value of a share of Series A
TCI Ventures Group Common Stock as of the date of such transfer. Any decrease
in the Number of Shares Issuable with Respect to the TCI Ventures Group
Inter-Group Interest resulting from a transfer of funds or other assets from
the TCI Ventures Group to the TCI Group determined by the Board of Directors to
be made in respect of such a decrease would be similarly calculated. To the
extent outstanding shares of TCI Ventures Group Common
[35]
<PAGE> 45
Stock are retired or otherwise cease to be outstanding following their purchase
with funds attributed to the TCI Group, the Number of Shares Issuable with
Respect to the TCI Ventures Group Inter-Group Interest would increase on a
share-for-share basis. Shares of TCI Ventures Group Common Stock purchased
with funds attributed to the TCI Group which remain outstanding (as a result of
being held by a subsidiary included in the TCI Group) would not create an
Inter-Group Interest or increase any then existing Inter-Group Interest in the
TCI Ventures Group but would represent an outstanding interest in the common
stockholders' equity value of the Company attributable to the TCI Ventures
Group. Similarly, shares of TCI Ventures Group Common Stock purchased with
funds attributed to the Liberty Media Group which remain outstanding would not
create an interest in the TCI Ventures Group corresponding to the Inter-Group
Interest, but would represent an outstanding interest in the common
stockholders' equity value of the Company attributable to the TCI Ventures
Group. The Number of Shares Issuable with Respect to the TCI Ventures Group
Inter-Group Interest, if any, would also (a) be adjusted from time to time as
appropriate to reflect (i) subdivisions (by stock split or otherwise) and
combinations (by reverse stock split or otherwise) of the TCI Ventures Group
Common Stock, (ii) dividends or distributions payable in shares of TCI Ventures
Group Common Stock to holders of TCI Ventures Group Common Stock and (iii)
reclassifications of TCI Ventures Group Common Stock and (b) be decreased by
the number of shares of TCI Ventures Group Common Stock (i) issued upon
conversion, exchange or exercise of Convertible Securities (other than
Pre-Exchange Offer Securities) that are not attributed to the TCI Ventures
Group or (ii) issued by the Company as a dividend or distribution or by
reclassification or exchange to holders of TCI Group Common Stock. The Number
of Shares Issuable with Respect to the TCI Ventures Group Inter-Group Interest,
if any, would not be represented by outstanding shares of TCI Ventures Group
Common Stock and would have no voting rights.
Issuances or sales of shares of TCI Ventures Group Common Stock
designated by the Board of Directors as being made in reduction of any
Inter-Group Interest then existing would reduce the Number of Shares Issuable
with Respect to the TCI Ventures Group Inter-Group Interest on a
share-for-share basis and the net proceeds of such sale would be reflected in
the combined financial statements of the TCI Group. At the discretion of the
Board of Directors, shares of TCI Ventures Group Common Stock issued in respect
of any Inter-Group Interest in the TCI Ventures Group may be issued in the form
of shares of Series A TCI Ventures Group Common Stock or Series B TCI Ventures
Group Common Stock (subject to there being a sufficient number of authorized
and unissued shares of the applicable series of TCI Ventures Group Common
Stock). In addition to the net proceeds from a sale of the number of shares of
TCI Ventures Group Common Stock deemed to constitute all or part of the
Inter-Group Interest, if any, the TCI Group combined financial statements
would be credited, and the TCI Ventures Group combined financial statements
would be charged, with an amount equal to the product of (i) the aggregate
amount of any dividend or other distribution paid (other than in shares of TCI
Ventures Group Common Stock, which will result in the adjustment to the Number
of Shares Issuable with Respect to the TCI Ventures Group Inter-Group Interest
described above) or distributed in respect of outstanding TCI Ventures Group
Common Stock, times (ii) a fraction, the numerator of which is the TCI Ventures
Group Inter-Group Interest Fraction and the denominator of which is the TCI
Ventures Group Outstanding Interest Fraction. For illustrations of the effects
of the issuance of shares of TCI Ventures Group Common Stock, see Annex IV --
Illustration of Certain Terms.
The "TCI Ventures Group Outstanding Interest Fraction" represents the
percentage interest in the common stockholders' equity value of the Company
attributable to the TCI Ventures Group that is represented at any time by the
outstanding shares of TCI Ventures Group Common Stock, and the "TCI Ventures
Group Inter-Group Interest Fraction" represents any remaining percentage
interest in the common stockholders' equity value of the Company attributable
to the TCI Ventures Group that is attributed to the TCI Group by virtue of an
Inter-Group Interest. The sum of the TCI Ventures Group Outstanding Interest
Fraction and the TCI Ventures Group Inter-Group Interest Fraction would always
equal 100%. The "Adjusted TCI Ventures Group Outstanding Interest Fraction"
means a fraction the numerator of which is the number of outstanding shares of
TCI Ventures Group Common Stock and the denominator of which is the sum of (a)
such number of outstanding shares, (b) the Number of Shares Issuable with
Respect to the TCI Ventures Group Inter-Group Interest, if any, and (c) the
number of shares of TCI Ventures Group Common Stock issuable upon exchange of
Pre-Exchange Offer Securities. See "Factors to be Considered--Potential
Dilution from Issuances of TCI Ventures Group Common Stock upon Exercise or
Exchange of Certain Outstanding Securities."
FACTORS TO BE CONSIDERED
Stockholders should consider the following factors, in addition to the
other information contained elsewhere in this Proxy Statement and the Annexes
hereto, in connection with the TCI Ventures Group Stock Proposal.
STOCKHOLDERS OF ONE COMPANY; FINANCIAL EFFECTS ON ONE BUSINESS COULD AFFECT
OTHER BUSINESSES
[36]
<PAGE> 46
Notwithstanding the attribution of assets and liabilities, equity and
items of income and expense among the Groups for the purpose of preparing the
combined financial statements of the TCI Group, the Liberty Media Group and the
TCI Ventures Group, the change in the capital structure of the Company
contemplated by the TCI Ventures Group Stock Proposal will not affect legal
title to such assets or responsibility for such liabilities of the Company or
any of its subsidiaries. Holders of TCI Group Common Stock, Liberty Media
Group Common Stock and TCI Ventures Group Common Stock will be common
stockholders of the Company and will be subject to risks associated with an
investment in the Company and all of its businesses, assets and liabilities.
The financial results of one Group that affect the Company's
consolidated results of operations or financial condition could affect the
combined results of operations or financial condition of the other Groups and
the market price of the TCI Group Common Stock, the Liberty Media Group Common
Stock and the TCI Ventures Group Common Stock. In addition, any net losses of
any Group, dividends or distributions on, or repurchases of, the TCI Group
Common Stock, the Liberty Media Group Common Stock or the TCI Ventures Group
Common Stock, and dividends on, or certain repurchases of, Preferred Stock,
will reduce funds of the Company legally available for the payment of dividends
on the TCI Group Common Stock, the Liberty Media Group Common Stock and the TCI
Ventures Group Common Stock. The combined financial statements of the TCI
Group, the Liberty Media Group and the TCI Ventures Group should be read in
conjunction with the consolidated financial statements of the Company. The
combined financial statements of each Group will principally reflect the
combined financial position, results of operations and cash flows of the
businesses and investments included therein. However, each Group's financial
information could also include allocated portions of the individual assets and
liabilities that are not separately identified with the operations of a
specific Group.
LIMITED SEPARATE STOCKHOLDER RIGHTS; EFFECTS ON VOTING POWER
Under the TCI Ventures Group Stock Proposal, holders of TCI Ventures
Group Common Stock would not have any legal rights specifically related to the
assets attributed to the TCI Ventures Group or have any right to vote on
matters as a separate class, other than (i) as set forth in the provisions
relating to dividend and liquidation rights and requirements for mandatory
dividend, redemption or conversion of TCI Ventures Group Common Stock upon the
disposition of all or substantially all of the properties and assets of the TCI
Ventures Group as described under "Description of TCI Ventures Group Common
Stock and Effects on Existing Common Stock--Conversion and Redemption" and (ii)
separate voting rights in limited circumstances as required by the General
Corporation Law of the State of Delaware (the "DGCL"). Separate meetings for
the holders of TCI Ventures Group Common Stock would not be held.
Under the TCI Ventures Group Stock Proposal, holders of TCI Group
Common Stock, Liberty Media Group Common Stock, TCI Ventures Group Common Stock
and any Preferred Stock having general voting rights would vote as one class on
all matters coming before any meeting of stockholders and would not have any
separate class voting rights except in limited circumstances as required by the
DGCL. Under the DGCL, the holders of the outstanding shares of a class are
entitled to vote as a class upon a proposed amendment to a corporation's
certificate of incorporation, whether or not entitled to vote on such amendment
by the certificate of incorporation, if the amendment would alter or change the
powers, preferences or special rights of such class so as to affect them
adversely. For this purpose, if a proposed amendment would alter or change the
powers, preferences or special rights of one or more series of any class so as
to affect them adversely, but would not so affect the entire class, then only
the shares of the series so affected by the amendment would be entitled to vote
as a separate class on the amendment. Accordingly, a proposed amendment the
adverse effect of which on the powers, preferences or rights of any series of
Common Stock does not differ from its adverse effect on the powers, preferences
or rights of any other series of Common Stock would not entitle such series to
vote as a class separately from the other series of Common Stock.
Certain matters on which holders of TCI Group Common Stock, Liberty
Media Group Common Stock and TCI Ventures Group Common Stock would vote
together as a single class could involve a divergence or the appearance of a
divergence of interests between the holders of such series of Common Stock.
For example, the Amended Charter does not require that a merger or
consolidation of the Company requiring the approval of the Company's
stockholders be approved by a separate vote of holders of any series of Common
Stock, and Delaware law requires such approval only in certain circumstances.
As a result, if holders of any one or more series of Common Stock that possess
the requisite voting power vote to approve the merger or consolidation, then
the merger or consolidation could be consummated even if the holders of a
majority of some other series of Common Stock vote against the merger or
consolidation. See "--Potential Divergence of Interests; No Specific
Procedures for Resolution." Immediately following the issuance of shares of
TCI Ventures Group Common Stock upon the closing of the Exchange Offers, the
combined voting power of the Series A TCI Group Common
[37]
<PAGE> 47
Stock and Series B TCI Group Common Stock would represent a majority of the
voting power of all classes and series entitled to vote in the election of
directors.
If the TCI Ventures Group Stock Proposal is approved by stockholders,
the Series A TCI Ventures Group Common Stock will have one vote per share and
the Series B TCI Ventures Group Common Stock will have ten votes per share.
The Series A TCI Group Common Stock and Series A Liberty Media Group Common
Stock will continue to have one vote per share and the Series B TCI Group
Common Stock and Series B Liberty Media Group Common Stock will continue to
have ten votes per share. See "Description of TCI Ventures Group Common Stock
and Effects on Existing Common Stock--Voting Rights."
POTENTIAL DIVERGENCE OF INTERESTS; NO SPECIFIC PROCEDURES FOR RESOLUTION
The existence of the TCI Ventures Group Common Stock may give rise to
occasions when the interests of the holders of TCI Ventures Group Common Stock
and the holders of either TCI Group Common Stock or Liberty Media Group Common
Stock, or both, may diverge or appear to diverge. As further discussed below,
examples include, among others, determinations by the Board of Directors to (i)
convert each outstanding share of TCI Ventures Group Common Stock into shares
of TCI Group Common Stock, (ii) approve the disposition of all or substantially
all of the properties and assets of the TCI Ventures Group, (iii) allocate
consideration to be received by holders of Common Stock in connection with a
merger or consolidation involving the Company among holders of different series
of Common Stock, (iv) allocate resources and financial support to or pursue
business opportunities or operational strategies through one Group instead of
one or more of the other Groups, (v) if and to the extent there is an
Inter-Group Interest, allocate the proceeds of issuances of TCI Ventures Group
Common Stock either to the TCI Group in respect of a reduction in its
Inter-Group Interest in the TCI Ventures Group or to the equity of the TCI
Ventures Group, (vi) pay or omit dividends on the TCI Group Common Stock, the
Liberty Media Group Common Stock or the TCI Ventures Group Common Stock or
(vii) approve transactions involving the transfer of funds or assets from one
Group to one or more of the other Groups or make other operational or financial
decisions with respect to one Group that could be considered to be detrimental
to one or more of the other Groups. Other than as described under "Management
and Allocation Policies," no specific procedures have been adopted for
consideration of matters involving a divergence of interests among the holders
of TCI Group Common Stock, Liberty Media Group Common Stock and TCI Ventures
Group Common Stock. Rather than develop additional specific procedures in
advance, the Board of Directors intends to exercise its judgment from time to
time, depending on the circumstances, as to how best to obtain information
regarding the divergence (or potential divergence) of interests, under what
circumstances to seek the assistance of outside advisers, whether a committee
of the Board of Directors should be appointed to address the matter and how to
assess which available alternative is in the best interests of the Company and
all of its stockholders. The Board of Directors believes the advantages of
retaining flexibility in determining how best to fulfill its responsibilities
in such circumstances as they may arise outweigh any perceived advantages from
adopting additional specific procedures in advance.
Optional Conversion of TCI Ventures Group Common Stock into TCI Group
Common Stock. The Board of Directors may determine to convert each outstanding
share of Series A TCI Ventures Group Common Stock into shares of Series A TCI
Group Common Stock and each outstanding share of Series B TCI Ventures Group
Common Stock into shares of Series B TCI Group Common Stock, in each case
determined based upon the ratio of the value (as determined on the basis of
appraisals performed by investment banking firms) of one share of TCI Ventures
Group Common Stock to the average Market Value over a 20-Trading Day period
prior to the date such appraisal process is initiated of one share of Series A
TCI Group Common Stock. Such a conversion could be effected at any time,
including at a time when the value of one share of TCI Ventures Group Common
Stock determined by appraisal differs significantly from the market value of
the TCI Ventures Group Common Stock reflected in the trading markets, or at a
time when the Market Value of the TCI Group Common Stock used in the
determination of the conversion ratio reflects what might be considered an
overvaluation or undervaluation. Basing the conversion ratio on an appraised
value determination for the TCI Ventures Group Common Stock and a trading
market valuation for the TCI Group Common Stock could result in the conversion
ratio being significantly different from that which would have resulted if the
same measure were used for the valuation of both the TCI Group Common Stock and
the TCI Ventures Group Common Stock. For example, a conversion could be
considered dilutive of the interests of the holders of the TCI Group Common
Stock if the Market Value of the TCI Group Common Stock is less than the
valuation of the TCI Group Common Stock that would have resulted if a similar
appraisal procedure to that used in the determination of the value of the TCI
Ventures Group Common Stock were used. Such a conversion would also have the
effect of precluding holders of TCI Ventures Group Common Stock from retaining
their investment in a security intended to reflect separately the business of
the TCI Ventures Group.
[38]
<PAGE> 48
Disposition of Group Assets. As long as the assets of a Group
continue to represent less than substantially all of the properties and assets
of the Company, the Board of Directors may approve sales and other dispositions
of any amount of the properties and assets of such Group without stockholder
approval, because under the DGCL and the Amended Charter stockholder approval
is required only for a sale or other disposition of all or substantially all of
the properties and assets of the Company as a whole. The Amended Charter,
however, contains provisions which, in the event of a Disposition of all or
substantially all of the properties and assets of the TCI Ventures Group in one
transaction or a series of related transactions, other than in a transaction in
which the Company receives primarily equity securities of an entity engaged or
proposing to engage primarily in a similar or complementary business, and other
than in connection with the disposition of all or substantially all of the
assets of the entire Company, require the Company, at its option, either to (i)
distribute by dividend or redemption to the holders of Series A TCI Ventures
Group Common Stock and Series B TCI Ventures Group Common Stock an amount in
cash and/or securities or other property equal to their proportionate interest
in the TCI Ventures Group Net Proceeds of such Disposition or (ii) convert
outstanding shares of Series A TCI Ventures Group Common Stock into a number
(or fraction) of shares of Series A TCI Group Common Stock and outstanding
shares of Series B TCI Ventures Group Common Stock into a number (or fraction)
of shares of Series B TCI Group Common Stock, equal in each case to 110% of the
average daily ratio of the Market Value of a share of Series A TCI Ventures
Group Common Stock to the Market Value of a share of Series A TCI Group Common
Stock over a specified period following such Disposition. The provisions of
the Amended Charter do not require the Board of Directors to select the option
which would result in the distribution with the highest value to the holders of
the TCI Ventures Group Common Stock or with the smallest effect on the TCI
Group Common Stock. The Amended Charter does not require the Company to take
such actions upon sales or other dispositions of less than substantially all of
the properties and assets of the TCI Ventures Group or upon two or more
unrelated sales or other dispositions which together constitute the sale of
substantially all of the properties and assets of the TCI Ventures Group. In
addition, although the Company Charter currently contains, and the Amended
Charter will continue to contain, comparable provisions relating to a
disposition of all or substantially all of the properties and assets of the
Liberty Media Group, the Company Charter currently does not contain, and the
Amended Charter will continue not to contain, comparable provisions relating to
a disposition of all or substantially all of the properties and assets of the
TCI Group. See "Description of TCI Ventures Group Common Stock and Effects on
Existing Common Stock--Conversion and Redemption." The appropriate disposition
of proceeds in the latter case would be subject to determination by the Board
of Directors in accordance with the Amended Charter, approved allocation
policies and in the exercise of its fiduciary duties. See "--Fiduciary Duties
of the Board of Directors Are to All Stockholders Regardless of Class or
Series."
Allocation of Proceeds of Mergers or Consolidations . The Amended
Charter does not contain any provisions governing how consideration to be
received by the Company's stockholders in connection with a merger or
consolidation involving the Company (in which the Common Stock is to be
converted into other securities, cash or other property) is to be allocated
among holders of TCI Group Common Stock, Liberty Media Group Common Stock and
TCI Ventures Group Common Stock. In any such merger or consolidation, the
allocation of consideration would be determined by the Board of Directors. See
"--Limited Separate Stockholder Rights; Effects on Voting Power."
Allocation of Resources and Financial Support; Pursuit of Business
Opportunities or Operational Strategies. The Board of Directors could from
time to time allocate resources and financial support to or pursue business
opportunities or operational strategies through one Group instead of the other
Groups. The decision to allocate resources and financial support to one Group
may adversely affect the ability of the other Groups to obtain funds sufficient
to implement their business strategies. Because both the Liberty Media Group
and the TCI Ventures Group (through International) have significant interests
in entities which provide programming services to markets outside the United
States, and also have business strategies which anticipate further expansion
into international markets, the Board of Directors has been and likely will
continue to be presented with opportunities that could be pursued through
either the TCI Ventures Group (through International) or the Liberty Media
Group, or jointly through both Groups. See "Management and Allocation
Policies."
Allocation of Proceeds Upon Issuance of TCI Ventures Group Common
Stock. If and to the extent that the TCI Group has an Inter-Group Interest in
the TCI Ventures Group at the time of any sale of shares of TCI Ventures Group
Common Stock, the Board of Directors would determine the allocation of the
proceeds of such sale between the TCI Group and the TCI Ventures Group. In
such case, the Board of Directors could allocate up to 100% of the net proceeds
of the sale of TCI Ventures Group Common Stock to the TCI Group or to the TCI
Ventures Group, and such net proceeds would be reflected entirely on the
combined financial statements of the Group to which such proceeds were
allocated. Any such allocation of net proceeds to the TCI Group would reduce
any then existing Inter-Group Interest in the TCI Ventures Group.
[39]
<PAGE> 49
No Assurance of Payment of Dividends. The Company has never paid cash
dividends on its Common Stock. The Board of Directors does not currently
intend to pay cash dividends on the TCI Group Common Stock, the Liberty Media
Group Common Stock or, if the TCI Ventures Group Stock Proposal is approved,
the TCI Ventures Group Common Stock. Any dividends on the TCI Ventures Group
Common Stock which may be declared by the Board of Directors will be payable
out of the lesser of (i) the funds of the Company legally available for such
purpose, which are determined on the basis of the entire Company, and (ii) the
TCI Ventures Group Available Dividend Amount. Such dividends are further
subject to the prior payment of dividends on outstanding shares of any class or
series of capital stock of the Company with preferential dividend provisions.
Any net losses of the Company (without regard to whether such losses arose from
any specific Group), and any dividends or distributions on, or repurchases of,
the TCI Group Common Stock, the Liberty Media Group Common Stock or the TCI
Ventures Group Common Stock, and dividends on, and certain repurchases of,
Preferred Stock, will reduce the funds of the Company legally available for
payment of dividends on the TCI Group Common Stock, the Liberty Media Group
Common Stock and the TCI Ventures Group Common Stock. Subject to limitations
of the DGCL and the Amended Charter, the Board of Directors may declare and pay
dividends on the TCI Group Common Stock, the Liberty Media Group Common Stock
and the TCI Ventures Group Common Stock in equal or unequal amounts, or may
decide not to declare and pay such dividends, notwithstanding the relationship
between the TCI Group Available Dividend Amount, the Liberty Media Group
Available Dividend Amount and the TCI Ventures Group Available Dividend Amount,
the respective amounts of prior dividends paid on, or liquidation rights of,
the TCI Group Common Stock, the Liberty Media Group Common Stock or the TCI
Ventures Group Common Stock or any other factor. See "Description of TCI
Ventures Group Common Stock and Effects on Existing Common Stock--Dividends"
and "Dividend Policy."
Operational and Financial Decisions. The Board of Directors could
from time to time make operational and financial decisions that affect the
Groups disproportionately, such as transfers of funds or assets among the
Groups, the allocation of funds for capital expenditures, the determination to
expand into new areas and the allocation of resources and personnel that may be
suitable for more than one Group. See "Management and Allocation Policies."
The decision to provide funds to one Group may adversely affect the ability of
the other Groups to obtain funds sufficient to implement their business
strategies. For further discussion of potential divergence of interests
arising from financial decisions, see "--Transfer of Funds among Groups; Equity
Contributions from the TCI Group."
FIDUCIARY DUTIES OF THE BOARD OF DIRECTORS ARE TO ALL STOCKHOLDERS REGARDLESS
OF CLASS OR SERIES
Under Delaware law, the Board of Directors has a duty to act with due
care and in the best interests of all the Company's stockholders, including the
holders of TCI Group Common Stock, Liberty Media Group Common Stock and TCI
Ventures Group Common Stock. The existence of the TCI Group Common Stock, the
Liberty Media Group Common Stock and the TCI Ventures Group Common Stock may
give rise to occasions when the interests of the holders of one or more series
of Common Stock and the holders of the other series of Common Stock may diverge
or appear to diverge. See "--Potential Divergence of Interests; No Specific
Procedures for Resolution." The Board of Directors will address and resolve
any issues involving material divergence of interests between the holders of
the separate series of Common Stock.
Although the Company is not aware of any precedent concerning the
manner in which principles of Delaware law would be applied in the context of a
capital structure involving multiple classes or series of capital stock the
rights of which include terms designed to reflect the separate performance of
specified businesses, principles of Delaware law provide that a board of
directors must act in accordance with its good faith business judgment of the
corporation's best interests, taking into consideration the interests of all
stockholders regardless of class or series. Under these principles of Delaware
law and the "business judgment rule," a good faith determination made by a
disinterested and adequately informed Board of Directors with respect to any
matter having a disparate impact upon the holders of TCI Group Common Stock,
the holders of Liberty Media Group Common Stock and the holders of TCI Ventures
Group Common Stock would be a defense to any challenge to such determination
made by or on behalf of any of such groups of holders. Nevertheless, a
Delaware court hearing a case involving such a challenge may decide to apply
principles of Delaware law other than those discussed above, or may fashion new
principles of Delaware law, in order to decide such a case, which would be a
case of first impression. There may arise circumstances involving a divergence
of interests in which the Board of Directors is held to have properly
discharged its responsibilities to act with due care and in the best interests
of the Company and all of its stockholders, but in which holders of the TCI
Group Common Stock, the Liberty Media Group Common Stock or the TCI Ventures
Group Common Stock consider themselves to be disadvantaged relative to the
other series. In such a case, such holders would not have any other remedy
under Delaware law with respect to the circumstances giving rise to the
divergence of interests.
[40]
<PAGE> 50
Disproportionate ownership interests of members of the Board of
Directors in the TCI Group Common Stock, the Liberty Media Group Common Stock
and the TCI Ventures Group Common Stock or disparate values of the TCI Group
Common Stock, the Liberty Media Group Common Stock and the TCI Ventures Group
Common Stock could create or appear to create potential conflicts of interest
when directors are faced with decisions that could have different implications
for different series. See "--Potential Divergence of Interests; No Specific
Procedures for Resolution." Nevertheless, the Company believes that a director
would be able to discharge his or her fiduciary responsibilities even if his or
her interests in shares of TCI Group Common Stock, Liberty Media Group Common
Stock and TCI Ventures Group Common Stock were disproportionate or had
disparate values.
TRANSFER OF FUNDS AMONG GROUPS; EQUITY CONTRIBUTIONS FROM THE TCI GROUP
If the TCI Ventures Group Stock Proposal is approved by stockholders,
all debt incurred or preferred stock issued by the Company and its subsidiaries
following the issuance by the Company of the TCI Ventures Group Common Stock
would be (unless the Board of Directors otherwise provides) specifically
attributed to and reflected on the combined financial statements of the Group
that includes the entity which incurred the debt or issued the preferred stock
or, in case the entity incurring the debt or issuing the preferred stock is
Tele-Communications, Inc., the TCI Group. The Board of Directors could,
however, determine from time to time that debt incurred or preferred stock
issued by entities included in a Group should be specifically attributed to and
reflected on the combined financial statements of one of the other Groups to
the extent that the debt is incurred or the preferred stock is issued for the
benefit of such other Group.
To the extent cash needs of one Group exceed cash provided by such
Group, one of the other Groups may transfer funds to such Group. The TCI Group
has provided and will continue to provide centralized cash management functions
under which cash receipts of certain entities included in the other Groups are
remitted to the TCI Group and certain cash disbursements of the other Groups
will be funded by the TCI Group on a daily basis. Such transfers of funds
between the Groups will be reflected as borrowings or, if determined by the
Board of Directors, in the case of a transfer from the TCI Group to either the
Liberty Media Group or the TCI Ventures Group, reflected as the creation of a,
or an increase in any then existing, Inter-Group Interest of the TCI Group in
such Group or, in the case of a transfer from either the Liberty Media Group or
the TCI Ventures Group to the TCI Group, reflected as a reduction in any then
existing Inter-Group Interest in such Group. There are no specific criteria
for determining when a transfer will be reflected as a borrowing or as an
increase or reduction in an Inter-Group Interest. The Board of Directors
expects to make such determinations, either in specific instances or by setting
generally applicable policies from time to time, after consideration of such
factors as it deems relevant, including, without limitation, the needs of the
Company, the financing needs and objectives of the Groups, the investment
objectives of the Groups, the availability, cost and time associated with
alternative financing sources, prevailing interest rates and general economic
conditions.
Generally, it is expected that entities included in the Liberty Media
Group will seek their own long-term debt financing, whereas the TCI Ventures
Group is expected to require additional advances from the TCI Group for some
period of time. To satisfy this need, the Company has agreed to provide a
revolving loan facility (the "Revolving Credit Facility") to the TCI Ventures
Group for a five-year period commencing on the closing of the Exchange Offers.
Such facility would permit aggregate borrowings at any one time outstanding of
up to $500 million (subject to reduction as provided below), which borrowings
would bear interest at a rate per annum equal to The Bank of New York's prime
rate (as in effect from time to time) plus 1% per annum, payable quarterly. A
commitment fee equal to 3/8% per annum of the average unborrowed availability
under the Revolving Credit Facility would be payable by the TCI Ventures Group
to the TCI Group on a quarterly basis. The maximum amount of borrowings
permitted under the Revolving Credit Facility will be reduced on a dollar-for-
dollar basis by up to $300 million if and to the extent that the aggregate
amount of any additional capital that TCI Telephony contributes or is required
to contribute to the Sprint PCS Partnerships subsequent to the closing of the
Exchange Offers is less than $300 million.
Except as described above with respect to the Revolving Credit
Facility, loans from one Group to another Group would bear interest at such
rates and have such repayment schedules and other terms as are established from
time to time by, or pursuant to procedures established by, the Board of
Directors. The Board of Directors expects to make such determinations, either
in specific instances or by setting generally applicable policies from time to
time, after consideration of such factors as it deems relevant, including,
without limitation, the needs of the Company, the use of proceeds by and
creditworthiness of the recipient Group, the capital expenditure plans and
investment opportunities available to each Group and the availability, cost and
time associated with alternative financing sources.
[41]
<PAGE> 51
Although the creation of or any increase in an Inter-Group Interest of
the TCI Group in the TCI Ventures Group resulting from an equity contribution
by the TCI Group to the TCI Ventures Group or any decrease in such Inter-Group
Interest resulting from a transfer of funds from the TCI Ventures Group to the
TCI Group would be determined by reference to the Market Value of the Series A
TCI Ventures Group Common Stock as of the date of such transfer, such an
increase could occur at a time when such shares could be considered undervalued
and such a decrease could occur at a time when such shares could be considered
overvalued.
MANAGEMENT AND ALLOCATION POLICIES SUBJECT TO CHANGE
The Board of Directors has adopted certain management and allocation
policies described herein with respect to cash management, corporate expenses
and inter-Group transactions, any and all of which could be modified or
rescinded by the Board of Directors, in its sole discretion, without the
approval of stockholders, although there is no present intention to do so. The
Board of Directors could also adopt additional policies depending upon the
circumstances. Any determination to modify or rescind such policies, or to
adopt additional policies, including any such decision that could have
disparate effects upon holders of TCI Group Common Stock, Liberty Media Group
Common Stock or TCI Ventures Group Common Stock, would be made by the Board of
Directors as set forth under "--Fiduciary Duties of the Board of Directors Are
to All Stockholders Regardless of Class or Series." See "Management and
Allocation Policies."
NO ASSURANCE AS TO MARKET PRICE
Because there has been no prior market for the TCI Ventures Group
Common Stock, there can be no assurance as to the market price of the TCI
Ventures Group Common Stock following the closing of the Exchange Offers. If a
relatively small number of shares of either or both of the Series A TCI
Ventures Group Common Stock or the Series B TCI Ventures Group Common Stock are
issued, there would only be a limited market, if any, for such shares, and
holders could have difficulty selling such shares. Further, if an active
trading market does develop, there can be no assurance that it will be
maintained. No investment banking opinion as to any anticipated range of
trading prices for the TCI Ventures Group Common Stock in the open market has
been obtained by the Company. Moreover, it is not possible to predict the
impact of the issuance of the TCI Ventures Group Common Stock on the market
price of the TCI Group Common Stock.
The market prices of the TCI Ventures Group Common Stock would be
determined in the trading markets and could be influenced by many factors,
including the combined results of the TCI Ventures Group and the consolidated
results of the Company and of the various companies attributed to the TCI
Ventures Group, as well as the performance of the TCI Ventures Group and such
companies relative to investors' expectations, trading volumes, regulatory
environment and general economic and market conditions. There can be no
assurance as to the extent to which investors would assign values to the TCI
Ventures Group Common Stock based on the reported financial results or other
measures of performance or prospects of the TCI Ventures Group or such other
companies. Financial effects of the Groups that affect the Company's
consolidated results of operations or financial condition could affect the
market prices of the TCI Group Common Stock, the Liberty Media Group Common
Stock and the TCI Ventures Group Common Stock. In addition, the Company cannot
predict the impact on the market price of the TCI Ventures Group Common Stock
of certain terms of such securities, such as basing the consideration to be
paid if all or substantially all of the properties and assets of the TCI
Ventures Group are sold in a Disposition on the TCI Ventures Group Net Proceeds
of such Disposition, the ability of the Company to convert shares of TCI
Ventures Group Common Stock into TCI Group Common Stock at a conversion ratio
based on an appraised value determination for the TCI Ventures Group Common
Stock and a trading market valuation for the TCI Group Common Stock or the
discretion of the Board of Directors to make various other determinations with
respect to the Groups and the separate series of Common Stock. There is no
assurance that the Series A TCI Ventures Group Common Stock will be included in
any stock market index in which the Series A TCI Group Common Stock is now
included, or that the Series A TCI Group Common Stock will continue to be
included in such index. Not being included in an index could adversely affect
demand for the TCI Ventures Group Common Stock or the TCI Group Common Stock
and, consequently, the market price thereof.
POTENTIAL CONVERSION OF TCI VENTURES GROUP COMMON STOCK
The TCI Ventures Group Stock Proposal will permit the conversion,
solely at the Company's option, of all of the outstanding shares of TCI
Ventures Group Common Stock into TCI Group Common Stock upon the terms
described under "Description of TCI Ventures Group Common Stock and Effects on
Existing Common Stock--Conversion and Redemption." The Company cannot predict
the impact on the market prices of the TCI Group Common Stock or the TCI
Ventures Group Common Stock of its ability to effect any such conversion or the
effect, if any, that the exercise by the Company of this
[42]
<PAGE> 52
conversion right would have on the market price of the TCI Group Common Stock
or the TCI Ventures Group Common Stock prevailing at such time. See
"--Potential Divergence of Interests; No Specific Procedures for Resolution."
POTENTIAL EFFECTS OF POSSIBLE DISPOSITION OF ASSETS OF THE TCI VENTURES GROUP
The terms of the TCI Ventures Group Common Stock provide that if the
Company were to dispose of all or substantially all of the properties and
assets of the TCI Ventures Group, other than in a transaction in which the
Company receives primarily equity securities of an entity engaged or proposing
to engage primarily in a similar or complementary business and other than in
connection with the disposition of all or substantially all of the assets of
the Company, the Company would be required, at its option, either to (i)
distribute to holders of TCI Ventures Group Common Stock an amount equal to
their proportionate interest in the TCI Ventures Group Net Proceeds of such
Disposition, either by special dividend or by redemption of all or part of the
outstanding shares of TCI Ventures Group Common Stock or (ii) convert
outstanding shares of TCI Ventures Group Common Stock into shares of the
corresponding series of TCI Group Common Stock at a conversion ratio based on
110% of the average daily ratio of the Market Value of a share of Series A TCI
Ventures Group Common Stock to the Market Value of a share of Series A TCI
Group Common Stock over a specified period following such Disposition. "TCI
Ventures Group Net Proceeds" means the proceeds of such Disposition after
payment of or provision for certain specified costs, including taxes to be paid
by the Company in respect of the Disposition or such dividend or redemption,
transaction costs and liabilities and other obligations (contingent or
otherwise, including obligations in respect of Preferred Stock and in respect
of the TCI Ventures Group Preferred Interest) attributed to the TCI Ventures
Group. If the TCI Ventures Group were a separate independent company and its
shares were acquired by another person, certain of those costs, including
corporate and shareholder level taxes, might not be payable in connection with
such an acquisition. As a result, the consideration that would be received by
stockholders of such a separate independent company in connection with such a
stock acquisition might be greater than the Net Proceeds that would be received
by holders of TCI Ventures Group Common Stock if all or substantially all of
the properties and assets of the TCI Ventures Group were sold. In addition, no
assurance can be given that the Net Proceeds per share of TCI Ventures Group
Common Stock to be received in connection with a Disposition of all or
substantially all of the properties and assets of the TCI Ventures Group will
be equal to or more than the market value per share of TCI Ventures Group
Common Stock prior to or after announcement of such Disposition. See
"--Potential Conversion of TCI Ventures Group Common Stock" and "--No Assurance
as to Market Price" above and "Description of TCI Ventures Group Common Stock
and Effects on Existing Common Stock--Conversion and Redemption."
POTENTIAL DILUTION FROM ISSUANCES OF TCI VENTURES GROUP COMMON STOCK UPON
EXCHANGE OF CERTAIN OUTSTANDING SECURITIES
After the consummation of the Exchange Offers, the Pre-Exchange Offers
Securities (which consist of certain convertible notes issued by TCI UA, Inc.,
a subsidiary of the Company, that remain outstanding following the closing of
the Exchange Offers) will be adjusted, in accordance with their terms, so that
if such Pre-Exchange Offer Securities were exchanged immediately following the
closing of the Exchange Offers there would be delivered upon such exchange a
number of shares of Series A TCI Ventures Group Common Stock equal to [28%-35%]
of the number of shares of Series A TCI Group Common Stock that would have been
deliverable upon such exchange if effected immediately prior to the closing of
the Exchange Offers. Further, the shares of Series A TCI Group Common Stock
that would have been issuable upon such exchange if effected immediately prior
to the closing of the Exchange Offers will be reduced by the number of shares
of TCI Ventures Group Common Stock so issuable. The issuance of shares of
Series A TCI Ventures Group Common Stock upon such exchange of Pre-Exchange
Offer Securities will not result in any transfer of funds or other assets from
the TCI Group to the TCI Ventures Group, or a reduction in any Inter-Group
Interest that then may exist, in consideration of such issuance.
If Pre-Exchange Offer Securities remain outstanding at the time of any
redemption of all outstanding shares of TCI Ventures Group Common Stock
following the Disposition of all (not merely substantially all) of the
properties and assets of the TCI Ventures Group (see "Description of TCI Group
Common Stock and Effects on Existing Common Stock--Conversion and
Redemption--Mandatory Dividend, Redemption or Conversion of TCI Ventures Group
Common Stock"), the proportionate interest in the TCI Ventures Group Net
Proceeds of the Disposition to be distributed to the holders of TCI Ventures
Group Common Stock will be determined on the basis of the Adjusted TCI Ventures
Group Outstanding Interest Fraction. Such determination will result in the
allocation to the TCI Group of a portion of such TCI Ventures Group Net
Proceeds, in addition to the portion attributable to any Inter-Group Interest,
sufficient to provide for the delivery of the portion of the consideration (if
any) deliverable by the Company on any post-redemption exchange of Pre-Exchange
Offer Securities that is in substitution for shares of TCI Ventures Group
Common Stock that would have been issuable upon such exchange
[43]
<PAGE> 53
if it had occurred prior to the redemption. Likewise if Pre-Exchange Offer
Securities remain outstanding at the time of any redemption of all the
outstanding shares of TCI Ventures Group Common Stock in exchange for stock of
any one or more Qualifying Subsidiaries of the Company which hold all of the
assets and liabilities of the TCI Ventures Group (see "Description of TCI
Ventures Group Common Stock and Effects on Existing Common Stock --Conversion
and Redemption--Redemption in Exchange for Stock of Subsidiary"), the number of
shares of such subsidiaries deliverable in redemption of the outstanding shares
of TCI Ventures Group Common Stock will be determined on the basis of the
Adjusted TCI Ventures Group Outstanding Interest Fraction, resulting in the
allocation to the TCI Group of a portion of the shares of such subsidiaries, in
addition to the number of shares so allocated in respect of any Inter-Group
Interest, sufficient to provide for the delivery of the portion of the
consideration (if any) deliverable by the Company upon any post-redemption
exchange of Pre-Exchange Offer Securities that is in substitution for shares of
TCI Ventures Group Common Stock that would have been issuable upon such
exchange if it had occurred prior to such redemption. If Pre-Exchange Offer
Securities remain outstanding at the time of any conversion at the option of
the Company of all outstanding shares of TCI Ventures Group Common Stock into
TCI Group Common Stock (see "Description of TCI Ventures Group Common Stock and
Effects on Existing Common Stock--Conversion and Redemption--Conversion at the
Option of the Company"), the determination of the value (as determined on the
basis of appraisals performed by investment banking firms) of one share of TCI
Ventures Group Common Stock used in calculating the conversion ratio will be
made on a basis that assumes exchange of all Pre-Exchange Offer Securities and
an increase in net assets caused by a corresponding reduction of indebtedness
as a result of such exchange.
As of March 31, 1997, Pre-Exchange Offer Securities in the aggregate
are exchangeable for 34,933,722 shares of Series A TCI Group Common Stock and
13,100,153 shares of Series A Liberty Media Group Common Stock. As a result of
the adjustments described above, immediately following the closing of the
Exchange Offers the Pre-Exchange Offer Securities will be exchangeable for
_______ shares of Series A TCI Group Common Stock, _______ shares of Series A
Liberty Media Group Common Stock and _____ shares of Series A TCI Ventures
Group Common Stock.
LIMITATIONS ON POTENTIAL ACQUISITION OF A GROUP
If each Group were a separate publicly held corporation, any person
interested in acquiring such corporation without negotiation with management
could seek control of the outstanding stock of such corporation by means of a
tender offer or proxy contest. Although adoption of the TCI Ventures Group
Stock Proposal would authorize issuance of the TCI Ventures Group Common Stock
with economic terms designed to reflect the separate performance of the TCI
Ventures Group, a person interested in acquiring only the TCI Ventures Group
without negotiation with the Company's management would still be required to
seek control of the voting power represented by all of the outstanding capital
stock of the Company, including the TCI Group Common Stock, the Liberty Media
Group Common Stock and the TCI Ventures Group Common Stock. See "Description
of TCI Ventures Group Common Stock and Effects on Existing Common Stock--Voting
Rights."
ABSENCE OF APPROVAL RIGHTS WITH RESPECT TO FUTURE ISSUANCES OF AUTHORIZED
SHARES
The authorized but unissued shares of capital stock would be available
for issuance from time to time by the Company at the sole discretion of the
Board of Directors for any proper corporate purpose. Such issuances could
include shares of TCI Ventures Group Common Stock, as well as the issuance of
such shares upon the conversion or exercise of securities of the Company that
are convertible into or exercisable or exchangeable for such shares. The
approval of the stockholders of the Company will not be sought by the Company
for the issuance of authorized but unissued shares of TCI Ventures Group Common
Stock (or the reissuance of previously issued shares that have been reacquired
by the Company) or securities of the Company that are convertible into or
exercisable or exchangeable for such shares, unless deemed advisable by the
Board of Directors or required by applicable law, regulation or Nasdaq National
Market requirements.
ANTI-TAKEOVER CONSIDERATIONS
The DGCL, the Company Charter and the Company's Bylaws contain
provisions which may serve to discourage or make more difficult a change in
control of the Company without the support of the Board of Directors or without
meeting various other conditions. The Company is subject to Section 203 of the
DGCL, which, in general, prohibits a "business combination" between a
corporation and an "interested stockholder" unless certain conditions are met.
The Company Charter and Bylaw provisions which may discourage or make more
difficult a change in control of the Company include the requirement of a
supermajority vote to approve specified actions, the authorization of the
Company's Board of Directors to issue additional shares of Series Preferred
Stock in one or more series and to fix and state the designations, powers,
preferences, qualifications, limitations, restrictions and relative rights of
the shares of each such series without further action by the
[44]
<PAGE> 54
Company's stockholders, certain procedures required in connection with the
nomination of directors of the Company and the other provisions described under
"Anti-Takeover Considerations." In addition, the existence of the TCI Ventures
Group Common Stock would present complexities and could in certain
circumstances pose obstacles, financial and otherwise, to an acquiring person.
For example, a potential acquiror would have to take into consideration that
holders of different series of Common Stock might be more or less receptive to
the acquiror's proposal, that a tender offer would have to be structured so as
to take into account different prices at which shares of the different series
might be acquired, that a merger would require allocation of consideration
among the different series of Common Stock and the effects of actions the
Company might take such as causing a conversion of the TCI Ventures Group
Common Stock. The provisions of the DGCL, the Amended Charter and the
Company's Bylaws and the existence of the TCI Ventures Group Common Stock
could, under certain circumstances, prevent stockholders from profiting from an
increase in the market value of their shares as a result of a change in control
of the Company by delaying or preventing such change in control. See
"Anti-Takeover Considerations."
MANAGEMENT AND ALLOCATION POLICIES
If the TCI Ventures Group Stock Proposal is approved by stockholders,
the Company will prepare and include in its filings with the SEC under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), consolidated
financial statements of the Company and combined financial statements of the
TCI Ventures Group (for so long as the TCI Ventures Group Common Stock is
outstanding), the Liberty Media Group (for so long as the Liberty Media Group
Common Stock is outstanding) and the TCI Group (for so long as either the TCI
Ventures Group Common Stock or the Liberty Media Group Common Stock is
outstanding). Except for the financial statements included in this Proxy
Statement and in the Offering Circular, the Company does not intend to provide
separate combined financial statements for the TCI Ventures Group until shares
of TCI Ventures Group Common Stock are first issued. The combined financial
statements of each Group, taken together and after giving effect to inter-Group
eliminations, would effectively comprise the consolidated financial statements
of the Company. The combined financial statements of each Group will
principally reflect the combined financial position, results of operations and
cash flows of the businesses attributed thereto. Consistent with the Amended
Charter and applicable policies, the Group financial information could also
include allocated portions of individual assets and liabilities that are not
separately identified with the operations of a specific Group. Notwithstanding
allocations of assets and liabilities for the purpose of preparing Group
combined financial statements, holders of each series of Common Stock would
continue to be subject to risks associated with an investment in the Company
and all of its businesses, assets and liabilities. See "Factors to be
Considered--Stockholders of One Company; Financial Effects on One Business
Could Affect Other Businesses."
If the TCI Ventures Group Stock Proposal is approved by stockholders,
upon initial issuance of TCI Ventures Group Common Stock, cash management,
taxes and allocation of principal corporate activities among the Groups would
be based upon methods that management of the Company believes to be reasonable
and would be reflected in the respective Group financial information as
follows:
(i) All debt incurred or preferred stock issued by the
Company and its subsidiaries would (unless the Board of Directors
otherwise provides) be specifically attributed to and reflected on the
combined financial statements of the Group that includes the entity
which incurred the debt or issued the preferred stock or, in case the
entity incurring the debt or issuing the preferred stock is
Tele-Communications, Inc., the TCI Group. The Board of Directors
could, however, determine from time to time that debt incurred or
preferred stock issued by entities included in a Group should be
specifically attributed to and reflected on the combined financial
statements of one of the other Groups to the extent that the debt is
incurred or the preferred stock is issued for the benefit of such
other Group. As described above, the obligations of the TCI Ventures
Group with respect to indebtedness under the Revolving Credit Facility
and the TCI Ventures Group Preferred Interest will be reflected in the
combined financial statements of the TCI Ventures Group.
(ii) For all periods prior to the distribution of the
Liberty Media Group Common Stock on August 10, 1995 (the "Liberty
Media Group Distribution"), all financial impacts of equity offerings
are and will be attributed entirely to the TCI Group. After the
Liberty Media Group Distribution, all financial impacts of issuances
of additional shares of TCI Group Common Stock are and will be
attributed entirely to the TCI Group, all financial impacts of
issuances of additional shares of Liberty Media Group Common Stock the
proceeds of which are attributed to the Liberty Media Group are and
will be to such extent reflected in the combined financial statements
of the Liberty Media Group, and all financial impacts of issuances of
additional shares of Liberty Media Group Common Stock the proceeds of
which are attributed to the TCI Group in respect of a reduction in any
Inter-Group Interest in the Liberty Media Group are and will be to
such extent reflected in the combined financial statements of the TCI
Group. All
[45]
<PAGE> 55
financial impacts of issuances of shares of TCI Ventures Group Common
Stock the proceeds of which are attributed to the TCI Ventures Group
will be to such extent reflected in the combined financial statements
of the TCI Ventures Group, and all financial impacts of issuances of
shares of TCI Ventures Group Common Stock the proceeds of which are
attributed to the TCI Group in respect of a reduction in any
Inter-Group Interest of the TCI Group in the TCI Ventures Group will
be to such extent reflected in the combined financial statements of
the TCI Group. Financial impacts of dividends or other distributions
on, and purchases of, TCI Group Common Stock will be attributed
entirely to the TCI Group, and financial impacts of dividends or other
distributions on TCI Ventures Group Common Stock will be attributed
entirely to the TCI Ventures Group, except that dividends or other
distributions on the TCI Ventures Group Common Stock will (if at the
time there is an Inter-Group Interest in the TCI Ventures Group)
result in the TCI Group being credited, and the TCI Ventures Group
being charged (in addition to the charge for the dividend or other
distribution paid on the outstanding shares of TCI Ventures Group
Common Stock), with an amount equal to the product of the aggregate
amount of such dividend or other distribution paid or distributed in
respect of outstanding shares of TCI Ventures Group Common Stock and a
fraction the numerator of which is the TCI Ventures Group Inter-Group
Interest Fraction and the denominator of which is the TCI Ventures
Group Outstanding Interest Fraction. Financial impacts of repurchases
of TCI Ventures Group Common Stock the consideration for which is
charged to the TCI Ventures Group will be to such extent reflected in
the combined financial statements of the TCI Ventures Group, and
financial impacts of repurchases of TCI Ventures Group Common Stock
the consideration for which is charged to the TCI Group will be to
such extent reflected in the combined financial statements of the TCI
Group and will result in the creation of an, or an increase in any
then existing, Inter-Group Interest of the TCI Group in the TCI
Ventures Group.
(iii) To the extent cash needs of one Group exceed cash
provided by such Group, one of the other Groups may transfer funds to
such Group. The TCI Group has provided and will continue to provide
centralized cash management functions under which cash receipts of
certain entities attributed to the other Groups are remitted to the
TCI Group and certain cash disbursements of the other Groups will be
funded by the TCI Group on a daily basis. Such transfers of funds
among the Groups will be reflected as borrowings or, if determined by
the Board of Directors, in the case of a transfer from the TCI Group
to either the Liberty Media Group or the TCI Ventures Group, reflected
as the creation of, or increase in the TCI Group's Inter-Group
Interest in such Group or, in the case of a transfer from either the
Liberty Media Group or the TCI Ventures Group to the TCI Group,
reflected as a reduction in the TCI Group's Inter-Group Interest in
such Group. There are no specific criteria for determining when a
transfer will be reflected as borrowings or as an increase or
reduction in an Inter-Group Interest. The Board of Directors expects
to make such determinations, either in specific instances or by
setting generally applicable policies from time to time, after
consideration of such factors as it deems relevant, including, without
limitation, the needs of the Company, the financing needs and
objectives of the Groups, the investment objectives of the Groups, the
availability, cost and time associated with alternative financing
sources, prevailing interest rates and general economic conditions.
Generally, it is expected that entities included in the Liberty Media
Group will seek their own long-term debt financing, whereas the TCI
Ventures Group is expected to require additional advances from the TCI
Group for some period of time. To satisfy this need, the Company has
agreed to provide the Revolving Credit Facility to the TCI Venture
Group for a five-year period commencing on the closing of the
Exchange Offers. Such facility would permit aggregate borrowings at
any one time outstanding of up to $500 million (subject to reduction
as provided below), which borrowings would bear interest at a rate per
annum equal to The Bank of New York's prime rate (as in effect from
time to time) plus 1% per annum, payable quarterly. A commitment fee
equal to 3/8% per annum of the average unborrowed availability under
the Revolving Credit Facility will be payable by the TCI Ventures
Group to the TCI Group on a quarterly basis. The maximum amount of
borrowings permitted under the Revolving Credit Facility will be
reduced on a dollar-for-dollar basis by up to $300 million if and to
the extent that the aggregate amount of any additional capital that
TCI Telephony is required to contribute to the Sprint PCS Partnerships
subsequent to the closing of the Exchange Offers is less than $300
million.
(iv) Except as described above with respect to the
Revolving Credit Facility, loans from one Group to another Group would
bear interest at such rates and have such repayment schedules and
other terms as are established from time to time by, or pursuant to
procedures established by, the Board of Directors. The Board of
Directors expects to make such determinations, either in specific
instances or by setting generally applicable policies from time to
time, after consideration of such factors as it deems relevant,
including, without limitation, the needs of the Company, the use of
proceeds by and creditworthiness of the recipient Group, the capital
expenditure plans of and the investment opportunities available to
each Group and the availability, cost and time associated with
alternative financing sources.
[46]
<PAGE> 56
(v) In the event of a transfer of funds or other assets
from the TCI Group to the TCI Ventures Group that the Board of
Directors has determined to reflect as creating or increasing the TCI
Group's Inter-Group Interest in the TCI Ventures Group, the Number of
Shares Issuable with Respect to the TCI Ventures Group Inter-Group
Interest would be increased by an amount determined by dividing the
amount of funds or the value of the assets transferred by the Market
Value of a share of Series A TCI Ventures Group Common Stock as of the
date of such transfer, and the TCI Ventures Group Inter-Group Interest
Fraction would be increased and the TCI Ventures Group Outstanding
Interest Fraction would be decreased accordingly. In the event of a
transfer of funds or other assets from the TCI Ventures Group to the
TCI Group that the Board of Directors has determined to reflect as a
decrease in the TCI Group's Inter-Group Interest in the TCI Ventures
Group, the Number of Shares Issuable with Respect to the TCI Ventures
Group Inter-Group Interest would be decreased by an amount determined
by dividing the amount of funds or the value of the assets transferred
by the Market Value of a share of Series A TCI Ventures Group Common
Stock as of the date of such transfer and the TCI Ventures Group
Inter-Group Interest Fraction would be decreased and the TCI Ventures
Group Outstanding Interest Fraction would be increased accordingly.
For illustrations of the effects of the issuance of shares of TCI
Ventures Group Common Stock, see Annex IV -- Illustration of Certain
Terms.
(vi) The combined balance sheets of a Group would reflect
its net loans to or borrowings from the other Groups. Similarly, the
respective combined statements of operations of the Groups would
reflect interest income or expense, as the case may be, associated
with such loans or borrowings and the respective combined statements
of cash flows of the Groups would reflect changes in the amounts of
loans or borrowings deemed outstanding. In the historical financial
information included in this Proxy Statement and the Annexes hereto,
net borrowings of the TCI Ventures Group have been included as a
component of the TCI Ventures Group's combined equity. Such net
borrowings will continue to be reflected as a component of the TCI
Ventures Group's combined equity. Amounts borrowed by the TCI
Ventures Group from another Group on and subsequent to the
consummation of the Exchange Offers (including pursuant to the
Revolving Credit Facility), will be reflected on the TCI Ventures
Group's financial statements as indebtedness to the applicable lender.
(vii) Certain corporate general and administrative costs
(including, but not limited to, certain corporate, legal, finance,
accounting, tax, data processing, employee benefit and insurance
costs) would be charged to both the Liberty Media Group and the TCI
Ventures Group at rates set at the beginning of each year based on
projected utilization for that year. The balance of such costs would
be reflected on the combined financial statements of the TCI Group.
The utilization-based charges would be set at levels that management
believes to be reasonable and that would approximate the costs that
the Liberty Media Group and the TCI Ventures Group would incur for
comparable services on a stand-alone basis. Assuming shares of TCI
Ventures Group Common Stock had first been issued on January 1, 1996,
the Company estimates that such costs of the TCI Ventures Group would
have aggregated approximately $7,918,000 for the year ended December
31, 1996. Certain other corporate general and administrative costs
related specifically to management of a Group would be allocated
entirely to such Group. The scope of the services charged to the
Liberty Media Group and the TCI Ventures Group on an allocated basis
could be adjusted from time to time depending on the extent to which
it is determined that services should instead be performed directly by
employees of entities attributed to such Group.
(viii) Certain of the companies with domestic operations
that would be attributed to the TCI Ventures Group provide services to
companies attributed to one or more of the other Groups, and certain
of the companies attributed to the other Groups provide services and
the use of facilities to companies attributed to the TCI Ventures
Group, all as more fully described in Annex III. Generally, services
and rights to use facilities provided pursuant to contractual
arrangements to which a member of the TCI Ventures Group that is not a
wholly owned subsidiary of the Company is a party will continue to be
provided in accordance with the terms of such arrangements following
the consummation of the Exchange Offers. For example, Teleport has
the indefeasible right to use certain fiber optic and cable
transmission facilities of the Company for compensation based on the
cost of construction of such facilities. In general, such
arrangements were entered into with Teleport by the Company and other
multiple cable system operators ("MSOs") that are stockholders of
Teleport several years ago when Teleport was a privately owned
company. Similarly, @Home has entered into arrangements for the
distribution of its @Home service with its stockholders that are
MSOs. The TCI Group has agreements with UVSG for, among other
things, the carriage of UVSG's Prevue Networks and superstation
programming on certain of the cable systems attributed to the TCI
Group, and UVSG purchases programming from companies attributed to the
Liberty Media Group. Many of these contracts were entered into prior
to the Company's acquisition of an equity interest in UVSG. Because
of the presence in each of TCG, @Home and UVSG of other stockholders
not affiliated with the Company and the independent management
[47]
<PAGE> 57
teams at each of these companies, the Company anticipates that future
contractual arrangements between these companies and entities
attributed to the other Groups will be negotiated on an arm's-length
basis. DigiVentures, a lease finance company owned by the Company and
Babcock & Brown, leases digital set-top boxes to the TCI Group at
rates commensurate with market rates given the TCI Group's size and
creditworthiness.
In addition to the foregoing entities, WTCI, NDTC, and
Summitrak, each of which is a wholly owned subsidiary of the Company,
provide or may provide services to the other Groups. WTCI provides
video transport services to the TCI Group (in addition to service
provided to third parties) based on published tariffed rates. NDTC
provides digital television services, including digital compression
of programming, satellite uplinking, and transponder management,
primarily to programming suppliers, many of which are affiliated with
the Liberty Media Group, and satellite distributors. Such services
provided to affiliated companies are governed by agreements which have
been negotiated on an arm's-length basis and the material terms of
which are substantially the same as those governing relationships with
third parties, except as appropriate to take into account volume
differences. NDTC has also recently begun offering on a commercial
basis its newly developed service of authorization of addressable
set-top boxes and transmission of compressed and encrypted digital
programming signals directly to cable operators, and is currently
negotiating a long term contract with the TCI Group, for such
services. Such negotiations are being carried out on an arm's-length
basis and it is expected that the material terms made available to the
TCI Group will be substantially the same as those provided to
unaffiliated third parties, but will include pricing on a most favored
nations basis due to the importance to NDTC of the TCI Group's large
customer base. Summitrak has been funded by the TCI Group during its
development and test phases, which are substantially complete.
Currently, the TCI Group is only utilizing Summitrak's services on a
test basis and has no agreement with Summitrak for commercial
deployment. If Summitrak's services are used by the TCI Group on a
commercial basis, such use will be at commercial rates and on arm's
length terms.
(ix) A tax sharing agreement (the "Tax Sharing Agreement")
among entities attributed to TCI Ventures Group, Liberty Media Group,
TCI and certain subsidiaries of TCI was implemented effective July 1,
1995. The Tax Sharing Agreement formalizes certain of the elements of a
pre-existing tax sharing arrangement and contains additional 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 to the
date hereof (the "Code"), and any applicable state, local and foreign
tax law and related regulations. Beginning on the July 1, 1995
effective date, TCI Venture Group is responsible to TCI for its share
of current consolidated income tax liabilities. TCI is responsible to
TCI Ventures Group to the extent that TCI Ventures Group's income tax
attributes generated after July 1, 1995 are utilized by TCI to reduce
its consolidated income tax liabilities. Accordingly, all tax
attributes generated by TCI Venture Group's operations after such July
1, 1995 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 TCI
Ventures Group.
For periods from and after the effective date of the Exchange
Offers, income taxes will be computed pursuant to an amended tax
sharing agreement based upon the type of tax paid by the Company
(regular tax or alternative minimum tax) on a separate return basis for
each Group (applying provisions of the Code and related regulations as
if such Group filed a separate consolidated return for federal income
tax purposes but was subject to the same type of tax as the Company).
Based upon these separate calculations, an allocation of tax
liabilities and benefits will be made such that each Group will be
required to make cash payments to the Company for its gross share of
the Company's consolidated federal income tax liabilities (on a regular
tax or alternative minimum tax basis, as applicable), such gross share
being determined without regard to (a) tax benefits that are
attributable to the Company or the other Groups or (b) certain tax
benefits that are attributable to such Group but are not utilized by
the Company in determining its consolidated federal income tax
liability. Similarly, the Company will be required to make cash
payments to each Group for tax benefits (on a regular tax or
alternative minimum tax basis, as applicable) attributable to such
Group and actually used by the Company in reducing its consolidated
federal income tax liability. Tax attributes, including but not
limited to net operating losses, foreign tax credits, investment tax
credits, alternative minimum tax net operating losses, alternative
minimum tax credits, deferred intercompany gains, and tax basis in
assets would be inventoried and tracked for ultimate credit to or
charge against each Group. Similarly, in each taxable period that the
Company pays alternative minimum tax, the federal income tax
liabilities and benefits of each Group, computed as if such Group were
subject to regular tax, would be inventoried and tracked for ultimate
cash payment (at the tax rate differential between the regular tax and
the alternative minimum tax) in years that the Company is subject to
regular tax. Amounts credited or debited to intercompany accounts
existing under the existing Tax Sharing Agreement in effect prior to
the closing of the Exchange Offers that are attributable to any Group
or any member thereof shall be settled in cash upon deconsolidation. In
addition, pursuant to the amended tax sharing agreement, state and
local income taxes are calculated on a separate return basis for each
Group (applying provisions of state and local tax law and related
regulations as if the Group were a separate unitary or combined group
for tax purposes), and the Company's combined or unitary tax liability
is allocated among the Groups based upon such separate calculation. The
Company has retained the right to file all returns, make all elections
and control all audits and contests.
(x) The Board of Directors expects to determine, either
in specific instances or by setting generally applicable policies from
time to time, whether to allocate resources and financial support to
or pursue business opportunities or operational strategies through one
Group or one or more of the other Groups, after consideration of such
factors as it deems relevant. TCI has advised International that TCI
intends (a) to make available to International any opportunity to
acquire, develop, own and/or manage cable and/or telephony operations
outside the United States that is presented to TCI or any of its
controlled affiliates and (b) except as provided below, to make
available to
[48]
<PAGE> 58
International any opportunity to acquire, develop, manage and/or
operate programming services outside of the United States (an
"International Programming Opportunity") that is presented to TCI or
any of its controlled affiliates, including those that are a part of
the Liberty Media Group. The foregoing does not apply to (1)
international programming services owned or managed, directly or
indirectly (in whole or in part), by TCI or any of its controlled
affiliates other than International as of July 12, 1995 (the date of
the prospectus for International's initial public offering), (2)
International Programming Opportunities under development by TCI or
any of its controlled affiliates other than International that were
the subject of a signed letter of intent or other agreement in
principle as of July 12, 1995, (3) an International Programming
Opportunity in respect of foreign sports programming, which may be
pursued either through International or Liberty Media Group, (4) an
International Programming Opportunity presented to a public company
that is a controlled affiliate of either TCI or any of TCI's
controlled affiliates (other than International), (5) an International
Programming Opportunity presented to, or cable television or cable
telephony services provided by, any company or other entity in which
TCI or any of its controlled affiliates has an interest but which is
not itself a controlled affiliate of either TCI or any of TCI's
controlled affiliates and (6) the distribution outside the United
States of a programming service initially distributed within the
United States and owned and/or managed by TCI or any of its controlled
affiliates (other than International). If International determines
not to pursue an International Programming Opportunity, subsidiaries
or controlled affiliates of TCI other than International may pursue
such International Programming Opportunity or International and
another subsidiary of TCI (or any of its other controlled affiliates)
may pursue such opportunity jointly. To the extent that TCI or any of
its controlled affiliates (other than International) owns rights to
worldwide or regional sporting events, TCI or such affiliates may also
utilize those rights worldwide, including to provide "backdrop"
services. Neither TCI nor any of its controlled affiliates will be
obligated to make available to International any International
Programming Opportunity to the extent TCI or such controlled affiliate
is legally (for example, by a fiduciary duty owed to others) or
contractually prohibited from doing so. The foregoing arrangement
concerning International Programming Opportunities will, in any event,
be terminable at such time as TCI ceases to beneficially own at least
a majority in voting power of the outstanding shares of common stock
of International. See Annex III.
Notwithstanding the policies described above, determinations with
respect to the transfer of funds from one Group to one of the other Groups
would be made at the discretion of the Board of Directors, except to the extent
that the Company is contractually obligated to make a transfer of funds to an
entity included in a Group. Nothing in the foregoing policies (as opposed to
any such contractual obligation) obligates the Board of Directors to cause a
Group to provide funds to one of the other Groups if the Board of Directors
determines that it is in the best interests of the Company not to do so.
The above management and allocation policies could be modified or
rescinded by the Board of Directors, in its sole discretion, without approval
of stockholders, although there is no present intention to do so. The Board of
Directors could also adopt additional policies depending upon the
circumstances. The Board of Directors intends that any determination it might
make to modify or rescind such policies, or to adopt additional policies,
including any such decision that could have disparate effects upon holders of
different series of Common Stock, would be made by the Board of Directors as
set forth under "Factors to be Considered--Fiduciary Duties of the Board of
Directors Are to All Stockholders Regardless of Class or Series."
DESCRIPTION OF TCI VENTURES GROUP COMMON STOCK AND EFFECTS ON EXISTING COMMON
STOCK
THE FOLLOWING DESCRIPTION IS QUALIFIED BY REFERENCE TO THE INDEX OF
CERTAIN DEFINED TERMS CONTAINED IN ANNEX I TO THIS PROXY STATEMENT AND TO ANNEX
II TO THIS PROXY STATEMENT, WHICH CONTAINS THE FULL TEXT OF THE PROPOSED
AMENDMENTS TO THE COMPANY CHARTER.
GENERAL
The Company Charter currently provides that the Company is authorized
to issue 3,602,375,096 shares of capital stock, including (i) 3,550,000,000
shares of Common Stock, of which 1,750,000,000 shares are designated Series A
TCI Group Common Stock, 150,000,000 shares are designated Series B TCI Group
Common Stock, 750,000,000 shares are designated Series A Liberty Media Group
Common Stock, 75,000,000 shares are designated Series B Liberty Media Group
Common Stock, 750,000,000 shares are designated Series A TCI Telephony Group
Common Stock and 75,000,000 shares are designated Series B TCI Telephony Group
Common Stock and (ii) 52,375,096 shares of Preferred Stock. If the TCI
Ventures Group Stock Proposal is approved, the Company Charter will be amended
to, among other things, change the designation of the Series
[49]
<PAGE> 59
A Telephony Group Common Stock and Series B Telephony Group Common Stock to
Series A TCI Ventures Group Common Stock and Series B TCI Ventures Group Common
Stock, respectively.
The authorized but unissued shares of TCI Ventures Group Common Stock
will be available for issuance by the Company from time to time, as determined
by the Board of Directors, for any proper corporate purpose, which could
include raising capital, acquiring other companies or making investments or
providing compensation or benefits to employees. The issuance of such shares
would not be subject to approval by the stockholders of the Company, unless
deemed advisable by the Board of Directors or required by applicable law,
regulation or Nasdaq National Market requirements.
VOTING RIGHTS
Holders of Series A TCI Ventures Group Common Stock will be entitled
to one vote for each share of such stock held and holders of Series B TCI
Ventures Group Common Stock will be entitled to ten votes for each share of
such stock held, on all matters presented to such stockholders. Holders of
Series A TCI Group Common Stock and Series A Liberty Media Group Common Stock
will continue to be entitled to one vote for each share of such stock held and
holders of Series B TCI Group Common Stock and Series B Liberty Media Group
Common Stock will continue to be entitled to ten votes for each share of such
stock held. Except as may otherwise be required by the laws of the State of
Delaware, or, with respect to any class of Preferred Stock or any series of
such a class, in the Amended Charter (including any resolution or resolutions
providing for the establishment of such class or series pursuant to authority
vested in the Board of Directors by the Amended Charter), the holders of TCI
Group Common Stock, the holders of Liberty Media Group Common Stock, the
holders of TCI Ventures Group Common Stock and the holders of each class or
series of Preferred Stock, if any, entitled to vote thereon will vote as one
class with respect to all matters to be voted on by stockholders of the
Company.
The term "Voting Securities" will include the Series A TCI Ventures
Group Common Stock and Series B TCI Ventures Group Common Stock, in addition to
the Series A TCI Group Common Stock, the Series B TCI Group Common Stock, the
Series A Liberty Media Group Common Stock, the Series B Liberty Media Group
Common Stock, the Series C Preferred Stock and any other class or series of
Preferred Stock entitled to vote with the holders of Common Stock generally
upon all matters which may be submitted to a vote of stockholders at any annual
or special meeting. The affirmative vote of holders of at least 66 2/3% of the
total voting power of the then-outstanding Voting Securities, voting together
as a single class, is required for (i) the amendment, alteration or repeal of
any provision of the Amended Charter or the addition or insertion of other
provisions therein, (ii) the adoption, amendment or repeal of any provision of
the Company's Bylaws, unless approved by at least 75% of the members of the
Board of Directors then in office, in which case no vote of stockholders will
be required, (iii) the merger or consolidation of the Company with or into any
other corporation other than a merger or consolidation which does not require
the consent of stockholders under the DGCL or which at least 75% of the members
of the Board of Directors then in office have approved (in which case such
merger or consolidation would require the approval of a majority of the total
voting power of the then-outstanding Voting Securities), (iv) the sale, lease
or exchange of all or substantially all of the property and assets of the
Company or (v) the dissolution of the Company. Both the Amended Charter and
the Company Charter provide that a director may only be removed for "cause" (as
defined) and that any action to remove a director must be approved by the
holders of 66 2/3% of the total voting power of the then-outstanding shares
entitled to vote in the election of directors (which would include the Class B
Preferred Stock, the Series G Preferred Stock and the Series H Preferred Stock
in addition to the Voting Securities).
The holders of Series A TCI Ventures Group Common Stock and Series B
TCI Ventures Group Common Stock will not have any rights to vote as a separate
class or series on any matter coming before the stockholders of the Company,
except with respect to certain limited class and series voting rights provided
under the DGCL. Similarly, under the Company Charter and the Amended Charter,
none of the Series A TCI Group Common Stock, Series B TCI Group Common Stock,
Series A Liberty Media Group Common Stock or Series B Liberty Media Group
Common Stock have any separate class or series voting rights, except as
provided under the DGCL. Under the DGCL, the approval of the holders of a
majority of the outstanding shares of any class of capital stock of a
corporation, voting separately as a class, is required to approve any amendment
to the charter that would alter or change the powers, preferences or special
rights of the shares of such class so as to affect them adversely, provided
that, if any amendment would alter or change the powers, preferences or special
rights of one or more series of the class so as to affect them adversely, but
would not so affect the entire class, then only the shares of the series so
affected by the amendment would be entitled to vote thereon separately as a
class. Because the Series A TCI Group Common Stock, the Series B TCI Group
Common Stock, the Series A Liberty Media Group Common Stock, the Series B
Liberty Media Group Common Stock, the Series A TCI Ventures Group Common Stock
and the Series B TCI Ventures Group Common Stock will each be a separate series
of a single class of stock, each series would be entitled to vote separately as
a class upon an
[50]
<PAGE> 60
amendment to the Amended Charter that would alter or change the powers,
preferences or special rights of such series so as to affect them adversely
only if the other series were not so affected. The DGCL does not provide for
any other separate voting rights of a class or series of capital stock (other
than with respect to a change in par value or, in certain circumstances not
applicable in the case of the Company's outstanding stock, an increase or
decrease in the authorized shares of such class or series). Consequently,
because most matters brought to a stockholder vote will require the approval of
only a specified percentage of all of the Company's outstanding capital stock
entitled to vote on such matters (including the TCI Group Common Stock, the
Liberty Media Group Common Stock and the TCI Ventures Group Common Stock)
voting together as a single class, if the holders of one or more series of
Common Stock have more than the number of votes required to approve any such
matter, such holders would be in a position to control the outcome of the vote
on such matter.
DIVIDENDS
Dividends on TCI Ventures Group Common Stock. Dividends on TCI
Ventures Group Common Stock will be limited to legally available funds of the
Company under the DGCL and will be subject to the prior payment of dividends on
outstanding shares of Preferred Stock. The DGCL limits the amount of
distributions on the Common Stock to the funds of the Company legally available
for that purpose, which are determined on the basis of the entire Company and
not just the Groups. Consequently, the amount of legally available funds will
be reduced by the amount of any net losses of the Groups and any dividends or
distributions on, or repurchases of, the TCI Group Common Stock, the Liberty
Media Group Common Stock or the TCI Ventures Group Common Stock and dividends
on, or certain repurchases of, Preferred Stock. Certain loan agreements to
which certain subsidiaries of the Company are parties or are subject contain
restricted payment provisions that limit the amount of dividends, other than
stock dividends, that those companies may pay. Future loan agreements may also
contain similar restrictions and limits.
Dividends on the TCI Ventures Group Common Stock, in addition to the
limitations set forth in the foregoing paragraph, will be further limited to an
amount not in excess of the TCI Ventures Group Available Dividend Amount, which
is intended to be similar to the amount that would be legally available for the
payment of dividends on the TCI Ventures Group Common Stock under the DGCL if
the TCI Ventures Group were a separate Delaware corporation. There can be no
assurance that there will be a TCI Ventures Group Available Dividend Amount.
The "TCI Ventures Group Available Dividend Amount," as of any date,
means the product of the TCI Ventures Group Outstanding Interest Fraction and
either (i) the excess of (a) an amount equal to the total assets of the TCI
Ventures Group less the total liabilities (not including preferred stock) of
the TCI Ventures Group as of such date over (b) the aggregate par value of, or
any greater amount determined to be capital in respect of, all outstanding
shares of TCI Ventures Group Common Stock, each class or series of Preferred
Stock attributed to the TCI Ventures Group and the TCI Ventures Group Preferred
Interest or (ii) in case there is no such excess, an amount equal to the
Company Earnings (Loss) Attributable to the TCI Ventures Group (if positive)
for the fiscal year in which such date occurs and/or the preceding fiscal
year. The "Company Earnings (Loss) Attributable to the TCI Ventures Group,"
for any period, means the net earnings or loss of the TCI Ventures Group for
such period determined on a basis consistent with the determination of the net
earnings or loss of the TCI Ventures Group for such period as presented in the
combined financial statements of the TCI Ventures Group, including income and
expenses of the Company attributed to the operations of the TCI Ventures Group
on a substantially consistent basis, including, without limitation, corporate
administrative costs, net interest and income taxes.
Except for dividends declared or paid as described below under
"--Share Distributions" and "--Conversion and Redemption--Mandatory Dividend,
Redemption or Conversion of TCI Ventures Group Common Stock," any dividends
paid on the Series A TCI Ventures Group Common Stock or the Series B TCI
Ventures Group Common Stock will be paid only on both series, in equal amounts
per share.
The Board of Directors, subject to the provisions described under this
caption "Dividends" and below under "--Share Distributions," will have the
authority and discretion to declare and pay dividends on the TCI Group Common
Stock, the Liberty Media Group Common Stock or the TCI Ventures Group Common
Stock in equal or unequal amounts, notwithstanding the relationship among the
TCI Group Available Dividend Amount, the Liberty Media Group Available Dividend
Amount and the TCI Ventures Group Available Dividend Amount, the respective
amounts of prior dividends declared on, or liquidation rights of, the TCI Group
Common Stock, the Liberty Media Group Common Stock or the TCI Ventures Group
Common Stock or any other factor. See "Dividend Policy."
[51]
<PAGE> 61
At the time of any dividend or other distribution on the outstanding
shares of TCI Ventures Group Common Stock (including any dividend of TCI
Ventures Group Net Proceeds from the Disposition of all or substantially all of
the properties and assets of the TCI Ventures Group as described under
"--Conversion and Redemption--Mandatory Dividend, Redemption or Conversion of
TCI Ventures Group Common Stock"), the TCI Group will (if at such time there is
an Inter-Group Interest in the TCI Ventures Group) be credited, and the TCI
Ventures Group will be charged (in addition to the charge for the dividend or
other distribution paid or distributed in respect of outstanding shares of TCI
Ventures Group Common Stock), with an amount equal to the product of (i) the
aggregate amount of such dividend or distribution paid or distributed in
respect of outstanding shares of TCI Ventures Group Common Stock times (ii) a
fraction the numerator of which is the TCI Ventures Group Inter-Group Interest
Fraction and the denominator of which is the TCI Ventures Group Outstanding
Interest Fraction.
See Annex IV--Illustration of Certain Terms for illustrations of the
calculation of the TCI Ventures Group Inter-Group Interest Fraction and the
effects of dividends on shares of TCI Ventures Group Common Stock.
Dividends on TCI Group Common Stock and Liberty Media Group Common
Stock. Dividends on the TCI Group Common Stock are payable out of the lesser
of assets of the Company legally available therefor and the TCI Group Available
Dividend Amount. Dividends on the Liberty Media Group Common Stock are payable
out of the lesser of assets of the Company legally available therefor and the
Liberty Media Group Available Dividend Amount. The provisions of the Company
Charter regarding dividends on the TCI Group Common Stock and the Liberty Media
Group Common Stock will not change pursuant to the TCI Ventures Group Stock
Proposal. Because certain of the assets and liabilities attributed to the TCI
Ventures Group are currently included in the TCI Group, the TCI Ventures Group
Stock Proposal would affect the determination of, and could reduce the amount
available for dividends under, the TCI Group Available Dividend Amount.
SHARE DISTRIBUTIONS
Distributions on TCI Group Common Stock. If at any time after the
initial issuance of shares of TCI Ventures Group Common Stock, a distribution
paid in TCI Group Common Stock, Liberty Media Group Common Stock, TCI Ventures
Group Common Stock, or any other securities of the Company or any other person
(a "share distribution") is made with respect to the TCI Group Common Stock,
such share distribution will be declared and paid only as follows:
(i) a share distribution consisting of shares of Series A
TCI Group Common Stock (or Convertible Securities convertible into or
exercisable or exchangeable for shares of Series A TCI Group Common
Stock) to holders of Series A TCI Group Common Stock and Series B TCI
Group Common Stock, on an equal per share basis; or consisting of
shares of Series B TCI Group Common Stock (or Convertible Securities
convertible into or exercisable or exchangeable for shares of Series B
TCI Group Common Stock) to holders of Series A TCI Group Common Stock
and Series B TCI Group Common Stock, on an equal per share basis; or
consisting of shares of Series A TCI Group Common Stock (or
Convertible Securities convertible into or exercisable or exchangeable
for shares of Series A TCI Group Common Stock) to holders of Series A
TCI Group Common Stock and, on an equal per share basis, shares of
Series B TCI Group Common Stock (or like Convertible Securities
convertible into or exercisable or exchangeable for shares of Series B
TCI Group Common Stock) to holders of Series B TCI Group Common Stock;
(ii) a share distribution consisting of shares of Series A
Liberty Media Group Common Stock (or Convertible Securities
convertible into or exercisable or exchangeable for shares of Series A
Liberty Media Group Common Stock) to holders of Series A TCI Group
Common Stock and Series B TCI Group Common Stock, on an equal per
share basis; provided that the sum of (A) the aggregate number of
shares of Series A Liberty Media Group Common Stock to be so issued
(or the number of such shares which would be issuable upon conversion,
exercise or exchange of any Convertible Securities to be so issued)
and (B) the number of shares of such series that are subject to
issuance upon conversion, exercise or exchange of any Convertible
Securities then outstanding that are attributed to the TCI Group
(other than Pre-Distribution Convertible Securities (as defined in the
Company Charter) and other than Convertible Securities convertible
into or exercisable or exchangeable for Committed Acquisition Shares
(as defined in the Company Charter)) is less than or equal to the
Number of Shares Issuable with Respect to the Liberty Media Group
Inter-Group Interest;
(iii) a share distribution consisting of shares of Series A
TCI Ventures Group Common Stock (or Convertible Securities convertible
into or exercisable or exchangeable for shares of Series A TCI
Ventures Group Common Stock) to holders of Series A TCI Group Common
Stock and Series B TCI Group Common Stock, on an equal per share
basis; or consisting of shares of Series B TCI Ventures Group Common
Stock (or Convertible
[52]
<PAGE> 62
Securities convertible into or exercisable or exchangeable for shares
of Series B TCI Ventures Group Common Stock) to holders of Series A
TCI Group Common Stock and Series B TCI Group Common Stock, on an
equal per share basis; or consisting of shares of Series A TCI
Ventures Group Common Stock (or Convertible Securities convertible
into or exercisable or exchangeable for shares of Series A TCI
Ventures Group Common Stock) to holders of Series A TCI Group Common
Stock and, on an equal per share basis, shares of Series B TCI
Ventures Group Common Stock (or like Convertible Securities
convertible into or exercisable or exchangeable for shares of Series B
TCI Ventures Group Common Stock) to holders of Series B TCI Group
Common Stock; provided that the sum of (A) the aggregate number of
shares of Series A TCI Ventures Group Common Stock and Series B TCI
Ventures Group Common Stock to be so issued (or the number of such
shares which would be issuable upon conversion, exercise or exchange
of any Convertible Securities to be so issued) and (B) the number of
shares of Series A TCI Ventures Group Common Stock that are subject to
issuance upon conversion, exercise or exchange of any Convertible
Securities then outstanding that are attributed to the TCI Group
(other than Pre-Exchange Offer Securities) is less than or equal to
the Number of Shares Issuable with Respect to the TCI Ventures Group
Inter-Group Interest; and
(iv) a share distribution consisting of any class or
series of securities of the Company or any other person other than TCI
Group Common Stock, Liberty Media Group Common Stock or TCI Ventures
Group Common Stock (or Convertible Securities convertible into or
exercisable or exchangeable for shares of TCI Group Common Stock,
Liberty Media Group Common Stock or TCI Ventures Group Common Stock),
either on the basis of a distribution of identical securities, on an
equal per share basis, to holders of Series A TCI Group Common Stock
and Series B TCI Group Common Stock or on the basis of a distribution
of one class or series of securities to holders of Series A TCI Group
Common Stock and another class or series of securities to holders of
Series B TCI Group Common Stock, provided that the securities so
distributed (and, if the distribution consists of Convertible
Securities, the securities into which such Convertible Securities are
convertible or for which they are exercisable or exchangeable) do not
differ in any respect other than their relative voting rights and
related differences in designation, conversion, redemption and share
distribution provisions, with holders of shares of Series B TCI Group
Common Stock receiving the class or series having the higher relative
voting rights (without regard to whether such rights differ to a
greater or lesser extent than the corresponding differences in voting
rights, designation, conversion, redemption and share distribution
provisions between the Series A TCI Group Common Stock and the Series
B TCI Group Common Stock), provided that if the securities so
distributed constitute capital stock of a subsidiary of the Company,
such rights will not differ to a greater extent than the corresponding
differences in voting rights, designation, conversion, redemption and
share distribution provisions between the Series A TCI Group Common
Stock and the Series B TCI Group Common Stock, and provided in each
case that such distribution is otherwise made on an equal per share
basis.
The Company will not reclassify, subdivide or combine the Series A TCI
Group Common Stock without reclassifying, subdividing or combining the Series B
TCI Group Common Stock, on an equal per share basis, and the Company will not
reclassify, subdivide or combine the Series B TCI Group Common Stock without
reclassifying, subdividing or combining the Series A TCI Group Common Stock, on
an equal per share basis.
Distributions on TCI Ventures Group Common Stock. If at any time a
share distribution is to be made with respect to the TCI Ventures Group Common
Stock, such share distribution will be declared and paid only as follows (or as
described under "--Conversion and Redemption" with respect to the redemptions
and other distributions referred to therein):
(i) a share distribution consisting of shares of Series A
TCI Ventures Group Common Stock (or Convertible Securities convertible
into or exercisable or exchangeable for shares of Series A TCI
Ventures Group Common Stock) to holders of Series A TCI Ventures Group
Common Stock and Series B TCI Ventures Group Common Stock, on an equal
per share basis; or consisting of shares of Series B TCI Ventures
Group Common Stock (or Convertible Securities convertible into or
exercisable or exchangeable for shares of Series B TCI Ventures Group
Common Stock) to holders of Series A TCI Ventures Group Common Stock
and Series B TCI Ventures Group Common Stock, on an equal per share
basis; or consisting of shares of Series A TCI Ventures Group Common
Stock (or Convertible Securities convertible into or exercisable or
exchangeable for shares of Series A TCI Ventures Group Common Stock)
to holders of Series A TCI Ventures Group Common Stock and, on an
equal per share basis, shares of Series B TCI Ventures Group Common
Stock (or like Convertible Securities convertible into or exercisable
or exchangeable for shares of Series B TCI Ventures Group Common
Stock) to holders of Series B TCI Ventures Group Common Stock; and
[53]
<PAGE> 63
(ii) a share distribution consisting of any class or
series of securities of the Company or any other person other than as
described in the immediately preceding clause (i) and other than TCI
Group Common Stock or Liberty Media Group Common Stock (or Convertible
Securities convertible into or exercisable or exchangeable for shares
of TCI Group Common Stock or Liberty Media Group Common Stock), either
on the basis of a distribution of identical securities, on an equal
per share basis, to holders of Series A TCI Ventures Group Common
Stock and Series B TCI Ventures Group Common Stock or on the basis of
a distribution of one class or series of securities to holders of
Series A TCI Ventures Group Common Stock and another class or series
of securities to holders of Series B TCI Ventures Group Common Stock,
provided that the securities so distributed (and, if the distribution
consists of Convertible Securities, the securities into which such
Convertible Securities are convertible or for which they are
exercisable or exchangeable) do not differ in any respect other than
their relative voting rights and related differences in designation,
conversion, redemption and share distribution provisions, with holders
of shares of Series B TCI Ventures Group Common Stock receiving the
class or series having the higher relative voting rights (without
regard to whether such rights differ to a greater or lesser extent
than the corresponding differences in voting rights, designation,
conversion, redemption and share distribution provisions between the
Series A TCI Ventures Group Common Stock and the Series B TCI Ventures
Group Common Stock), provided that if the securities so distributed
constitute capital stock of a subsidiary of the Company, such rights
will not differ to a greater extent than the corresponding differences
in voting rights, designation, conversion, redemption and share
distribution provisions between the Series A TCI Ventures Group Common
Stock and the Series B TCI Ventures Group Common Stock, and provided
in each case that such distribution is otherwise made on an equal per
share basis.
Because the TCI Ventures Group is not permitted to have an Inter-Group
Interest in either the TCI Group or the Liberty Media Group, no distributions
on the TCI Ventures Group Common Stock of shares of TCI Group Common Stock (or
related Convertible Securities) or Liberty Media Group Common Stock (or related
Convertible Securities) are permitted.
The Company will not reclassify, subdivide or combine the Series A TCI
Ventures Group Common Stock without reclassifying, subdividing or combining the
Series B TCI Ventures Group Common Stock, on an equal per share basis, and the
Company will not reclassify, subdivide or combine the Series B TCI Ventures
Group Common Stock without reclassifying, subdividing or combining the Series A
TCI Ventures Group Common Stock, on an equal per share basis.
Distributions on Liberty Media Group Common Stock. Under the Company
Charter, share distributions on the Liberty Media Group Common Stock consisting
of TCI Group Common Stock (or related Convertible Securities) or Telephony
Group Common Stock (or related Convertible Securities) are not permitted. In
the Amended Charter, the TCI Ventures Group Common Stock is substituted for the
Telephony Group Common Stock.
CONVERSION AND REDEMPTION
Conversion at the Option of the Holder. Each share of Series B TCI
Ventures Group Common Stock will be convertible, at the option of the holder
thereof, into one share of Series A TCI Ventures Group Common Stock. Shares of
Series A TCI Ventures Group Common Stock will not be convertible into shares of
Series B TCI Ventures Group Common Stock.
Conversion at the Option of the Company. The Board of Directors may
at any time declare that (i) all of the outstanding shares of Series A TCI
Ventures Group Common Stock will be converted into a number (or fraction) of
fully paid and nonassessable shares of Series A TCI Group Common Stock equal to
the TCI Ventures Group Optional Conversion Ratio, and (ii) all of the
outstanding shares of Series B TCI Ventures Group Common Stock will be
converted into a number (or fraction) of fully paid and nonassessable shares of
Series B TCI Group Common Stock equal to the TCI Ventures Group Optional
Conversion Ratio. As more fully described below, the TCI Ventures Group
Optional Conversion Ratio is the ratio of the private market value of a share
of TCI Ventures Group Common Stock determined by appraisal to the public
trading price of a share of TCI Group Common Stock.
Under the Amended Charter, the "TCI Ventures Group Optional Conversion
Ratio" means the quotient (calculated to the nearest five decimal places)
obtained by dividing (x) the TCI Ventures Group Common Stock Per Share Value by
(y) the average Market Value of one share of Series A TCI Group Common Stock
over the 20-Trading Day period ending on the Trading Day preceding the
Appraisal Date. The TCI Ventures Group Common Stock Per Share Value will
equal the quotient obtained by dividing the TCI Ventures Group Private Market
Value by the Adjusted Outstanding Shares of TCI Ventures Group Common Stock,
which will be determined in the manner provided below.
[54]
<PAGE> 64
The "TCI Ventures Group Private Market Value" means an amount equal to
the private market value of the TCI Ventures Group as of the last day of the
calendar month preceding the month in which the last of the two appraisers
referred to in the immediately following sentence are selected (the last day of
such calendar month is hereinafter referred to as the "Appraisal Date"). In
the event that the Company determines to establish the TCI Ventures Group
Private Market Value, an investment banking firm of recognized national
standing will be designated by the Company (the "First Appraiser") and a second
investment banking firm of recognized national standing will be designated by a
committee of the Board of Directors all of whose members are independent
directors as determined under Nasdaq National Market rules (the "Second
Appraiser"). The date upon which the last of such appraisers is selected is
hereinafter referred to as the "Selection Date." Not later than 20 days after
the Selection Date, the First Appraiser and the Second Appraiser will each
determine its initial view as to the private market value of the TCI Ventures
Group as of the Appraisal Date and will consult with one another with respect
thereto. Not later than the 30th day after the Selection Date, the First
Appraiser and the Second Appraiser will each have determined its final view as
to such private market value. If the higher of the respective final views of
the First Appraiser and the Second Appraiser as to such private market value
(the "Higher Appraised Amount") is not more than 120% of the lower of such
respective final views (the "Lower Appraised Amount"), the TCI Ventures Group
Private Market Value (subject to any adjustment described in the second
succeeding paragraph) will be the average of those two amounts. If the Higher
Appraised Amount is more than 120% of the Lower Appraised Amount, the First
Appraiser and the Second Appraiser will agree upon and jointly designate a
third investment banking firm of recognized national standing (the "Mutually
Designated Appraiser") to determine such private market value. The Mutually
Designated Appraiser will not be provided with any of the work of the First
Appraiser and the Second Appraiser. The Mutually Designated Appraiser will, no
later than the 20th day after the date the Mutually Designated Appraiser is
designated, determine such private market value (the "Mutually Appraised
Amount"), and the TCI Ventures Group Private Market Value (subject to any
adjustment described in the second succeeding paragraph) will be (i) if the
Mutually Appraised Amount is between the Lower Appraised Amount and the Higher
Appraised Amount, (a) the average of (1) the Mutually Appraised Amount and (2)
the Lower Appraised Amount or the Higher Appraised Amount, whichever is closer
to the Mutually Appraised Amount, or (b) the Mutually Appraised Amount, if
neither the Lower Appraised Amount nor the Higher Appraised Amount is closer to
the Mutually Appraised Amount, or (ii) if the Mutually Appraised Amount is
greater than the Higher Appraised Amount or less than the Lower Appraised
Amount, the average of the Higher Appraised Amount and the Lower Appraised
Amount. For these purposes, if any such investment banking firm expresses its
final view of the private market value of the TCI Ventures Group as a range of
values, such investment banking firm's final view of such private market value
will be deemed to be the midpoint of such range of values.
Each of the investment banking firms referred to in the immediately
preceding paragraph will be instructed to determine the private market value of
the TCI Ventures Group as of the Appraisal Date based upon the amount a willing
purchaser would pay to a willing seller, in an arm's-length transaction, if it
were acquiring the TCI Ventures Group, as if the TCI Ventures Group were a
publicly traded non-controlled corporation and the purchaser was acquiring all
of the capital stock of such corporation and without consideration of any
potential regulatory constraints limiting the potential purchasers of the TCI
Ventures Group other than that which would have existed if the TCI Ventures
Group were a publicly traded non-controlled entity.
Following the determination of the TCI Ventures Group Private Market
Value, the investment banking firms whose final views of the private market
value of the TCI Ventures Group were used in the calculation of the TCI
Ventures Group Private Market Value will determine the Adjusted Outstanding
Shares of TCI Ventures Group Common Stock together with any further appropriate
adjustments to the TCI Ventures Group Private Market Value resulting from such
determination. The "Adjusted Outstanding Shares of TCI Ventures Group Common
Stock" means a number, as determined by such investment banking firms as of the
Appraisal Date, equal to the sum of the number of shares of TCI Ventures Group
Common Stock outstanding, the Number of Shares Issuable with Respect to the TCI
Ventures Group Inter-Group Interest, the number of shares of TCI Ventures Group
Common Stock issuable upon the exchange of all Pre-Exchange Offer Securities,
and the number of shares of TCI Ventures Group Common Stock issuable upon the
conversion, exercise or exchange of those Convertible Securities (other than
Pre-Exchange Offer Securities) the holders of which would derive an economic
benefit from conversion, exercise or exchange of such Convertible Securities
which exceeds the economic benefit of not converting, exercising or exchanging
such Convertible Securities. The "TCI Ventures Group Common Stock Per Share
Value" means the quotient obtained by dividing the TCI Ventures Group Private
Market Value by the Adjusted Outstanding Shares of TCI Ventures Group Common
Stock, provided that if such investment banking firms do not agree on the
determinations provided for in this paragraph, the TCI Ventures Group Common
Stock Per Share Value will be the average of the quotients so obtained on the
basis of the respective determinations of such firms.
[55]
<PAGE> 65
If the Company determines to convert shares of Series A TCI Ventures
Group Common Stock into Series A TCI Group Common Stock and shares of Series B
TCI Ventures Group Common Stock into Series B TCI Group Common Stock at the TCI
Ventures Group Optional Conversion Ratio, such conversion will occur on a
conversion date on or prior to the 120th day following the Appraisal Date. If
the Company determines not to undertake such conversion, the Company may at any
time thereafter undertake to reestablish the TCI Ventures Group Common Stock
Per Share Value as of a subsequent date.
Any such conversion would dilute the interests of holders of TCI Group
Common Stock and would preclude holders of TCI Ventures Group Common Stock from
retaining their interest in a security reflecting separately the business of
the TCI Ventures Group. In addition, the adjustments in respect of
Pre-Exchange Offer Securities would dilute the interests of holders of TCI
Ventures Group Common Stock upon any conversion of shares of TCI Ventures Group
Common Stock into TCI Group Common Stock at the TCI Ventures Group Optional
Conversion Ratio. See "Factors to be Considered--Potential Dilution from
Issuances of TCI Ventures Group Common Stock upon Exchange of Certain
Outstanding Securities."
See Annex IV--Illustration of Certain Terms for an illustration of the
conversion of TCI Ventures Group Common Stock into TCI Group Common Stock at
the TCI Ventures Group Optional Conversion Ratio.
Mandatory Dividend, Redemption or Conversion of TCI Ventures Group
Common Stock. Upon the Disposition in one transaction or a series of related
transactions by the Company and its subsidiaries of all or substantially all of
the properties and assets of the TCI Ventures Group to any one or more persons,
entities or groups, the Company is required, on or prior to the 85th Trading
Day following the consummation of such Disposition, to take one of the actions
listed in the following paragraph. This requirement does not apply to a
Disposition (a) in connection with the Disposition by the Company of all of the
Company's properties and assets in one transaction or a series of related
transactions in connection with the liquidation, dissolution or winding up of
the Company, (b) by dividend, other distribution or redemption in accordance
with any provision described under "--Dividends," "--Share Distributions,"
"--Conversion and Redemption--Redemption in Exchange for Stock of Subsidiary"
or "--Liquidation Rights," (c) to any person, entity or group which the
Company, directly or indirectly, after giving effect to the Disposition,
controls or (d) in connection with a Related Business Transaction. For these
purposes, "substantially all of the properties and assets of the TCI Ventures
Group" means a portion of such properties and assets that represents at least
80% of the then-current market value (as determined by the Board of Directors)
of the properties and assets of the TCI Ventures Group as of such date.
The action the Company is required to take is to either:
(i) subject to the limitations described above under "--Dividends,"
declare and pay a dividend in cash and/or securities or other property (other
than a dividend or distribution of Common Stock) to the holders of the
outstanding shares of TCI Ventures Group Common Stock equally on a share for
share basis (subject to the provisions described in the last sentence of the
following paragraph), in an aggregate amount equal to the product of the TCI
Ventures Group Outstanding Interest Fraction as of the record date for
determining the holders entitled to receive such dividend and the TCI Ventures
Group Net Proceeds of such Disposition;
(ii) provided that there are assets of the Company legally available
therefor and the TCI Ventures Group Available Dividend Amount would have been
sufficient to pay a dividend in lieu thereof as described in clause (i) of this
paragraph, then:
(A) if such Disposition involves all (not merely
substantially all) of the properties and assets of the TCI Ventures
Group, redeem all outstanding shares of Series A TCI Ventures Group
Common Stock and Series B TCI Ventures Group Common Stock in exchange
for cash and/or securities or other property (other than Common Stock)
in an aggregate amount equal to the product of the Adjusted TCI
Ventures Group Outstanding Interest Fraction as of the date of such
redemption and the TCI Ventures Group Net Proceeds of such
Disposition, such aggregate amount to be allocated (subject to the
provisions described in the last sentence of the following paragraph)
to shares of Series A TCI Ventures Group Common Stock and Series B TCI
Ventures Group Common Stock in the ratio of the number of shares of
each such series outstanding (so that the amount of consideration paid
for the redemption of each share of Series A TCI Ventures Group Common
Stock and each share of Series B TCI Ventures Group Common Stock is
the same); or
(B) if such Disposition involves substantially all (but not
all) of the properties and assets of the TCI Ventures Group, apply an
aggregate amount of cash and/or securities or other property (other
than Common Stock) equal to the product of the TCI Ventures Group
Outstanding Interest Fraction as of the date shares are selected for
redemption
[56]
<PAGE> 66
and the TCI Ventures Group Net Proceeds of such Disposition to the
redemption of outstanding shares of Series A TCI Ventures Group Common
Stock and Series B TCI Ventures Group Common Stock, such aggregate
amount to be allocated (subject to the provisions described in the
last sentence of the following paragraph) to shares of Series A TCI
Ventures Group Common Stock and Series B TCI Ventures Group Common
Stock in the ratio of the number of shares of each such series
outstanding, with the number of shares of each such series to be
redeemed to equal the lesser of (x) the whole number nearest the
number determined by dividing the aggregate amount so allocated to the
redemption of such series by the average Market Value of one share of
Series A TCI Ventures Group Common Stock during the ten-Trading Day
period beginning on the 16th Trading Day following the consummation of
such Disposition and (y) the number of shares of such series
outstanding (so that the amount of consideration paid for the
redemption of each share of Series A TCI Ventures Group Common Stock
and each share of Series B TCI Ventures Group Common Stock is the
same); or
(iii) convert (A) each outstanding share of Series A TCI Ventures
Group Common Stock into a number (or fraction) of fully paid and nonassessable
shares of Series A TCI Group Common Stock and (B) each outstanding share of
Series B TCI Ventures Group Common Stock into a number (or fraction) of fully
paid and nonassessable shares of Series B TCI Group Common Stock, in each case
equal to 110% of the average daily ratio (calculated to the nearest five
decimal places) of the Market Value of one share of Series A TCI Ventures Group
Common Stock to the Market Value of one share of Series A TCI Group Common
Stock during the ten-Trading Day period referred to in clause (ii)(B) of this
paragraph.
The Company may elect to pay the dividend or redemption price
referred to in clause (i) or (ii) of the preceding paragraph either in the same
form as the proceeds of the Disposition were received or in any other
combination of cash or securities or other property (other than Common Stock)
that the Board of Directors determines will have an aggregate market value on a
fully distributed basis, of not less than the amount of the TCI Ventures Group
Net Proceeds. If the dividend or redemption price is paid in the form of
securities of an issuer other than the Company, the Board of Directors may
determine either to (i) pay the dividend or redemption price in the form of
separate classes or series of securities, with one class or series of such
securities to holders of Series A TCI Ventures Group Common Stock and another
class or series of securities to holders of Series B TCI Ventures Group Common
Stock, provided that such securities (and, if such securities are convertible
into or exercisable or exchangeable for shares of another class or series of
securities, the securities so issuable upon such conversion, exercise or
exchange) do not differ in any respect other than their relative voting rights
and related differences in designation, conversion, redemption and share
distribution provisions with holders of shares of Series B TCI Ventures Group
Common Stock receiving the class or series having the higher relative voting
rights (without regard to whether such rights differ to a greater or lesser
extent than the corresponding differences in voting rights, designation,
conversion, redemption and share distribution provisions between the Series A
TCI Ventures Group Common Stock and the Series B TCI Ventures Group Common
Stock), provided that if such securities constitute capital stock of a
subsidiary of the Company, such rights will not differ to a greater extent than
the corresponding differences in voting rights, designation, conversion,
redemption and share distribution provisions between the Series A TCI Ventures
Group Common Stock and the Series B TCI Ventures Group Common Stock, and
otherwise such securities will be distributed on an equal per share basis, or
(ii) pay the dividend or redemption price in the form of a single class of
securities without distinction between the shares received by the holders of
Series A TCI Ventures Group Common Stock and Series B TCI Ventures Group Common
Stock.
The Related Business Transaction exception to the foregoing
requirements would enable the Company to enter into transactions in which the
properties or assets of the TCI Ventures Group may be considered to be
"disposed of" in exchange for equity securities of an entity engaged or
proposing to engage in similar or complementary business areas to those of the
TCI Ventures Group while maintaining the capital structure and delineation of
business groups contemplated by the TCI Ventures Group Stock Proposal.
The effect of using the Adjusted TCI Ventures Group Outstanding
Interest Fraction, instead of the TCI Ventures Group Outstanding Interest
Fraction, in the determination of amounts to be paid in redemption of shares of
TCI Ventures Group Common Stock following a Disposition of all of the
properties and assets of the TCI Ventures Group is to allocate to the TCI Group
a portion of the TCI Ventures Group Net Proceeds of the Disposition, in
addition to the amount so allocated in respect of any Inter-Group Interest,
sufficient to provide for the delivery of the portion of the consideration
deliverable by the Company upon any post-Disposition exchange of Pre-Exchange
Offer Securities that is in substitution for shares of TCI Ventures Group
Common Stock that would have been issuable upon such exchange if it had
occurred prior to such Disposition. To the extent such Pre-Exchange Offer
Securities are included in the determination of the Adjusted TCI Ventures Group
Outstanding Interest Fraction, the Company's obligations in respect of such
securities would not be a reduction in the calculation of the TCI Ventures
Group Net Proceeds. See "Factors to be Considered--Potential Dilution from
Issuances of
[57]
<PAGE> 67
TCI Ventures Group Common Stock upon Exchange of Certain Outstanding
Securities." In the event any redemption of the TCI Ventures Group Common
Stock or conversion of the TCI Ventures Group Common Stock into TCI Group
Common Stock is made in circumstances in which securities or property are
allocated to the TCI Group in respect of Pre-Exchange Offer Securities or other
Convertible Securities entitled to receive such securities or property upon
conversion, exercise or exchange (such securities or other property, the
"Reserved Property"), the TCI Group will segregate and hold such property
separate (in the case of any Reserved Property other than TCI Group Common
Stock), or duly reserve shares of TCI Group Common Stock issuable upon such
conversion, exercise or exchange, for the benefit of the holders of Pre-
Exchange Offer Securities or other Convertible Securities. In the event the
holders of any such Pre-Exchange Offer Securities or other Convertible
Securities do not convert, exercise or exchange such securities prior to the
expiration of any conversion or exercise right or the retirement of such
security, then the Reserved Property shall revert to the TCI Group and the
former holders of TCI Ventures Group Common Stock shall have no interest in
such Reserved Property.
The option to convert the TCI Ventures Group Common Stock into TCI
Group Common Stock in the event of a Disposition provides the Company with
additional flexibility by allowing the Company to deliver consideration in the
form of shares of TCI Group Common Stock rather than cash or securities or
other properties. This alternative could be used, for example, in
circumstances when the Company did not have sufficient legally available assets
under the DGCL to pay the full amount of an otherwise required dividend or
redemption or when the Company desired to retain such proceeds.
If less than substantially all of the properties and assets of the TCI
Ventures Group were disposed of by the Company in one transaction, the Company
would not be required to pay a dividend on, redeem or convert the outstanding
shares of TCI Ventures Group Common Stock, even if an additional transaction
were consummated at a later time in which additional properties and assets of
the TCI Ventures Group were disposed of by the Company, which, together with
the properties and assets disposed of in the first transaction, would have
constituted substantially all of the properties and assets of the TCI Ventures
Group at the time of the first transaction, unless such transactions
constituted a series of related transactions. The second transaction, however,
could trigger such a requirement if, at the time of the second transaction, the
properties and assets disposed of in such transaction constituted at least
substantially all of the properties and assets of the TCI Ventures Group at
such time. If less than substantially all of the properties and assets of the
TCI Ventures Group were disposed of by the Company, the holders of the TCI
Ventures Group Common Stock would not be entitled to receive any dividend or
have their shares redeemed or converted for TCI Group Common Stock, although
the Board of Directors could determine, in its sole discretion, to pay a
dividend on the TCI Ventures Group Common Stock in an amount related to the
proceeds of such Disposition.
At the time of any dividend made as a result of a Disposition referred
to above, the TCI Group will be credited, and the TCI Ventures Group will be
charged (in addition to the charge for the dividend paid in respect of
outstanding shares of TCI Ventures Group Common Stock), with an amount equal to
the product of (i) the aggregate amount paid in respect of such dividend times
(ii) a fraction the numerator of which is the TCI Ventures Group Inter-Group
Interest Fraction and the denominator of which is the TCI Ventures Group
Outstanding Interest Fraction.
See Annex IV--Illustration of Certain Terms for an illustration of the
dividend on or redemption or conversion of TCI Ventures Group Common Stock
following the Disposition of all or substantially all of the properties and
assets of the TCI Ventures Group.
Redemption in Exchange for Stock of Subsidiary. At any time at which
all of the assets and liabilities attributed to the TCI Ventures Group have
become and continue to be held directly or indirectly by any one or more
corporations that are Qualifying Subsidiaries (the "TCI Ventures Group
Subsidiaries"), the Board of Directors may, subject to the availability of
assets of the Company legally available therefor, redeem on a pro rata basis,
all of the outstanding shares of TCI Ventures Group Common Stock in exchange
for an aggregate number of outstanding, fully paid and nonassessable shares of
common stock of each TCI Ventures Group Subsidiary equal to the product of the
Adjusted TCI Ventures Group Outstanding Interest Fraction and the number of
outstanding shares of common stock of such TCI Ventures Group Subsidiary that
are owned by the Company. The effect of using the Adjusted TCI Ventures Group
Outstanding Interest Fraction, instead of the TCI Ventures Group Outstanding
Interest Fraction, in the determination of shares of the TCI Ventures Group
Subsidiaries deliverable in such a redemption is to allocate to the TCI Group a
portion of the shares of the TCI Ventures Group Subsidiaries, in addition to
the number of such shares so allocated in respect of any Inter-Group Interest,
sufficient to provide for the delivery of the consideration deliverable by the
Company upon any post-redemption exchange of Pre-Exchange Offer Securities
that become so payable in substitution for shares of TCI Ventures Group Common
Stock that would have been issuable upon such exchange
[58]
<PAGE> 68
if it had occurred prior to such redemption. See "Factors to be
Considered--Potential Dilution from Issuances of TCI Ventures Group Common
Stock upon Exchange of Certain Outstanding Securities."
In effecting such a redemption, the Board of Directors may determine
either to (i) redeem shares of Series A TCI Ventures Group Common Stock and
Series B TCI Ventures Group Common Stock in exchange for shares of separate
classes or series of common stock of each TCI Ventures Group Subsidiary with
relative voting rights and related differences in designation, conversion,
redemption and share distribution provisions not greater than the corresponding
differences in voting rights, designation, conversion, redemption and share
distribution provisions between the Series A TCI Ventures Group Common Stock
and Series B TCI Ventures Group Common Stock, with holders of shares of Series
B TCI Ventures Group Common Stock receiving the class or series having the
higher relative voting rights, or (ii) redeem shares of Series A TCI Ventures
Group Common Stock and Series B TCI Ventures Group Common Stock in exchange for
shares of a single class of common stock of each TCI Ventures Group Subsidiary
without distinction between the shares distributed to the holders of the two
series of TCI Ventures Group Common Stock.
See Annex IV--Illustration of Certain Terms for an illustration of the
redemption of TCI Ventures Group Common Stock in exchange for common stock of
the TCI Ventures Group Subsidiaries.
Certain Provisions Respecting Convertible Securities. Unless the
provisions of the Pre-Exchange Offer Securities provide specifically to the
contrary, after any conversion date or redemption date on which all outstanding
shares of TCI Ventures Group Common Stock were converted or redeemed, any
shares of TCI Ventures Group Common Stock that is issued on exchange of any
Pre-Exchange Offer Securities will, immediately upon issuance pursuant to such
exchange and without any notice or any other action on the part of the Company
or its Board of Directors or the holder of such share of TCI Ventures Group
Common Stock, be converted into or redeemed in exchange for, as applicable, the
kind and amount of shares of capital stock, cash and/or securities or other
property that a holder of such Pre-Exchange Offer Securities would have been
entitled to receive as a result of such conversion and redemption had such
Pre-Exchange Offer Securities been exchanged immediately prior to such action.
Unless the provisions of any class or series of Convertible Securities (other
than Pre-Exchange Offer Securities) which are convertible into or exercisable
or exchangeable for shares of TCI Ventures Group Common Stock provide
specifically to the contrary, after any conversion date or redemption date on
which all outstanding shares of TCI Ventures Group Common Stock were converted
or redeemed, any share of TCI Ventures Group Common Stock that is issued on
conversion, exercise or exchange of any such Convertible Securities will,
immediately upon issuance pursuant to such conversion, exercise or exchange and
without any notice or any other action on the part of the Company or its Board
of Directors or the holder of such share of TCI Ventures Group Common Stock, be
redeemed in exchange for, to the extent assets of the Company are legally
available therefor, the amount of $.01 per share in cash.
General Conversion and Redemption Provisions. Not later than the 10th
Trading Day following the consummation of a Disposition referred to above under
"--Conversion and Redemption--Mandatory Dividend, Redemption or Conversion of
TCI Ventures Group Common Stock," the Company will announce publicly by press
release (i) the TCI Ventures Group Net Proceeds of such Disposition, (ii) the
number of outstanding shares of Series A TCI Ventures Group Common Stock and
Series B TCI Ventures Group Common Stock, (iii) the number of shares of Series
A TCI Ventures Group Common Stock and Series B TCI Ventures Group Common Stock
into or for which Convertible Securities are then convertible, exercisable or
exchangeable and the conversion, exercise or exchange prices thereof (and
stating which, if any, of such Convertible Securities are Pre-Exchange Offer
Securities), (iv) the TCI Ventures Group Outstanding Interest Fraction as of a
recent date preceding the date of such notice and (v) the Adjusted TCI Ventures
Group Outstanding Interest Fraction as of a recent date preceding the date of
such notice. Not earlier than the 26th Trading Day and not later than the 30th
Trading Day following the consummation of such Disposition, the Company will
announce publicly by press release which of the actions described in clause
(i), (ii) or (iii) of the second paragraph under "--Conversion and
Redemption--Mandatory Dividend, Redemption or Conversion of TCI Ventures Group
Common Stock" it has irrevocably determined to take.
If the Company determines to pay a dividend described in clause (i) of
the second paragraph under "--Conversion and Redemption--Mandatory Dividend,
Redemption or Conversion of TCI Ventures Group Common Stock," the Company will,
not later than the 30th Trading Day following the consummation of such
Disposition, cause to be given to each holder of outstanding shares of Series A
TCI Ventures Group Common Stock and Series B TCI Ventures Group Common Stock a
notice setting forth (i) the record date for determining holders entitled to
receive such dividend, which will be not earlier than the 40th Trading Day and
not later than the 50th Trading Day following the consummation of such
Disposition, (ii) the anticipated payment date of such dividend (which will not
be more than 85 Trading Days following the consummation of such Disposition),
(iii) the kind of shares of capital stock, cash and/or other securities or
property to be distributed in respect of
[59]
<PAGE> 69
shares of Series A TCI Ventures Group Common Stock and Series B TCI Ventures
Group Common Stock, (iv) the TCI Ventures Group Net Proceeds of such
Disposition, (v) the TCI Ventures Group Outstanding Interest Fraction as of a
recent date preceding the date of such notice, and (vi) the number of
outstanding shares of Series A TCI Ventures Group Common Stock and Series B TCI
Ventures Group Common Stock and the number of shares of Series A TCI Ventures
Group Common Stock and Series B TCI Ventures Group Common Stock into or for
which outstanding Convertible Securities are then convertible, exercisable or
exchangeable and the conversion, exercise or exchange prices thereof.
If the Company determines to undertake a redemption of shares of TCI
Ventures Group Common Stock following a Disposition of all (not merely
substantially all) of the properties and assets of the TCI Ventures Group as
described in clause (ii)(A) of the second paragraph under "--Conversion and
Redemption--Mandatory Dividend, Redemption or Conversion of TCI Ventures Group
Common Stock," the Company will cause to be given to each holder of outstanding
shares of Series A TCI Ventures Group Common Stock and Series B TCI Ventures
Group Common Stock a notice setting forth (i) a statement that all shares of
TCI Ventures Group Common Stock outstanding on the redemption date will be
redeemed, (ii) the redemption date (which will not be more than 85 Trading Days
following the consummation of such Disposition), (iii) the kind of shares of
capital stock, cash and/or other securities or property to be paid as a
redemption price in respect of shares of TCI Ventures Group Common Stock
outstanding on the redemption date, (iv) the TCI Ventures Group Net Proceeds of
such Disposition, (v) the Adjusted TCI Ventures Group Outstanding Interest
Fraction as of a recent date preceding the date of such notice, (vi) the place
or places where certificates for shares of TCI Ventures Group Common Stock,
properly endorsed or assigned for transfer (unless the Company waives such
requirement), are to be surrendered for delivery of certificates for shares of
such capital stock, cash and/or other securities or property, and (vii) the
number of outstanding shares of Series A TCI Ventures Group Common Stock and
Series B TCI Ventures Group Common Stock and the number of shares of Series A
TCI Ventures Group Common Stock and Series B TCI Ventures Group Common Stock
into or for which outstanding Convertible Securities are then convertible,
exercisable or exchangeable and the conversion, exercise or exchange prices
thereof (and stating which, if any, of such Convertible Securities are
Pre-Exchange Offer Securities). Such notice will be sent not less than 35
Trading Days nor more than 45 Trading Days prior to the redemption date.
If the Company determines to undertake a redemption of shares of TCI
Ventures Group Common Stock following a Disposition of substantially all (but
not all) of the properties and assets of the TCI Ventures Group as described in
clause (ii)(B) of the second paragraph under "--Conversion and
Redemption--Mandatory Dividend, Redemption or Conversion of TCI Ventures Group
Common Stock," the Company will, not later than the 30th Trading Day following
the consummation of such Disposition, cause to be given to each holder of
record of outstanding shares of Series A TCI Ventures Group Common Stock and
Series B TCI Ventures Group Common Stock a notice setting forth (i) a date not
earlier than the 40th Trading Day and not later than the 50th Trading Day
following the consummation of such Disposition which will be the date on which
shares of the TCI Ventures Group Common Stock then outstanding will be selected
for redemption, (ii) the anticipated redemption date (which will not be more
than 85 Trading Days following the consummation of such Disposition), (iii) the
kind of shares of capital stock, cash and/or other securities or property to be
paid as a redemption price in respect of shares of TCI Ventures Group Common
Stock selected for redemption, (iv) the TCI Ventures Group Net Proceeds of such
Disposition, (v) the TCI Ventures Group Outstanding Interest Fraction as of a
recent date preceding the date of such notice, (vi) the number of outstanding
shares of Series A TCI Ventures Group Common Stock and Series B TCI Ventures
Group Common Stock and the number of shares of Series A TCI Ventures Group
Common Stock and Series B TCI Ventures Group Common Stock into or for which
outstanding Convertible Securities are then convertible, exercisable or
exchangeable and the conversion, exercise or exchange prices thereof, and (vii)
a statement that the Company will not be required to register a transfer of any
shares of TCI Ventures Group Common Stock for a period of 15 Trading Days next
preceding the date referred to in clause (i) of this sentence. Promptly
following the date referred to in clause (i) of the preceding sentence, but not
earlier than the 40th Trading Day and not later than the 50th Trading Day
following the consummation of such Disposition, the Company will cause to be
given to each holder of shares of Series A TCI Ventures Group Common Stock and
Series B TCI Ventures Group Common Stock to be redeemed, a notice setting forth
(i) the number of shares of Series A TCI Ventures Group Common Stock and Series
B TCI Ventures Group Common Stock held by such holder to be redeemed, (ii) a
statement that such shares of Series A TCI Ventures Group Common Stock and
Series B TCI Ventures Group Common Stock will be redeemed, (iii) the redemption
date (which will not be more than 85 Trading Days following the consummation of
such Disposition), (iv) the kind and per share amount of shares of capital
stock, cash and/or other securities or property to be received by such holder
with respect to each share of such TCI Ventures Group Common Stock to be
redeemed, including details as to the calculation thereof, and (v) the place or
places where certificates for shares of such TCI Ventures Group Common Stock,
properly endorsed or assigned for transfer (unless the Company waives such
requirement), are to be surrendered for delivery of certificates for shares of
such capital stock, cash and/or other securities or property. The outstanding
shares of TCI Ventures
[60]
<PAGE> 70
Group Common Stock to be redeemed will be redeemed by the Company pro rata
among the holders of TCI Ventures Group Common Stock or by such other method as
may be determined by the Board of Directors to be equitable.
In the event of any conversion as described above under "--Conversion
and Redemption--Conversion at the Option of the Company" or "--Conversion and
Redemption--Mandatory Dividend, Redemption or Conversion of TCI Ventures Group
Common Stock," the Company will cause to be given to each holder of outstanding
shares of Series A TCI Ventures Group Common Stock and Series B TCI Ventures
Group Common Stock a notice setting forth (i) a statement that all outstanding
shares of TCI Ventures Group Common Stock will be converted, (ii) the
conversion date (which will not be more than 85 Trading Days following the
consummation of such Disposition in the event of a conversion pursuant to the
provisions described under "--Conversion and Redemption--Mandatory Dividend,
Redemption or Conversion of TCI Ventures Group Common Stock" and which will not
be more than 120 days after the Appraisal Date in the event of a conversion
pursuant to the provisions described under "--Conversion and
Redemption--Conversion at the Option of the Company"), (iii) the per share
number (or fraction) of shares of Series A TCI Group Common Stock or Series B
TCI Group Common Stock, as applicable, to be received with respect to each
share of Series A TCI Ventures Group Common Stock or Series B TCI Ventures
Group Common Stock, including details as to the calculation thereof, (iv) the
place or places where certificates for shares of TCI Ventures Group Common
Stock, properly endorsed or assigned for transfer (unless the Company waives
such requirement), are to be surrendered, and (v) the number of outstanding
shares of Series A TCI Ventures Group Common Stock and Series B TCI Ventures
Group Common Stock, and the number of shares of Series A TCI Ventures Group
Common Stock and Series B TCI Ventures Group Common Stock into or for which
outstanding Convertible Securities are then convertible, exercisable or
exchangeable and the conversion, exercise or exchange prices thereof. Such
notice will be sent not less than 35 Trading Days nor more than 45 Trading Days
prior to the conversion date.
If the Company determines to redeem shares of Series A TCI Ventures
Group Common Stock and Series B TCI Ventures Group Common Stock as described
above under "--Conversion and Redemption--Redemption in Exchange for Stock of
Subsidiary," the Company will promptly cause to be given to each holder of
Series A TCI Ventures Group Common Stock and Series B TCI Ventures Group Common
Stock a notice setting forth (i) a statement that all outstanding shares of TCI
Ventures Group Common Stock will be redeemed in exchange for shares of common
stock of the TCI Ventures Group Subsidiaries, (ii) the redemption date, (iii)
the Adjusted TCI Ventures Group Outstanding Interest Fraction as of a recent
date preceding the date of such notice, (iv) the place or places where
certificates for shares of TCI Ventures Group Common Stock, properly endorsed
or assigned for transfer (unless the Company waives such requirement), are to
be surrendered for delivery of certificates for shares of common stock of the
TCI Ventures Group Subsidiaries, and (v) the number of outstanding shares of
Series A TCI Ventures Group Common Stock and Series B TCI Ventures Group Common
Stock and the number of shares of Series A TCI Ventures Group Common Stock and
Series B TCI Ventures Group Common Stock into or for which outstanding
Convertible Securities are then convertible, exercisable or exchangeable and
the conversion, exercise or exchange prices thereof (and stating which, if any,
of such Convertible Securities are Pre-Exchange Offer Securities). Such notice
will be sent not less than 35 Trading Days nor more than 45 Trading Days prior
to the redemption date.
In each case in which a notice is required to be given to holders of
outstanding shares of Series A TCI Ventures Group Common Stock and Series B TCI
Ventures Group Common Stock in accordance with the preceding five paragraphs
(other than a notice to holders of shares selected for redemption), notice
shall also be given, within the required time period, to each holder of
Convertible Securities that are convertible into or exercisable or exchangeable
for shares of either such series (unless provision for such notice is otherwise
made pursuant to the terms of such Convertible Securities), which notice shall
include, in addition to all of the information set forth in the corresponding
notice to holders of TCI Ventures Group Common Stock, a statement to the effect
that the holders of such Convertible Securities will be entitled to receive the
dividend, participate in the redemption of shares following a Disposition or in
the selection of shares for redemption, participate in the conversion of shares
or participate in the redemption of shares in exchange for stock of the TCI
Ventures Group Subsidiaries only if such holder appropriately converts,
exercises or exchanges such Convertible Securities on or prior to the record
date for the dividend, redemption date, date fixed for selection of shares to
be redeemed or conversion date, as applicable, set forth in such notice. In
the case of a redemption or conversion of shares of TCI Ventures Group Common
Stock, the notice to holders of Convertible Securities shall also state what,
if anything, such holders will be entitled to receive pursuant to the terms of
such Convertible Securities or, if applicable, the provision described under
"--Conversion and Redemption--Certain Provisions Respecting Convertible
Securities" if such holders convert, exercise or exchange such Convertible
Securities following the redemption date or conversion date, as applicable.
All notices required to be given in accordance with the preceding
paragraphs will be sent to a holder by first-class mail, postage prepaid, at
the holder's address as the same appears on the transfer books of TCI. Neither
the failure to mail any
[61]
<PAGE> 71
notice to any particular holder of TCI Ventures Group Common Stock or of
Convertible Securities nor any defect therein will affect the sufficiency
thereof with respect to any other holder of outstanding shares of TCI Ventures
Group Common Stock or of Convertible Securities, or the validity of any
conversion or redemption.
The Company will not be required to issue or deliver fractional shares
of any class of capital stock or any fractional securities to any holder of TCI
Ventures Group Common Stock upon any conversion, redemption, dividend or other
distribution described above. In connection with the determination of the
number of shares of any class of capital stock that is issuable or the amount
of securities that is deliverable to any holder of record upon any such
conversion, redemption, dividend or other distribution (including any fractions
of shares or securities), the Company may aggregate the number of shares of TCI
Ventures Group Common Stock held at the relevant time by such holder of record.
If the number of shares of any class of capital stock or the amount of
securities remaining to be issued or delivered to any holder of TCI Ventures
Group Common Stock is a fraction, the Company will, if such fraction is not
issued or delivered to such holder, pay a cash adjustment in respect of such
fraction in an amount equal to the fair market value of such fraction on the
fifth Trading Day prior to the date such payment is to be made (without
interest). For purposes of the preceding sentence, "fair market value" of any
fraction will be (i) in the case of any fraction of a share of capital stock of
the Company, the product of such fraction and the Market Value of one share of
such capital stock and (ii) in the case of any other fractional security, such
value as is determined by the Board of Directors.
No adjustments in respect of dividends will be made upon the
conversion or redemption of any shares of TCI Ventures Group Common Stock;
provided, however, that if the conversion date or the redemption date with
respect to the TCI Ventures Group Common Stock is subsequent to the record date
for the payment of a dividend or other distribution thereon or with respect
thereto, the holders of shares of TCI Ventures Group Common Stock at the close
of business on such record date will be entitled to receive the dividend or
other distribution payable on or with respect to such shares on the date set
for payment of such dividend or other distribution, notwithstanding the
conversion or redemption of such shares or the Company's default in payment of
the dividend or distribution due on such date.
Before any holder of shares of TCI Ventures Group Common Stock will be
entitled to receive certificates representing shares of any kind of capital
stock or cash and/or securities or other property to be received by such holder
with respect to any conversion or redemption of shares of TCI Ventures Group
Common Stock, such holder is required to surrender at such place as the Company
will specify certificates for such shares, properly endorsed or assigned for
transfer (unless the Company waives such requirement). The Company will as
soon as practicable after surrender of certificates representing shares of TCI
Ventures Group Common Stock deliver to the person for whose account such shares
were so surrendered, or to the nominee or nominees of such person, certificates
representing the number of whole shares of the kind of capital stock or cash
and/or securities or other property to which such person is entitled, together
with any payment for fractional securities referred to above. If less than all
of the shares of TCI Ventures Group Common Stock represented by any one
certificate are to be redeemed, the Company will issue and deliver a new
certificate for the shares of TCI Ventures Group Common Stock not redeemed.
The Company will not be required to register a transfer of (i) any shares of
TCI Ventures Group Common Stock for a period of 15 Trading Days next preceding
any selection of shares of TCI Ventures Group Common Stock to be redeemed or
(ii) any shares of TCI Ventures Group Common Stock selected or called for
redemption. Shares selected for redemption may not thereafter be converted
pursuant to the provisions described under "--Conversion and
Redemption--Conversion at the Option of the Holder."
From and after any applicable conversion date or redemption date, all
rights of a holder of shares of TCI Ventures Group Common Stock that were
converted or redeemed will cease except for the right, upon surrender of the
certificates representing shares of TCI Ventures Group Common Stock, to receive
certificates representing shares of the kind and amount of capital stock or
cash and/or securities or other property for which such shares were converted
or redeemed, together with any payment for fractional securities, and such
holder will have no other or further rights in respect of the shares of TCI
Ventures Group Common Stock so converted or redeemed, including, but not
limited to, any rights with respect to any cash, securities or other property
which are reserved or otherwise designated by the Company as being held for the
satisfaction of the Company's obligations to pay or deliver any cash,
securities or other property upon the conversion, exercise or exchange of any
Convertible Securities outstanding as of the date of such conversion or
redemption. No holder of a certificate that, immediately prior to the
applicable conversion date or redemption date for the TCI Ventures Group Common
Stock, represented shares of TCI Ventures Group Common Stock will be entitled
to receive any dividend or other distribution with respect to shares of any
kind of capital stock into or in exchange for which the TCI Ventures Group
Common Stock was converted or redeemed until surrender of such holder's
certificate for a certificate or certificates representing shares of such kind
of capital stock. Upon such surrender, there will be paid to the holder the
amount of any dividends or other distributions
[62]
<PAGE> 72
(without interest) which theretofore became payable with respect to a record
date after the conversion date or redemption date, as the case may be, but that
were not paid by reason of the foregoing, with respect to the number of whole
shares of the kind of capital stock represented by the certificate or
certificates issued upon such surrender. From and after a conversion date or
redemption date, as the case may be, of TCI Ventures Group Common Stock, the
Company will, however, be entitled to treat the certificates for shares of TCI
Ventures Group Common Stock that have not yet been surrendered for conversion
or redemption as evidencing the ownership of the number of whole shares of the
kind or kinds of capital stock for which the shares of TCI Ventures Group
Common Stock represented by such certificates have been converted or redeemed,
notwithstanding the failure to surrender such certificates.
The Company will pay any and all documentary, stamp or similar issue
or transfer taxes that may be payable in respect of the issue or delivery of
any shares of capital stock and/or other securities on conversion or redemption
of shares of TCI Ventures Group Common Stock. The Company will not, however,
be required to pay any tax that may be payable in respect of any transfer
involved in the issue and delivery of any shares of capital stock in a name
other than that in which the shares of TCI Ventures Group Common Stock so
converted or redeemed were registered and no such issue or delivery will be
made unless and until the person requesting such issue has paid to the Company
the amount of any such tax, or has established to the satisfaction of the
Company that such tax has been paid.
LIQUIDATION RIGHTS
In the event of a liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, after payment or provision for
payment of the debts and other liabilities of the Company and subject to the
prior payment in full of the preferential amounts to which any class or series
of Preferred Stock is entitled, (i) the holders of the shares of TCI Group
Common Stock will share equally, on a share for share basis, in a percentage of
the funds of the Company remaining for distribution to its common stockholders
equal to 100% multiplied by the average daily ratio (expressed as a decimal) of
W/Z for the 20-Trading Day period ending on the Trading Day prior to the date
of the public announcement of such liquidation, dissolution or winding up, (ii)
the holders of the shares of Liberty Media Group Common Stock will share
equally, on a share for share basis, in a percentage of the funds of the
Company remaining for distribution to its common stockholders equal to 100%
multiplied by the average daily ratio (expressed as a decimal) of X/Z for such
20-Trading Day period and (iii) the holders of the shares of TCI Ventures Group
Common Stock will share equally, on a share for share basis, in a percentage of
the funds of the Company remaining for distribution to its common stockholders
equal to 100% multiplied by the average daily ratio (expressed as a decimal) of
Y/Z for such 20-Trading Day period, where W is the aggregate Market
Capitalization of the Series A TCI Group Common Stock and the Series B TCI
Group Common Stock, X is the aggregate Market Capitalization of the Series A
Liberty Media Group Common Stock and the Series B Liberty Media Group Common
Stock, Y is the aggregate Market Capitalization of the Series A TCI Ventures
Group Common Stock and the Series B TCI Ventures Group Common Stock, and Z is
the aggregate Market Capitalization of the Series A TCI Group Common Stock, the
Series B TCI Group Common Stock, the Series A Liberty Media Group Common Stock,
the Series B Liberty Media Group Common Stock, the Series A TCI Ventures Group
Common Stock and the Series B TCI Ventures Group Common Stock. Neither a
consolidation, merger nor sale of assets will be construed to be a
"liquidation," "dissolution" or "winding up" of the Company. The "Market
Capitalization" of any class or series of capital stock of the Company on any
trading day means the product of (i) the Market Value of one share of such
class or series on such trading day and (ii) the number of shares of such class
or series outstanding on such trading day.
No holder of TCI Ventures Group Common Stock will have any special
right to receive specific assets of the TCI Ventures Group in the case of any
dissolution, liquidation or winding up of the Company.
DETERMINATIONS BY THE BOARD OF DIRECTORS
Any determinations made by the Board of Directors under any provision
described under "Description of TCI Ventures Group Common Stock and Effects on
Existing Common Stock" will be final and binding on all stockholders of the
Company, except as may otherwise be required by law. Such a determination
would not be binding if it were established that the determination was made in
breach of a fiduciary duty of the Board of Directors. See "Factors to be
Considered--Fiduciary Duties of the Board of Directors Are to All Stockholders
Regardless of Class or Series." The Company will prepare a statement of any
such determination by the Board of Directors respecting the fair market value
of any properties, assets or securities and will file such statement with the
Secretary of the Company.
[63]
<PAGE> 73
PREEMPTIVE RIGHTS
The holders of the TCI Group Common Stock, Liberty Media Group Common
Stock and TCI Ventures Group Common Stock will not have any preemptive rights
to subscribe for any additional shares of capital stock or other obligations
convertible into or exercisable for shares of capital stock that may hereafter
be issued by the Company.
CERTAIN DEFINITIONS
As used in this Proxy Statement, the following terms have the meanings
specified below:
"Adjusted TCI Ventures Group Outstanding Interest Fraction", as of any
date, means a fraction the numerator of which is the aggregate number of shares
of Series A TCI Ventures Group Common Stock and Series B TCI Ventures Group
Common Stock outstanding on such date and the denominator of which is the sum
of (a) such aggregate number of outstanding shares, (b) the Number of Shares
Issuable with Respect to the TCI Ventures Group Inter-Group Interest as of such
date, and (c) the aggregate number of shares of Series A TCI Ventures Group
Common Stock issuable, determined as of such date, upon exchange of
Pre-Exchange Offer Securities.
"Convertible Securities" means any securities of the Company (other
than any series of Common Stock) that are convertible into, exchangeable for or
evidence the right to purchase any shares of any series of Common Stock,
whether upon conversion, exercise or exchange, pursuant to anti-dilution
provisions of such securities or otherwise.
"Disposition" means the sale, transfer, assignment or other
disposition (whether by merger, consolidation, sale or contribution of assets
or stock or otherwise) of properties or assets.
The "Liberty Media Group Available Dividend Amount," as of any date,
means the product of the Liberty Media Group Outstanding Interest Fraction and
either (i) the excess of (a) an amount equal to the total assets of the Liberty
Media Group less the total liabilities (not including preferred stock) of the
Liberty Media Group as of such date over (b) the aggregate par value of, or any
greater amount determined to be capital in respect of, all outstanding shares
of Liberty Media Group Common Stock and each class or series of Preferred Stock
attributed to the Liberty Media Group or (ii) in case there is no such excess,
an amount equal to Company Earnings (Loss) Attributable to the Liberty Media
Group (if positive) for the fiscal year in which such date occurs and/or the
preceding fiscal year. The "Company Earnings (Loss) Attributable to the
Liberty Media Group," for any period, means the net earnings or loss of the
Liberty Media Group for such period determined on a basis consistent with the
determination of the net earnings or loss of the Liberty Media Group for such
period as presented in the combined financial statements of the Liberty Media
Group for such period, including income and expenses of the Company attributed
to the operations of the Liberty Media Group on a substantially consistent
basis, including, without limitation, corporate administrative costs, net
interest and income taxes. The Liberty Media Group Available Dividend Amount
is intended to be similar to the amount that would be legally available for the
payment of dividends on the Liberty Media Group Common Stock under the DGCL if
the Liberty Media Group were a separate Delaware corporation.
"Market Value" of a share of any class or series of capital stock of
the Company on any day means the average of the high and low reported sale
prices regular way of a share of such class or series on such day (if such day
is a trading day, and if such day is not a trading day, on the trading day
immediately preceding such day) or in case no such reported sale takes place on
such trading day the average of the reported closing bid and asked prices
regular way of a share of such class or series on such trading day, in either
case on the Nasdaq National Market, or if the shares of such class or series
are not quoted on the Nasdaq National Market on such trading day, the average
of the closing bid and asked prices of a share of such class or series in the
over-the-counter market on such trading day as furnished by any New York Stock
Exchange member firm selected from time to time by the Company, or if such
closing bid and asked prices are not made available by any such New York Stock
Exchange member firm on such trading day, the market value of a share of such
class or series as determined by the Board of Directors; provided, that for
purposes of determining the ratios described under "--Conversion and
Redemption--Conversion at the Option of the Company," "--Conversion and
Redemption--Mandatory Dividend, Redemption or Conversion of TCI Ventures Group
Common Stock" and "--Liquidation Rights," (a) the "Market Value" of a share of
any series of Common Stock on any day prior to the "ex" date or any similar
date for any dividend or distribution paid or to be paid with respect to such
series of Common Stock will be reduced by the fair market value of the per
share amount of such dividend or distribution as determined by the Board of
Directors and (b) the "Market Value" of a share of any series of Common Stock
on any day prior to (i) the effective date of any subdivision (by stock split
or otherwise) or combination (by reverse stock split or otherwise) of
outstanding shares of such series of Common Stock or (ii) the "ex" date or any
similar date for any dividend or distribution with respect to any such series
of Common Stock in shares of such series of Common Stock, will be appropriately
adjusted to reflect such subdivision, combination, dividend or distribution.
[64]
<PAGE> 74
"Pre-Exchange Offer Securities" means those convertible notes due
December 12, 2021 issued by TCI UA, Inc., a Subsidiary of the Company, which
notes prior to the Exchange Offers are exchangeable for shares of Series A TCI
Group Common Stock and Series A Liberty Media Group Common Stock.
A "Related Business Transaction" means any Disposition of all or
substantially all of the properties and assets of a Group in which the Company
receives as proceeds of such Disposition primarily equity securities
(including, without limitation, capital stock, convertible securities,
partnership or limited partnership interests and other types of equity
securities, without regard to the voting power or contractual or other
management or governance rights related to such equity securities) of the
purchaser or acquiror of such assets and properties of the applicable Group,
any entity which succeeds (by merger, formation of a joint venture enterprise
or otherwise) to such assets and properties of the applicable Group or a third
party issuer, which purchaser, acquiror or other issuer is engaged or proposes
to engage primarily in one or more businesses similar or complementary to the
businesses conducted by the applicable Group prior to such Disposition, as
determined in good faith by the Board of Directors.
The "TCI Group Available Dividend Amount," as of any date, means
either (i) the excess of (a) an amount equal to the total assets of the TCI
Group less the total liabilities (not including preferred stock) of the TCI
Group as of such date over (b) the aggregate par value of, or any greater
amount determined to be capital in respect of, all outstanding shares of TCI
Group Common Stock and each class or series of Preferred Stock attributed to
the TCI Group or (ii) in case there is no such excess, an amount equal to the
Company Earnings (Loss) Attributable to the TCI Group (if positive) for the
fiscal year in which such date occurs and/or the preceding fiscal year.
"Company Earnings (Loss) Attributable to the TCI Group," for any period, means
the net earnings or loss of the TCI Group for such period determined on a basis
consistent with the determination of the net earnings or loss of the TCI Group
for such period as presented in the combined financial statements of the TCI
Group for such period, including income and expenses of the Company attributed
to the operations of the TCI Group on a substantially consistent basis,
including, without limitation, corporate administrative costs, net interest and
income taxes. The TCI Group Available Dividend Amount is intended to be
similar to the amount that would be legally available for the payment of
dividends on the TCI Group Common Stock under the DGCL if the TCI Group were a
separate Delaware corporation.
"TCI Ventures Group Inter-Group Interest Fraction," as of any date,
shall mean a fraction the numerator of which is the Number of Shares Issuable
with Respect to the TCI Ventures Group Inter-Group Interest as of such date and
the denominator of which is the sum of (a) such Number of Shares Issuable with
Respect to the TCI Ventures Group Inter-Group Interest as of such date and (b)
the aggregate number of shares of TCI Ventures Group Common Stock outstanding
as of such date.
"TCI Ventures Group Net Proceeds" shall mean, as of any date, with
respect to any Disposition of any of the properties and assets of the TCI
Ventures Group, an amount, if any, equal to the gross proceeds of such
Disposition after any payment of, or reasonable provision for, (a) any taxes
payable by TCI in respect of such Disposition or in respect of any resulting
dividend or redemption pursuant to clause (i) or (ii), respectively, of the
second paragraph under "--Conversion and Redemption--Mandatory Dividend,
Redemption or Conversion of TCI Ventures Group Common Stock" (or which would
have been payable but for the utilization of tax benefits attributable to the
TCI Group or the Liberty Media Group), (b) any transaction costs, including,
without limitation, any legal, investment banking and accounting fees and
expenses and (c) any liabilities and other obligations (contingent or
otherwise) of, or attributed to, the TCI Ventures Group, including, without
limitation, any indemnity or guarantee obligations incurred in connection with
the Disposition or any liabilities for future purchase price adjustments and
any preferential amounts plus any accumulated and unpaid dividends and other
obligations in respect of Preferred Stock attributed to the TCI Ventures Group
(but without duplication of amounts allocated for the satisfaction of the
Company's obligations with respect to the Pre-Exchange Offer Securities which
are included in the determination of the Adjusted TCI Ventures Group Outstanding
Interest Fraction and the TCI Ventures Group Preferred Interest). For purposes
of this definition, any properties and assets of the TCI Ventures Group
remaining after such Disposition shall constitute "reasonable provision" for
such amount of taxes, costs and liabilities (contingent or otherwise) as can be
supported by such properties and assets. To the extent the proceeds of any
Disposition include any securities or other property other than cash, the Board
of Directors shall determine the value of such securities or property, including
for the purpose of determining the equivalent value thereof if the Board of
Directors determines to pay a dividend or redemption price in cash or securities
or other property as provided in the third paragraph under "--Conversion and
Redemption--Mandatory Dividend, Redemption or Conversion of TCI Ventures Group
Common Stock."
"TCI Ventures Group Outstanding Interest Fraction," as of any date,
shall mean a fraction the numerator of which is the aggregate number of shares
of TCI Ventures Group Common Stock outstanding on such date and the denominator
of
[65]
<PAGE> 75
which is the sum of (a) such aggregate number of shares of Series A TCI
Ventures Group Common Stock outstanding on such date and (b) the Number of
Shares Issuable with Respect to the TCI Ventures Group Inter-Group Interest as
of such date.
NO INITIAL INTER-GROUP INTEREST IN THE TCI VENTURES GROUP
The aggregate number of shares of TCI Ventures Group Common Stock
being offered in the Exchange Offers is intended initially to represent all of
the common stockholders' equity value of the Company attributable to the TCI
Ventures Group. Accordingly, if all of such shares are issued in the Exchange
Offers, the TCI Group will not have any Inter-Group Interest in the TCI
Ventures Group. If fewer than all of the shares offered are issued, the
remaining Inter-Group Interest would be extinguished in consideration of the
attribution to the TCI Group of the TCI Ventures Group Preferred Interest.
An Inter-Group Interest in the TCI Ventures Group would be created
only if a subsequent transfer of cash or other property from the TCI Group to
the TCI Ventures Group is specifically designated by the Board of Directors as
being made to create an Inter-Group Interest in the TCI Ventures Group (in
contrast to transfers made for other consideration such as transfers as loans
or in purchase and sale transactions) or if outstanding shares of TCI Ventures
Group Common Stock are retired or otherwise cease to be outstanding following
their purchase with funds attributed to the TCI Group. In structuring the
terms of the TCI Ventures Group Stock Proposal, the Board of Directors
determined that the TCI Ventures Group should not be permitted to create an
interest in either the TCI Group or the Liberty Media Group corresponding to
the Inter-Group Interest. The Company Charter does not permit the Liberty
Media Group to create an interest in the TCI Group or the TCI Telephony Group,
and the Amended Charter would not permit the Liberty Media Group to create an
interest in the TCI Ventures Group, corresponding to the Inter-Group Interest.
In making these determinations, the Board of Directors concluded that an
interest corresponding to the Inter-Group Interest held by the TCI Ventures
Group in either the TCI Group or the Liberty Media Group could influence
adversely the ability of the TCI Ventures Group Common Stock to reflect the
separate performance of the TCI Ventures Group, and that an interest
corresponding to the Inter-Group Interest held by the Liberty Media Group in
either the TCI Group or the TCI Ventures Group could influence adversely the
ability of the Liberty Media Group Common Stock to reflect the separate
performance of the Liberty Media Group.
The "Number of Shares Issuable with Respect to the TCI Ventures Group
Inter-Group Interest" means the number of shares of Series A TCI Ventures Group
Common Stock or Series B TCI Ventures Group Common Stock that could be issued or
sold by the Company for Common Stock the account of the TCI Group in respect of
any Inter-Group Interest of the TCI Group in the TCI Ventures Group. The
authorized shares of TCI Ventures Group Common Stock in excess of the Number of
Shares Issuable with Respect to the TCI Ventures Group Inter-Group Interest, if
any, and the outstanding shares of TCI Ventures Group Common Stock (the
"Available Shares") will be available for issuance as additional equity for the
TCI Ventures Group. The "TCI Ventures Group Outstanding Interest Fraction"
means the percentage interest in the common stockholders' equity value of the
Company attributable to the TCI Ventures Group that is represented at any time
by the outstanding shares of TCI Ventures Group Common Stock, and the "TCI
Ventures Group Inter-Group Interest Fraction" means any remaining percentage
interest in the common stockholders' equity value of the Company attributable to
the TCI Ventures Group that is attributed to the TCI Group and represented by
the Inter-Group Interest. The sum of the TCI Ventures Group Outstanding
Interest Fraction and the TCI Ventures Group Inter-Group Interest Fraction would
always equal 100%. The "Adjusted TCI Ventures Group Outstanding Interest
Fraction" means a fraction the numerator of which is the number of outstanding
shares of TCI Ventures Group Common Stock and the denominator of which is the
sum of (a) such number of outstanding shares, (b) the Number of Shares Issuable
with Respect to the TCI Ventures Group Inter-Group Interest and (c) the number
of shares of TCI Ventures Group Common Stock issuable upon exchange of
Pre-Exchange Offer Securities. The Adjusted TCI Ventures Group Outstanding
Interest Fraction is used instead of the TCI Ventures Group Outstanding Interest
Fraction in certain provisions described under "Description of TCI Ventures
Group Common Stock and Effects on Existing Common Stock--Conversion and
Redemption". The full definitions of "Number of Shares Issuable with Respect to
the TCI Ventures Group Inter-Group Interest," "TCI Ventures Group Outstanding
Interest Fraction", "TCI Ventures Group Inter-Group Interest Fraction" and
"Adjusted TCI Ventures Group Outstanding Interest Fraction" are set forth in
Annex II-A.
Any Number of Shares Issuable with Respect to the TCI Ventures Group
Inter-Group Interest would not be represented by outstanding shares of TCI
Ventures Group Common Stock and, therefore, would not be entitled to any voting
rights. In addition, outstanding shares of TCI Ventures Group Common Stock
that are held by majority-owned subsidiaries of the Company (as to which the
Company owns a majority of the shares entitled to vote in the election of
directors) would not, in accordance with the DGCL, be entitled to vote on
matters presented to stockholders or be counted for quorum purposes.
Accordingly, the Company will not have any voting rights with respect to any
Inter-Group Interest in the TCI Ventures Group, and the outcome of any vote of
the TCI Ventures Group Common Stock would be determined by the holders of the
outstanding
[66]
<PAGE> 76
shares of TCI Ventures Group Common Stock (excluding any shares held by such
majority-owned subsidiaries of the Company).
For financial reporting purposes, shares of TCI Ventures Group Common
Stock acquired by consolidated subsidiaries of the Company included in the TCI
Group which remain outstanding following such acquisition would be combined
with the Number of Shares Issuable with Respect to the TCI Ventures Group
Inter-Group Interest, if any, and reported as the TCI Group's investment in the
TCI Ventures Group. Any differences between such reported investment and any
then-existing Inter-Group Interest in the TCI Ventures Group would be
reconcilable by adding to any then-existing Inter-Group Interest the number of
outstanding shares of TCI Ventures Group Common Stock held by consolidated
subsidiaries of the Company. Because these shares would still be outstanding
for purposes of the receipt of dividends and payment of redemption or
liquidation amounts, the TCI Group would obtain substantially the same economic
benefits from such outstanding shares as it would have received had such shares
been retired or otherwise ceased to be outstanding following their purchase and
added to the Number of Shares Issuable with Respect to the TCI Ventures Group
Inter-Group Interest.
The authorized shares of TCI Ventures Group Common Stock in excess of
the total number of shares outstanding will be available for issuance or sale
without further approval by the Company's stockholders and may be issued at any
time at prices that would dilute the value of the outstanding shares of TCI
Ventures Group Common Stock. If there is an Inter-Group Interest in the
future, whenever shares of TCI Ventures Group Common Stock are subsequently
issued or sold by the Company, the Company will identify (i) the number of
shares of TCI Ventures Group Common Stock issued and sold that represent the
Inter-Group Interest, if any, the sale of which shares will reduce the Number
of Shares Issuable with Respect to the TCI Ventures Group Inter-Group Interest
on a share-for-share basis and the net proceeds of which sale will be reflected
entirely in the combined financial statements of the TCI Group, and (ii) the
number of such shares that represent an additional equity interest in the TCI
Ventures Group, the sale of which shares will reduce the Available Shares and
the net proceeds of which sale will be reflected entirely in the combined
financial statements of the TCI Ventures Group. The Board of Directors expects
to make such determination, in its sole discretion, after consideration of such
factors as it deems relevant, including, without limitation, the needs of the
Company, the relative levels of internally generated cash flow of the Groups,
the capital expenditure plans of and investment opportunities available to the
Groups, the long-term business prospects for the Groups and the availability,
cost and time associated with alternative financing sources. See "Factors to
be Considered--Fiduciary Duties of the Board of Directors Are to All
Stockholders Regardless of Class or Series." For illustrations of the effects
of the issuance of shares of TCI Ventures Group Common Stock, see Annex
IV--Illustration of Certain Terms.
If there is an Inter-Group Interest in the TCI Ventures Group,
whenever additional shares of TCI Ventures Group Common Stock are issued or
sold by the Company for the account of the TCI Group in respect of a reduction
in its Inter-Group Interest in the TCI Ventures Group, the Number of Shares
Issuable with Respect to the TCI Ventures Group Inter-Group Interest would
decrease on a share-for-share basis and the TCI Ventures Group Inter-Group
Interest Fraction would decrease and the TCI Ventures Group Outstanding
Interest Fraction would increase accordingly. If the Number of Shares Issuable
with Respect to the TCI Ventures Group Inter-Group Interest is reduced to zero
as a result of any combination of one or more of such issuances or sales,
shares of TCI Ventures Group Common Stock could no longer be issued or sold by
the Company for the account of the TCI Group unless a further Inter-Group
Interest in the TCI Ventures Group is subsequently created. If the net
proceeds of any issuance or sale by the Company of TCI Ventures Group Common
Stock are allocated to the TCI Ventures Group, the Number of Shares Issuable
with Respect to the TCI Ventures Group Inter-Group Interest would not be
reduced, but the TCI Ventures Group Inter-Group Interest Fraction would
decrease and the TCI Ventures Group Outstanding Interest Fraction would
increase accordingly.
If there is an Inter-Group Interest in the TCI Ventures Group and the
Board of Directors determines to issue or deliver shares of TCI Ventures Group
Common Stock as a distribution on the TCI Group Common Stock, such distribution
would be treated as a distribution of shares issuable with respect to the TCI
Group's Inter-Group Interest in the TCI Ventures Group, and as a result, the
Number of Shares Issuable with Respect to the TCI Ventures Group Inter-Group
Interest would decrease by the number of shares distributed to the holders of
TCI Group Common Stock, resulting in a proportionate decrease in the TCI
Ventures Group Inter-Group Interest Fraction and increase in the TCI Ventures
Group Outstanding Interest Fraction.
If shares of TCI Ventures Group Common Stock are retired or otherwise
cease to be outstanding following their purchase with funds attributed to the
TCI Group, the Number of Shares Issuable with Respect to the TCI Ventures Group
Inter-Group Interest would increase on a share-for-share basis and the TCI
Ventures Group Inter-Group Interest Fraction would increase and the TCI
Ventures Group Outstanding Interest Fraction would decrease accordingly. If
the purchase of shares of TCI Ventures Group Common Stock were made with funds
attributed to the TCI Ventures Group, the Number of Shares
[67]
<PAGE> 77
Issuable with Respect to the TCI Ventures Group Inter-Group Interest would not
be increased, but the TCI Ventures Group Inter-Group Interest Fraction would
increase and the TCI Ventures Group Outstanding Interest Fraction would
decrease accordingly. The Board of Directors would, in its sole discretion,
determine whether purchases of TCI Ventures Group Common Stock should be made
with consideration attributed to the TCI Group or the TCI Ventures Group, by
considering such factors as it deems relevant, including, without limitation,
the needs of the Company, the relative levels of internally generated cash flow
of the Groups, the capital expenditure plans of the Groups, the investment
opportunities available to the Groups, the long-term business prospects for the
Groups and the availability, cost and time associated with alternative
financing sources.
The Board of Directors could, in its sole discretion, determine from
time to time to have the Company contribute cash or other property of the TCI
Group as additional equity to the TCI Ventures Group, which would increase the
Number of Shares Issuable with Respect to the TCI Ventures Group Inter-Group
Interest by the number determined by dividing the amount of such cash or the
fair value (as determined by the Board of Directors) of such property by the
Market Value of one share of Series A TCI Ventures Group Common Stock as of the
date of such contribution. In such event, the TCI Ventures Group Inter-Group
Interest Fraction will increase and the TCI Ventures Group Outstanding Interest
Fraction will decrease accordingly. The Board of Directors could, in its sole
discretion, also determine from time to time to transfer cash or other property
of the TCI Ventures Group from the TCI Ventures Group to the TCI Group in
respect of a reduction in its Inter-Group Interest in the TCI Ventures Group,
in which case the Number of Shares Issuable with Respect to the TCI Ventures
Group Inter-Group Interest would be decreased by the number determined by
dividing the amount of such cash or the fair value (as determined by the Board
of Directors) of such property by the Market Value of one share of Series A TCI
Ventures Group Common Stock as of the date of such contribution. In such
event, the TCI Ventures Group Inter-Group Interest Fraction would decrease and
the TCI Ventures Group Outstanding Interest Fraction would increase
accordingly. The Board of Directors could, in its sole discretion, determine
to make contributions or other transfers referred to in this paragraph after
consideration of such factors as it deems relevant, including, without
limitation, the needs of the Company, the financing needs and objectives of the
Groups, the investment objectives of the Groups, the availability, cost and
time associated with alternative financing sources, prevailing interest rates
and general economic conditions.
In the event of any dividend or other distribution paid or distributed
in respect of the outstanding shares of TCI Ventures Group Common Stock (other
than in shares of TCI Ventures Group Common Stock, which will result in an
adjustment to the Number of Shares Issuable with Respect to the TCI Ventures
Group Inter-Group Interest as described above), the TCI Group will be credited,
and the TCI Ventures Group will be charged (in addition to the charge for such
dividend or other distribution paid upon outstanding shares of TCI Ventures
Group Common Stock), with an amount equal to the product of (i) the aggregate
amount of such dividend or other distribution paid or distributed in respect of
outstanding shares of TCI Ventures Group Common Stock (including any dividend
of TCI Ventures Group Net Proceeds from the Disposition of all or substantially
all of the assets and properties of the TCI Ventures Group), times (ii) a
fraction the numerator of which is the TCI Ventures Group Inter-Group Interest
Fraction and the denominator of which is the TCI Ventures Group Outstanding
Interest Fraction.
See Annex IV--Illustration of Certain Terms for illustrations of the
calculation of the Inter-Group Interest in the TCI Ventures Group and the
effects thereon of dividends on, and the sale or purchase of, shares of TCI
Ventures Group Common Stock and contributions of cash or other property of the
TCI Group to the TCI Ventures Group.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock. The
Board of Directors does not currently intend to pay dividends on the TCI Group
Common Stock, the Liberty Media Group Common Stock or the TCI Ventures Group
Common Stock. However, the Board of Directors reserves the right to pay such
dividends at any time and from time to time out of funds legally available
therefor.
Any decision to pay dividends in the future will depend on the
financial condition, results of operations and business requirements of the
Company as a whole. Any future dividends on the TCI Group Common Stock, the
Liberty Media Group Common Stock and the TCI Ventures Group Common Stock would
be paid on such basis as the Board of Directors determines, subject to the
provisions described under "Description of TCI Ventures Group Common Stock and
Effects on Existing Common Stock--Dividends." In making its determination, the
Board of Directors expects to follow a policy under which it will consider,
among other factors, the relative financial condition, results of operations
and business requirements of the
[68]
<PAGE> 78
respective Groups. See Annex V for the Consolidated Financial Information of
the Company and the Combined Financial Information of the TCI Ventures Group.
For information concerning dividends on the TCI Group Common Stock,
the Liberty Media Group Common Stock and the TCI Ventures Group Common Stock,
see "Description of TCI Ventures Group Common Stock and Effects on Existing
Common Stock--Dividends."
STOCK TRANSFER AGENT AND REGISTRAR
The Bank of New York will act as transfer agent and registrar for the
TCI Ventures Group Common Stock upon issuance thereof.
INCLUSION IN NASDAQ NATIONAL MARKET
The Series A TCI Ventures Group Common Stock and the Series B TCI
Ventures Group Common Stock have been approved for inclusion in the National
Market tier of the Nasdaq Stock Market under the symbols " " and
" ", respectively. The Series A TCI Group Common Stock, Series B TCI
Group Common Stock, Series A Liberty Media Group Common Stock and Series B
Liberty Media Group Common Stock will continue to be included in the National
Market tier of the Nadaq Stock Market under the symbols "TCOMA," "TCOMB,"
LBTYA" and "LBTYB," respectively.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary of the material Federal income tax consequences
of the TCI Ventures Group Stock Proposal is based on the opinion of Baker &
Botts, L.L.P., counsel to the Company, and Baker & Botts, L.L.P. has advised
the Company that this summary accurately describes such material consequences.
The discussion is based on the Code, Treasury Department regulations, published
positions of the Service and court decisions now in effect, all of which are
subject to change. In particular, Congress could enact legislation affecting
the treatment of stock with characteristics similar to the TCI Ventures Group
Common Stock, or the Treasury Department could change the current law in future
regulations, including regulations issued pursuant to its authority under
Section 337(d) of the Code (granting the Treasury regulatory authority with
respect to the proper tax treatment of corporate distributions of appreciated
property to shareholders). Any further legislation or regulations could be
enacted or promulgated so as to apply retroactively to the TCI Ventures Group
Stock Proposal. However, upon advice of counsel, the Company believes that, as
a practical matter, it is unlikely that such legislation or regulations would
apply retroactively to the TCI Ventures Group Common Stock. The discussion
contained herein and counsel's opinion are based on the assumption that the TCI
Ventures Group Stock Proposal will be implemented as described herein.
The Company has not applied for an advance tax ruling from the Service
because the Service has announced that it will not issue advance rulings on the
classification of stock with characteristics similar to the TCI Ventures Group
Common Stock.
IT IS IMPORTANT TO NOTE THAT THE OPINION OF COUNSEL DESCRIBED HEREIN
IS BASED UPON THE LAW IN EFFECT AS OF THE DATE HEREOF. THE TCI VENTURES GROUP
STOCK PROPOSAL CONTEMPLATES THE POSSIBILITY OF THE PASSAGE OF TIME BETWEEN THE
DATE HEREOF AND THE ISSUANCE OF SHARES OF TCI VENTURES GROUP COMMON STOCK.
THEREFORE, THE COMPANY WILL SEEK APPROPRIATE ADVICE FROM ITS COUNSEL TO UPDATE
THIS OPINION PRIOR TO THE INITIAL ISSUANCE OF SUCH SHARES.
TAX IMPLICATIONS TO STOCKHOLDERS
This discussion addresses those stockholders who will hold TCI
Ventures Group Common Stock and/or TCI Group Common Stock as capital assets
within the meaning of Section 1221 of the Code. This discussion is included
for general information only. It does not discuss all aspects of Federal
income taxation that could be relevant to a stockholder in light of such
stockholder's particular tax circumstances and does not apply to certain types
of stockholders who could be subject to special treatment under the Federal
income tax laws. STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH REGARD
TO THE APPLICATION OF THE FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR
SITUATION, AS WELL AS TO THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL, OR
FOREIGN TAX LAWS TO WHICH THEY COULD BE SUBJECT.
Exchange of TCI Group Common Stock for TCI Ventures Group Common
Stock. Following approval by stockholders of the TCI Ventures Group Stock
Proposal, the Company currently intends, subject to certain conditions, to
offer shares of
[69]
<PAGE> 79
Series A TCI Ventures Group Common Stock in exchange for shares of Series A TCI
Group Common Stock and to offer shares of Series B TCI Ventures Group Common
Stock in exchange for shares of Series B TCI Group Common Stock , on the terms
and subject to the conditions set forth in the Offering Circular, dated
________________, 1997, and the related Letter of Transmittal. Additional
shares of TCI Ventures Group Common Stock could be offered in the future for
cash in one or more public offerings or issued as a distribution to the holders
of TCI Group Common Stock on a pro rata basis; and the Company may, from time
to time, issue shares of TCI Ventures Group Common Stock for other corporate
purposes.
In the opinion of counsel, the TCI Ventures Group Common Stock would
be stock of the Company for Federal income tax purposes, and therefore counsel
is of the view that the exchange of TCI Group Common Stock for TCI Ventures
Group Common Stock would be a tax-free exchange. The tax basis in the TCI
Ventures Group Common Stock received in such exchange would equal the sum of
the tax basis in the TCI Group Common Stock surrendered in exchange therefor,
and, although the question is not free from doubt, the holding period of such
TCI Ventures Group Common Stock would include the holding period of the TCI
Group Common Stock surrendered therefor, assuming that such TCI Group Common
Stock was a capital asset in the hands of the exchanging stockholder on the
date of the exchange. If different shares of TCI Group Common Stock have
different holding periods, the Service takes the position that the various
holding periods must be allocated pro rata among all the TCI Ventures Group
Common Stock received.
Although it is counsel's opinion that the exchange of the TCI Group
Common Stock for TCI Ventures Group Common Stock would not result in the
recognition of any income, gain or loss by stockholders, there are no Federal
income tax regulations, court decisions or published Service rulings bearing
directly on stock with characteristics of the TCI Ventures Group Common Stock,
particularly the dividend and liquidation features. In addition, the Service
announced during 1987 that it was studying the Federal income tax consequences
of stock which has certain voting and liquidation rights in an issuing
corporation, but whose dividend rights are determined by reference to the
earnings and profits of a segregated portion of the issuing corporation's
assets, and that it would not issue any advance rulings regarding such stock.
Although the Service has since withdrawn such stock from its list of matters
under consideration, it has reiterated that it would not issue advance rulings
regarding such stock. In the absence of such a ruling, there is a risk that
the Service could assert that the TCI Ventures Group Common Stock represents
property other than stock of the Company.
If the TCI Ventures Group Common Stock were treated as property other
than stock of the Company, stockholders participating in the Exchange Offers
would recognize gain (or loss) in the amount by which the fair market value of
the TCI Ventures Group Common Stock received exceeds (or is less than) the
adjusted basis of the TCI Group Common Stock exchanged therefor. In addition,
if the TCI Ventures Group Common Stock were treated as property other than
stock of the Company, the Company could recognize gain on the exchange of the
TCI Ventures Group Common Stock for TCI Group Common Stock, in an amount equal
to the difference between the fair market value of the TCI Ventures Group
Common Stock, and the Company's tax basis in such property. However, as
indicated above, counsel is of the opinion that the TCI Ventures Group Common
Stock would be treated as stock of the Company.
Sale or Exchange of Common Stock. Upon the taxable sale or exchange
of the TCI Ventures Group Common Stock, a stockholder would recognize gain or
loss equal to the difference between (i) any cash received plus the fair market
value of any other consideration received and (ii) the tax basis of the stock
sold or exchanged. Such tax basis would, in the case of a purchase of the
stock, be the amount paid therefor, or, if received in the Exchange Offers, be
determined as described under "--Exchange of TCI Group Common Stock for TCI
Ventures Group Common Stock" above.
Should the Company redeem the TCI Ventures Group Common Stock in the
future by distributing shares of one or more TCI Ventures Group Subsidiaries in
exchange therefor, it intends to do so in a manner so that such redemption will
be tax free under Section 355 of the Code. If such redemption does not qualify
under Section 355 of the Code, then the holders of the TCI Ventures Group
Common Stock could, depending upon their individual circumstances, either (a)
recognize gain on the redemption in an amount equal to the difference between
the fair market value of the TCI Ventures Group Subsidiaries' stock received
and the stockholders' tax basis in their shares being redeemed or (b) be
treated as having received a taxable dividend in an amount equal to the fair
market value of the received TCI Ventures Group Subsidiaries' stock.
The excess of net long-term capital gains over net short-term capital
loss could be taxed at a rate lower than ordinary income for certain
noncorporate taxpayers. A capital gain is long-term if the asset is held for
more than one year and is short-term if held for one year or less. The
distinction between capital gain or loss and ordinary income is also relevant
for purposes of, among other things, the limitation on the deductibility of
capital losses.
[70]
<PAGE> 80
Dividends. Dividend payments received by a holder of TCI Ventures
Group Common Stock who is not a Nonresident Alien (as defined below) will be
taxable at ordinary income rates to the extent of the current and accumulated
earnings and profits of the Company, then as a return of basis of the TCI
Ventures Group Common Stock of the holder, then as capital gain. Corporate
shareholders would generally be eligible for a dividends received deduction
with respect to the distribution.
Conversion. In the opinion of counsel, the TCI Ventures Group Common
Stock should be treated as stock of the Company for federal income tax
purposes. If the TCI Ventures Group Common Stock is so treated, a conversion
of such stock into TCI Group Common Stock pursuant to the terms of the TCI
Ventures Group Stock Proposal should constitute a tax free exchange. However,
it is not clear that an exchange of shares of TCI Ventures Group Common Stock
for shares of TCI Group Common Stock, or shares of TCI Group Common Stock for
shares of TCI Ventures Group Common Stock, would constitute a tax free exchange
under the Code if such exchange occurred between shareholders (rather than
between a shareholder and the Company).
Nonresident Alien Holders. Dividend payments received by a holder of
TCI Ventures Group Common Stock who is a Nonresident Alien (as defined below)
would be subject to United States Federal withholding tax unless a treaty
exemption applies or the Nonresident Alien otherwise establishes an exemption.
A Nonresident Alien holder would not be subject to United States Federal income
or withholding tax on any gain realized on the taxable sale or exchange of any
such stock, unless (A) such gain was effectively connected with a United States
trade or business of the Nonresident Alien, (B) the Nonresident Alien was an
individual who had been present in the United States for a period or periods of
183 days or more during the taxable year and certain other conditions were met
or (C) the stock sold or exchanged was a "United States Real Property Interest"
as defined in Section 897(c)(1) of the Code at any time during the five years
prior to the sale or exchange of the stock or at any time during the time that
the Nonresident Alien held such stock, whichever time was shorter. The TCI
Ventures Group Common Stock sold or exchanged would be a United States Real
Property Interest only if, at any time during the five years prior to the sale
or exchange of such stock, or at any time during the period that the
Nonresident Alien held such stock, whichever time was shorter, the Company had
been a "United States real property holding corporation" as defined in Section
897(c)(2) of the Code and the Nonresident Alien owned directly or indirectly
more than 5% of such series of TCI Ventures Group Common Stock. The Company
believes that it is not, has not been and will not become a "United States real
property holding corporation" for Federal income tax purposes.
A "Nonresident Alien" is any person who, for Federal income tax
purposes, is a foreign corporation, a nonresident alien individual, a
nonresident alien fiduciary or a foreign estate or trust, or a foreign
partnership that includes as a member any of the foregoing persons.
Backup Withholding. Certain noncorporate holders of TCI Ventures
Group Common Stock could be subject to backup withholding at a rate of 31% on
the payment of dividends on such stock. Backup withholding will apply only if
the holder (i) failed to furnish its Taxpayer Identification Number ("TIN"),
which, for an individual, is his or her Social Security number, (ii) furnished
an incorrect TIN, (iii) was notified by the Service that it had failed to
properly report payments of interest or dividends or (iv) under certain
circumstances, failed to certify under penalties of perjury that it (x) had
furnished a correct TIN and (y) had not been notified by the Service that it
had failed to properly report payments of interest or dividends. Stockholders
should consult their tax advisors regarding their qualification for exemption
from backup withholding and the procedures for obtaining such an exemption if
applicable.
The amount of any backup withholding on a payment to a holder of TCI
Ventures Group Common Stock would be allowed as a credit against such
stockholder's Federal income tax liability and could entitle such stockholder
to a refund, provided that the required information was furnished to the
Service.
TAX IMPLICATIONS TO THE COMPANY
As noted above, in the opinion of counsel, the TCI Ventures Group
Common Stock should be treated as stock of the Company for federal income tax
purposes. Accordingly, no gain or loss should be recognized by the Company on
the issuance of shares of TCI Ventures Group Common Stock in exchange for
shares of TCI Group Common Stock or on subsequent sales of TCI Ventures Group
Common Stock. If, however, the TCI Ventures Group Common Stock were treated as
property other than stock of the Company, the Company could recognize gain on
the sale of TCI Ventures Group Common Stock in an amount equal to the
difference between the proceeds received therefrom and its tax basis in the
hands of the Company. If the TCI Ventures Group Common Stock is treated as
stock of a subsidiary of the Company, and not as stock of the Company, the TCI
Ventures Group could, depending upon the amount of stock issued, be treated as
not includable in the Company's
[71]
<PAGE> 81
consolidated federal income tax return. If so treated, any dividends paid or
deemed paid to the Company by the TCI Ventures Group would be taxed to the
Company.
EXISTING CAPITAL STOCK
Each series of Common Stock and each class and series of Preferred
Stock currently outstanding will remain authorized following approval of the
TCI Ventures Group Stock Proposal.
No shares of Telephony Group Common Stock have been issued or are
outstanding. As of March 31, 1997, 598,204,963 shares of Series A TCI Group
Common Stock (net of shares held by subsidiaries of TCI), 84,647,065 shares of
Series B TCI Group Common Stock, 228,749,797 shares of Series A Liberty Media
Group Common Stock and 21,187,969 shares of Series B Liberty Media Group Common
Stock had been issued and were outstanding and 116,853,196 shares of Series A
TCI Group Common Stock were held by subsidiaries of the Company. As of that
date, 126,384,805 shares of Series A TCI Group Common Stock and 30,616,358
shares of Series A Liberty Media Group Common Stock were reserved for issuance
upon conversion, exchange or exercise of outstanding convertible or exchangeable
securities and options. In addition, TCI has reserved a number of shares of
Series A TCI Group Common Stock equal to the number of shares of Series B TCI
Group Common Stock outstanding, and a number of shares of Series A Liberty Media
Group Common Stock equal to the number of shares of Series B Liberty Media Group
Common Stock outstanding, in either case for issuance upon conversion, at the
option of the holder, of the Series B TCI Group Common Stock and Series B
Liberty Media Group Common Stock, respectively. Additionally, subsidiaries of
the Company own shares of the Company's Convertible Redeemable Participating
Preferred Stock, Series F (the "Series F Preferred Stock"), which are
convertible in the aggregate into 416,528,172 shares of Series A TCI Group
Common Stock. For a more complete description of the existing terms of the TCI
Group Common Stock and the Liberty Media Group Common Stock, reference is made
to the Company's Registration Statement on Form 8-A dated July 11, 1995, as
amended by Amendment No. 1 dated September 29, 1995 and Amendment No. 2 dated
October 25, 1995, filed by the Company with the SEC under the Exchange Act, and
to the Company Charter. See "ADDITIONAL INFORMATION."
Of the 52,375,096 shares of Preferred Stock authorized by the Company
Charter, 700,000 shares are designated Class A Preferred Stock, par value $0.01
per share (the "Class A Preferred Stock"), 1,675,096 shares are designated
Class B Preferred Stock and 50,000,000 shares are designated as Series
Preferred Stock, issuable in series. Of the Series Preferred Stock, 80,000
shares are designated as Series C Preferred Stock, 1,000,000 shares are
designated as Convertible Preferred Stock, Series D (the "Series D Preferred
Stock"), 400,000 shares are designated as Redeemable Convertible Preferred
Stock, Series E (the "Series E Preferred Stock"), 500,000 shares are designated
as Series F Preferred Stock, 7,259,380 shares are designated as Series G
Preferred Stock and 7,259,380 shares are designated as Series H Preferred
Stock. All of the shares of Class A Preferred Stock have previously been
redeemed and retired and may not be reissued, thereby reducing the number of
authorized shares of Preferred Stock. All of the shares of Series E Preferred
Stock have previously been redeemed and retired, with the effect that such
shares have been restored to the status of authorized and unissued shares of
Series Preferred Stock, may be reissued as shares of another series of Series
Preferred Stock, but may not be reissued as Series E Preferred Stock.
As of March 31, 1997, 1,620,026 shares of Class B Preferred Stock,
70,575 shares of Series C Preferred Stock, 997,222 shares of Series D Preferred
Stock, 278,307 shares of Series F Preferred Stock, 6,693,117 shares of Series G
Preferred Stock and 6,693,117 shares of Series H Preferred Stock were
outstanding. All of the outstanding shares of Series F Preferred Stock are
held by subsidiaries of the Company. The liquidation preference as of such
date of the Class B Preferred Stock was $100 per share, of the Series C
Preferred Stock was $2,375 per share, of the Series D Preferred Stock was $300
per share, of the Series F Preferred Stock was $.01 per share, of the Series G
Preferred Stock was $21.60 per share, and of the Series H Preferred Stock was
$5.40 per share. After receipt of their liquidation preference, holders of
Series F Preferred Stock are entitled to receive from the assets of the Company
available for distribution to common stockholders an amount equal to the amount
per share to be distributed to holders of Series A TCI Group Common Stock in
such liquidation, multiplied by the number of shares of Series A TCI Group
Common Stock into which their shares of Series F Preferred Stock are then
convertible. As of the date of this Proxy Statement, (i) each share of Series
C Preferred Stock is convertible at the option of the holder into 116.24 shares
of Series A TCI Group Common Stock and 37 shares of Series A Liberty Media
Group Common Stock; (ii) each share of Series D Preferred Stock is convertible
at the option of the holder into 10 shares of Series A TCI Group Common Stock,
three and one-half shares of Series A Liberty Media Group Common Stock and one
share of the Series A common stock of Satellite; (iii) each share of Series F
Preferred Stock is convertible into 1,496.65 shares of Series A TCI Group
[72]
<PAGE> 82
Common Stock; (iv) each share of Series G Preferred Stock is convertible at the
option of the holder into 1.190 shares of Series A TCI Group Common Stock, and
(v) each share of Series H Preferred Stock is convertible at the option of the
holder into .2625 shares of Series A Liberty Media Group Common Stock, in each
case subject to antidilution adjustments. The Series C Preferred Stock, the
Series G Preferred Stock and Series H Preferred Stock are required to be
redeemed by the Company out of legally available funds on August 8, 2001,
February 1, 2016 and February 1, 2016, respectively. The Series D Preferred
Stock is redeemable at the option of the holder at any time after the tenth
anniversary of its issuance.
The Class B Preferred Stock, the Series F Preferred Stock, the Series
G Preferred Stock and the Series H Preferred Stock are each entitled to vote,
on the basis of one vote per share, together with the Common Stock and any
class or series of Preferred Stock of the Company entitled to vote thereon, in
the general election of directors of the Company. The holders of shares of
Series C Preferred Stock are entitled to vote such shares on an as converted
basis on all matters submitted to a vote of holders of Common Stock and any
other class of capital stock of the Company entitled to vote generally on the
election of directors. The consent of the holders of 66 2/3% of the aggregate
liquidation value of the Series D Preferred Stock is required in order for the
Company to create any series of Preferred Stock that is senior to the Series D
Preferred Stock. Except as described above and as otherwise required by the
DGCL, the Preferred Stock of the Company has no voting rights. The terms of
the various classes and series of the Company's Preferred Stock include
provisions that restrict the redemption or repurchase of and the payment of
dividends or the making of distributions on the Common Stock if any dividends
are in arrears on the Preferred Stock or if the Company has failed to redeem
any shares of Preferred Stock that it was required to redeem.
The foregoing description of certain terms of the outstanding classes
and series of Preferred Stock does not purport to be complete and is qualified
in its entirety by reference to the Company Charter (including the Certificate
of Designation with respect to each outstanding series of Preferred Stock).
ANTI-TAKEOVER CONSIDERATIONS
The DGCL, the Company Charter and the Company's Bylaws contain
provisions which may serve to discourage or make more difficult a change in
control of the Company without the support of the Board of Directors or without
meeting various other conditions. The principal provisions of the DGCL and the
aforementioned corporate governance documents are outlined below.
DGCL Section 203, in general, prohibits a "business combination"
between a corporation and an "interested stockholder" within three years of the
date such stockholder became an "interested stockholder," unless (i) prior to
such date the board of directors of the corporation approved either the
business combination or the transaction which resulted in the stockholder
becoming an interested stockholder, (ii) upon consummation of the transaction
which resulted in the stockholder becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced, exclusive of
shares owned by directors who are also officers and by certain employee stock
plans or (iii) on or after such date, the business combination is approved by
the board of directors and authorized by the affirmative vote at a
stockholders' meeting of at least 66 2/3% of the outstanding voting stock which
is not owned by the interested stockholder. The term "business combination" is
defined to include, among other transactions between the interested stockholder
and the corporation or any direct or indirect majority-owned subsidiary
thereof, a merger or consolidation; a sale, pledge, transfer or other
disposition (including as part of a dissolution) of assets having an aggregate
market value equal to 10% or more of either the aggregate market value of all
assets of the corporation on a consolidated basis or the aggregate market value
of all the outstanding stock of the corporation; certain transactions that
would increase the interested stockholder's proportionate share ownership of
the stock of any class or series of the corporation or such subsidiary; and any
receipt by the interested stockholder of the benefit of any loans, advances,
guarantees, pledges or other financial benefits provided by or through the
corporation or any such subsidiary. In general, and subject to certain
exceptions, an "interested stockholder" is any person who is the owner of 15%
or more of the outstanding voting stock (or, in the case of a corporation with
classes of voting stock with disparate voting power, 15% or more of the voting
power of the outstanding voting stock) of the corporation, and the affiliates
and associates of such person. The term "owner" is broadly defined to include
any person that individually or with or through his or its affiliates or
associates, among other things, beneficially owns such stock, or has the right
to acquire such stock (whether such right is exercisable immediately or only
after the passage of time) pursuant to any agreement or understanding or upon
the exercise of warrants or options or otherwise or has the right to vote such
stock pursuant to any agreement or understanding, or has an agreement or
understanding with the beneficial owner of such stock for the purpose of
acquiring, holding, voting or disposing of such stock. The restrictions of
DGCL Section 203 do not apply to corporations that have elected, in the manner
provided therein, not to be subject to such section or, with certain
exceptions, which do not have a class of voting stock that is listed on a
national securities exchange or authorized for quotation
[73]
<PAGE> 83
on an interdealer quotation system of a registered national securities
association or held of record by more than 2,000 stockholders.
The Company Charter does not contain any provision "opting out" of the
application of DGCL Section 203 and the Company has not taken any of the
actions necessary for it to "opt out" of such provision. As a result, the
provisions of Section 203 will remain applicable to transactions between the
Company and any of its "interested stockholders."
The Company Charter also contains certain provisions which could make
a change in control of the Company more difficult. For example, the Company
Charter requires, subject to the rights, if any, of any class or series of
Preferred Stock, the affirmative vote of 66 2/3% of the total voting power of
the outstanding shares of Voting Securities, voting together as a single class,
to approve (i) a merger or consolidation of the Company with, or into, another
corporation, other than a merger or consolidation which does not require the
consent of stockholders under the DGCL or a merger or consolidation which has
been approved by 75% of the members of the Board of Directors (in which case,
in accordance with the DGCL, the affirmative vote of a majority of the total
voting power of the outstanding Voting Securities would, with certain
exceptions, be required for approval), (ii) the sale, lease or exchange of all
or substantially all of the property and assets of the Company or (iii) the
dissolution of the Company. "Voting Securities" is currently defined as the
TCI Group Common Stock, the Liberty Media Group Common Stock, the Telephony
Group Common Stock (of which no shares have been issued) and any class or
series of Preferred Stock entitled to vote generally with the holders of Common
Stock on matters submitted to stockholders for a vote, and if the TCI Ventures
Group Stock Proposal is approved, would include the TCI Ventures Group Common
Stock (which would be substituted for the Telephony Group Common Stock). The
Company Charter also provides for a Board of Directors of not less than three
members, divided into three classes of approximately equal size, with each
class to be elected for a three-year term at each annual meeting of
stockholders. The exact number of directors, currently 10, is fixed by the
Board of Directors. The holders of Voting Securities and of Class B Preferred
Stock, Series C Preferred Stock, Series G Preferred Stock and Series H
Preferred Stock, voting together as a single class, vote in elections for
directors. (The holders of the Company's Series F Preferred Stock are entitled
to vote in the election of directors; however, the DGCL prohibits the voting of
such shares because such shares are held by subsidiaries of the Company.)
Stockholders of the Company do not have cumulative voting rights.
The Company Charter authorizes the issuance of 50,000,000 shares of
Series Preferred Stock, of which 33,901,240 remain available for issuance as
March 31, 1997. Under the Company Charter, the Board of Directors is
authorized, without further action by the stockholders of the Company, to
establish the preferences, limitations and relative rights of the Series
Preferred Stock. In addition, 1,900,000,000 shares of TCI Group Common Stock,
825,000,000 shares of Liberty Media Group Common Stock and 825,000,000 shares of
Telephony Group Common Stock are currently authorized by the Company Charter, of
which 1,100,294,776 shares of TCI Group Common Stock, 575,062,234 shares of
Liberty Media Group Common Stock and 825,000,000 shares of Telephony Group
Common Stock remain available for issuance as of March 31, 1997 (without taking
into consideration shares reserved for issuance upon conversion, exchange or
exercise of outstanding convertible or exchangeable securities and options). If
the TCI Ventures Group Stock Proposal is approved by stockholders, the
825,000,000 authorized shares of Telephony Group Common Stock would become
authorized shares of TCI Ventures Group Common Stock. The issue and sale of
shares of TCI Group Common Stock and Liberty Media Group Common Stock, TCI
Ventures Group Common Stock and/or Series Preferred Stock could occur in
connection with an attempt to acquire control of the Company, and the terms of
such shares of Series Preferred Stock could be designed in part to impede the
acquisition of such control.
The Company Charter requires the affirmative vote of 66 2/3% of the
total voting power of the outstanding shares of Voting Securities, voting
together as a single class, to approve any amendment, alteration or repeal of
any provision of the Company Charter or the addition or insertion of other
provisions therein.
The Company Charter and the Company's Bylaws provide that a special
meeting of stockholders will be held at any time, subject to the rights of the
holders of any class or series of Preferred Stock, upon the call of the
Secretary of the Company upon (i) the written request of the holders of not
less than 66 2/3% of the total voting power of the outstanding shares of Voting
Securities or (ii) at the request of not less than 75% of the members of the
Board of Directors. Subject to the rights of any class or series of Preferred
Stock, the Company's Bylaws require that written notice of the intent to make a
nomination at a meeting of stockholders must be received by the Secretary of
the Company, at the Company's principal executive offices, not later than (a)
with respect to an election of directors to be held at an special meeting of
stockholders, 90 days in advance of such meeting, and (b) with respect to an
election of directors to be held at a special meeting of stockholders, the
close of business on the seventh day following the day on which notice of such
meeting is first given to stockholders. The notice must contain: (1) the
[74]
<PAGE> 84
name and address of the stockholder who intends to make the nomination and of
the person or persons to be nominated; (2) a representation that the
stockholder is a holder of record of the Company's Voting Securities entitled
to vote at the meeting and intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the notice; (3) a
description of all arrangements or understandings between the stockholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
stockholder; (4) such other information regarding each nominee proposed by such
stockholder as would have been required to be included in a proxy statement
filed pursuant to the proxy rules of the Commission had each proposed nominee
been nominated, or intended to be nominated, by the Board of Directors; and (5)
the consent of each nominee to serve as a director of the Company if so
elected. Any actions to remove directors is required to be for "cause" (as
defined in the Company Charter) and be approved by the holders of 66 2/3% of
the total voting power of the outstanding shares entitled to vote in the
election of directors.
The Company believes that the TCI Ventures Group Stock Proposal, if
approved by the stockholders, should not make a change in control of the
Company more difficult. The number of authorized shares of Common Stock will
not increase and, although the number of outstanding shares will increase upon
the issuance of the TCI Ventures Group Common Stock, the cost to an acquiring
person of obtaining majority control would depend on the aggregate market value
and the terms of the outstanding shares. The Company cannot predict whether,
to what extent or during what periods of time such cost may increase or
decrease. See "Factors to be Considered--No Assurance as to Market Price."
Nevertheless, the existence of the TCI Ventures Group Common Stock
would present complexities and could in certain circumstances pose obstacles,
financial and otherwise, to an acquiring person. For example, a potential
acquiror would have to take into consideration that holders of different series
of Common Stock might be more or less receptive to the acquiror's proposal,
that a tender offer would have to be structured so as to take into account
different prices at which shares of the different series might be acquired,
that a merger would require allocation of consideration among the different
series of Common Stock and the effects of actions the Company might take such
as causing a conversion of the TCI Ventures Group Common Stock.
PROPOSAL NO. 3 - LIBERTY MEDIA GROUP AMENDMENT
GENERAL
The holders of the TCI Group Common Stock, the Liberty Media Group
Common Stock and the Series C Preferred Stock are also being asked to consider
and approve the proposed amendments to the Company Charter set forth in Annex
II-B. The Liberty Media Group Amendment would expand the Company's right to
redeem the Liberty Media Group Common Stock in exchange for stock of a
subsidiary that holds all of the assets and liabilities attributed to the
Liberty Media Group.
REDEMPTION FOR STOCK OF SUBSIDIARY
The Company Charter currently provides that at any time at which all
of the assets and liabilities attributed to the Liberty Media Group are held,
directly or indirectly, by any one or more corporations all of the capital
stock of which is owned by the Company (the "Liberty Media Group
Subsidiaries"), TCI may redeem all of the outstanding shares of Liberty Media
Group Common Stock in exchange for shares of the common stock of each Liberty
Media Group Subsidiary. The Liberty Media Group Amendment would redefine the
term "Liberty Media Group Subsidiaries" to be those "Qualifying Subsidiaries"
that at the time of such redemption hold, directly or indirectly, all of the
assets and liabilities attributed to the Liberty Media Group.
The term "Qualifying Subsidiary", which the Company Charter currently
uses only with respect to the Telephony Group, would be redefined as a
Subsidiary of the Company in which either (i) the Company's ownership and
voting interest is sufficient to satisfy the requirements of the Service for a
distribution of the Company's interest in such Subsidiary to the holders of
Liberty Media Group Common Stock or TCI Ventures Group Common Stock, as
applicable, to be tax free to such holders or (ii) the Company owns, directly
or indirectly, all of the issued and outstanding capital stock.
The Liberty Media Group Amendment, by permitting the redemption of the
Liberty Media Group Common Stock in exchange for the stock of a less than
wholly owned subsidiary, would increase the Company's flexibility in
structuring the ownership of the assets attributed to the Liberty Media Group.
The Company currently has such flexibility under the Company Charter with
respect to the Telephony Group and would have such flexibility under the
Amended Charter with respect to the TCI Ventures Group. The flexibility that
the Liberty Media Group Amendment would provide the Company with respect to
[75]
<PAGE> 85
the Liberty Media Group would be accomplished without imposing on the holders
of Liberty Media Group Common Stock any tax risk with respect to such
redemption that would be in addition to the tax consequences associated with
the redemption of Liberty Media Group Common Stock for stock of a wholly owned
subsidiary.
RECOMMENDATIONS OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE LIBERTY MEDIA
GROUP AMENDMENT PROPOSAL AND BELIEVES THAT IT IS IN THE BEST INTERESTS OF THE
COMPANY AND ITS STOCKHOLDERS. ACCORDINGLY, THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT STOCKHOLDERS VOTE IN FAVOR OF THE LIBERTY MEDIA GROUP STOCK
PROPOSAL.
PROPOSAL OF STOCKHOLDER
The following proposal is expected to be presented to the Annual
Meeting:
PROPOSAL NO. 4
STOCKHOLDER PROPOSAL REQUESTING ELIMINATION OF ELECTION OF
DIRECTORS BY CLASSES AND DIRECTORS' STATEMENT AGAINST PROPOSAL
The Company is informed that John J. Gilbert, whose address is 29 East
64th Street, New York, New York 10021-7043, a record holder of 204 shares of
common stock and Margaret B. Gilbert who, along with John J. Gilbert, are the
Executors of the Estate of Lewis D. Gilbert for 400 shares, and both also
trustees U/W of Samuel Rosenthal for 200 shares, intend to propose at the
Annual Meeting the following resolution.
"RESOLVED: That the stockholders of Tele-Communications, Inc.,
assembled in annual meeting in person and by proxy, hereby request that the
Board of Directors take the needed steps to provide that at future elections of
directors new directors be elected annually and not by classes, as is now
provided, and that on expiration of present terms of directors their subsequent
election shall also be on an annual basis."
The proponents have furnished the following statement setting forth
the reasons advanced by them in support of their proposal:
"ARCO to its credit, voluntarily ended theirs stating that when a very
high percentage (34.6%) desired it to be changed to an annual election
it was reason enough for them to change it. Several other companies
have also followed suit such as: Pacific Enterprises, Katy Industries,
Hanover Direct and others. Ameritech is one of the latest to end
theirs."
"A few years ago my resolution on the subject was withdrawn when the
Westinghouse directors agreed to end their stagger system. At the
Lockheed-Martin merger the stagger system was ended and also at a
special meeting of First Commerce Corporation in 1995. Further,
Alleghany Power System tried to put in a stagger system, as well as
take away cumulative voting and the stockholders defeated it, showing
stockholders are interested in their rights."
"In the recent merger of Nynex into Bell Atlantic the annual election
of directors, instead of the stagger system that Nynex had, will be
adopted."
"Because of the normal need to find new directors and because of
environment problems and the avalanche of derivative losses and many
groups desiring to have directors who are qualified on the subjects,
we think that ending the stagger system of electing directors is the
answer."
"Equitable Life Insurance Company, which is now called Equitable
Companies, converted from a policy owned company to a public
stockholder meeting. Thanks to AXA, the comptrolling French insurance
company not wanting it, they now do not have a staggered board."
[76]
<PAGE> 86
"Orange and Rockland Utility Company had a terrible time with the
stagger system and its 80% clause to recall a director. The chairman
was involved in a scandal effecting the company. Not having enough
votes the meeting to get rid of the chairman had to be adjourned.
Finally, at the adjourned meeting enough votes were counted to recall
him."
"If you agree, please mark your proxy for this resolution; otherwise
it is automatically cast against it, unless you have marked to
abstain."
BOARD OF DIRECTORS STATEMENT ON PROPOSAL NO. 4
Under the corporate law of Delaware, the State in which the Company is
incorporated, the change contemplated by the proposal would require an
amendment to the Company's Certificate of Incorporation which must first be
approved by the Board of Directors and then submitted to a vote of the
stockholders. A vote in favor of Proposal No. 4, therefore, would constitute a
request that the Board initiate this amendment. The Board does not believe,
however, that such an amendment would be in the best interests of the Company
or its stockholders.
The Company has had a classified board since 1979, when the
stockholders approved an amendment to the Company's Certificate of
Incorporation to provide for the current division of the Board into three
classes, with one class elected each year for a three-year term. The Board's
reasons for initially proposing such amendment, which reasons are still
applicable today, include the Board's belief that a classified Board enables
the Company to provide continuity of membership on the Board and to preserve
stability and continuity of planning and operations for a reasonable period
into the future. In addition, the Board believes a classified Board better
enables the Board to protect the interests of stockholders generally in the
event that another corporation or group of persons should acquire a substantial
amount of the Company's shares and seek to dominate or otherwise influence the
Company's affairs. Since only one class of directors stands for election each
year, a change in the majority of the Board, absent resignations, would require
action at two Annual Meetings of Stockholders. In addition, the classified
board may significantly impede the efforts of a small but dominant group to
"pack" the Board of Directors by increasing the number of directors and
electing its own designees to fill the increase or to attempt to assert control
over the Board, subject to the limits imposed by cumulative voting, by removing
incumbent directors and filling the resulting vacancy with persons of their own
choosing. For the foregoing reasons, the Board believes that the amendment
contemplated by Proposal No. 4 is not in the best interests of the Company.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS, FOR THE REASONS STATED ABOVE, UNANIMOUSLY
RECOMMENDS THAT STOCKHOLDERS VOTE AGAINST PROPOSAL NO. 4.
CONCERNING MANAGEMENT
EXECUTIVE OFFICERS
The following lists the executive officers of TCI, other than
directors listed under "PROPOSAL NO. 1-ELECTION OF DIRECTORS," their birth
dates, a description of their business experience and positions held with the
Company as of April 15, 1997. All officers are appointed for an indefinite
term, serving at the pleasure of the Board of Directors.
[77]
<PAGE> 87
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C>
Stephen M. Brett Executive Vice President, General Counsel and
Born September 20, 1940 Secretary of TCI since January of 1994. Appointed
TCIC Senior Vice President and General Counsel of
TCIC as of December of 1991. Vice President and
Secretary and a director of most of TCI's
subsidiaries.
Fred A. Vierra Executive Vice President of TCI since January of 1994.
Born November 9, 1931 Chief Executive Officer and director of
International since October of 1994. Vice Chairman
of the Board of International since May of 1995.
From October 1994 through May 1995, Mr. Vierra
served as Chairman of the Board of International.
Executive Vice President of TCIC from December of
1991 to October of 1994.
Robert R. Bennett President and Chief Executive Officer of Liberty
Born April 19, 1958 Media Corporation ("Liberty") since April of 1997.
From June 1995 through March 1997, was Executive
Vice President, Chief Financial Officer, Secretary
and Treasurer of Liberty. Prior to June 1995, was
Senior Vice President of Liberty since September
1991 and Vice President of TCIC from 1990 through
March 1991 while also holding the titles of
Treasurer, Secretary and Chief Financial Officer of
Liberty.
Brendan R. Clouston Executive Vice President of TCI since January of
Born April 28, 1953 1994; Chief Financial Officer of TCI from March 1997
to April 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.
Larry E. Romrell Executive Vice President of TCI since January 1994.
Born December 30, 1939 President of TCI Technology Ventures, Inc., a
wholly-owned subsidiary of TCI, since September of
1994 and a director of same since December of 1994;
Senior Vice President of TCIC from 1991 to October
of 1994; previously held various executive positions
with WestMarc.
Marvin Jones Appointed TCIC Executive Vice President and Chief
Born September 11, 1937 Operating Officer in March 1997. Named TCIC director
in 1997. President of one of TCIC's three cable
units since November 1, 1996. Consultant since
December 1991 in the cable television industry.
Gary K. Bracken Controller of TCIC since 1969. Appointed Senior
Born July 29, 1939 Vice President of TCIC in December of 1991. Was
named Vice President and Principal Accounting
Officer of TCIC in 1982. Senior Vice President of
TPAC.
Bernard W. Schotters Appointed Senior Vice President-Finance and
Born November 25, 1944 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.
Robert N. Thomson Appointed Senior Vice President of TCIC in February
Born December 19, 1943 of 1995. Senior Vice President of Communications and
Policy Planning for TCIC from 1991 to October of
1994.
</TABLE>
Mr. Bob Magness, founder and Chairman of the Board of TCI, died in
November of 1996. Mr. Magness had been Chairman of the Board and director of
TCI since June of 1994 and of TCIC (predecessor company to TCI) since 1973. He
had been a TCIC director since 1968. On November 25, 1996, the Board of
Directors named John C. Malone to the position
[78]
<PAGE> 88
of Chairman of the Board to replace Bob Magness. On December 13, 1996, the
Board of Directors named Paul A. Gould as director to fill the unexpired term
on the Board of Directors held by Bob Magness.
Mr. Peter R. Barton was Executive Vice President of TCI since January
of 1994 and was President and Chief Executive Officer of Liberty since June of
1990. In April of 1997, Mr. Barton resigned his positions with the Company.
Mr. Barry P. Marshall was Executive Vice President and Chief Operating
Officer of TCIC from October of 1994 through March of 1997. In March of 1997,
Mr. Marshall resigned his positions as Executive Vice President and Chief
Operating Officer of TCIC. 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 1986 to March of
1992, Mr. Marshall was Vice President and Chief Operating Officer of TCIC's
largest regional operating division.
There are no family relations, of first cousin or closer, among the
above named individuals, by blood, marriage or adoption, except that Bob
Magness and Kim Magness were father and son, respectively.
During the past five years, none of the above persons have had any
involvement in such legal proceedings as would be material to an evaluation of
his ability or integrity.
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires TCI's executive officers and directors, and persons who own more than
ten percent of a registered class of TCI's equity securities, to file reports
of ownership and changes in ownership with the Securities and Exchange
Commission ("SEC"). Officers, directors and greater than ten-percent
shareholders are required by SEC regulation to furnish TCI with copies of all
Section 16(a) forms they file.
Based solely on review of the copies of such Forms 3, 4 and 5 and
amendments thereto furnished to TCI with respect to its most recent fiscal
year, or written representations that no Forms 5 were required, TCI believes
that, during the year ended December 31, 1996, all Section 16(a) filing
requirements applicable to its officers, directors and greater than ten-percent
beneficial owners were complied with except that one report, covering one
transaction, was filed late by Mr. Donne F. Fisher, a director of the Company,
one report, covering one transaction, was filed late by Mr. J.C. Sparkman,
another director of the Company, and one report, covering shares held by
minors, was filed late by Mr. Bernard W. Schotters, an officer of the Company.
EXECUTIVE COMPENSATION
On December 4, 1996, the Company distributed (the "Satellite
Distribution") to the holders of shares of TCI Group common stock all of the
issued and outstanding common stock of Satellite. Certain directors, officers
and employees of TCI and its subsidiaries have been granted options to purchase
shares of Series A TCI Group Common Stock ("TCI Options") and stock
appreciation rights with respect to shares of Series A TCI Group Common Stock
("TCI SARs"). The TCI Options and TCI SARs have been granted pursuant to
various stock plans of TCI (the "TCI Plans"). The TCI Plans give the Board of
Directors of TCI (the "TCI Board") the authority to make equitable adjustments
to outstanding TCI Options and TCI SARs in the event of certain transactions,
of which the Satellite Distribution was one.
The TCI Board determined that, immediately prior to the Distribution,
each TCI Option would be divided into two separately exercisable options: (i)
an option to purchase TCI Satellite Entertainment, Inc. Series A Common Stock
("SATCo Option"), exercisable for the number of shares of TCI Satellite
Entertainment, Inc. Series A Common Stock ("SATCo Series A Stock") that would
have been issued in the Satellite Distribution in respect of the shares of
Series A TCI Group Common Stock subject to the applicable TCI Option, if such
TCI Option had been exercised in full immediately prior to the record date of
the Distribution, and containing substantially equivalent terms as the existing
TCI Option, and (ii) an option to purchase Series A TCI Group Common Stock (a
"TCI Group Series A Option"), exercisable for the same number of shares of
Series A TCI Group Common Stock as the corresponding TCI Option had been. The
aggregate exercise price of each TCI Option was allocated between the SATCo
Option and the TCI Group Series A Option into which it was divided, and all
other terms, including date of grant, of the SATCo Option and TCI Group Series
A Option are in all material respects the same as the terms of such TCI Option.
Similar adjustments were made to the outstanding TCI SARs, resulting in the
holders thereof holding TCI Group Series A SARs and SATCo SARs instead of TCI
SARs, and to outstanding restricted stock awards, resulting in the holders
thereof holding restricted shares of SATCo Series A Stock in addition to
restricted stock of Series A TCI Group
[79]
<PAGE> 89
Common Stock, effective immediately prior to the Distribution. The foregoing
adjustments were made pursuant to the anti-dilution provisions of the TCI Plans
pursuant to which the respective TCI Group Series A Options and TCI Group
Series A SARs were granted.
Prior to the Satellite Distribution, TCI and Satellite entered into an
agreement to sell to each other from time to time at the then current market
price shares of Series A TCI Group Common Stock and SATCo Series A Stock,
respectively, as necessary to satisfy their respective obligations under such
securities.
TCI, in addition to the Series A TCI Group Common Stock, has shares of
Series B TCI Group Common Stock, Series A Liberty Media Group Common Stock and
Series B Liberty Media Group Common Stock outstanding. Prior to the
Distribution, Satellite was a member of the TCI Group and all of the assets and
businesses transferred to Satellite were included in the TCI Group.
Accordingly, the Distribution was made to the TCI Group Stockholders and the
holders of Liberty Media Group Common Stock did not participate in the
Distribution.
Effective January 14, 1997, the Company distributed the Liberty Group
Stock Dividend. As a result of the Liberty Group Stock Dividend, the number of
options granted to purchase Series A Liberty Media Group Common Stock and the
price to purchase such options have been adjusted.
Summary Compensation Table of TCI. The following table shows, for
the three years ended December 31, 1996, all forms of compensation for the
Chief Executive Officer and each of the four most highly compensated executive
officers of TCI, whose total annual salary and bonus exceeded $100,000 for the
year ended December 31, 1996. Additionally, the following table includes
disclosure of all forms of compensation paid to Mr. Bob Magness during the year
ended December 31, 1996.
[80]
<PAGE> 90
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------- ----------------------
SECURITIES
OTHER RESTRICTED UNDERLYING
ANNUAL STOCK OPTIONS/ ALL OTHER
NAME AND PRINCIPAL COMPENSATION AWARD(S) SARS COMPENSATION
POSITION YEAR SALARY ($) ($) ($) (#) (17) ($)
- - ------------------ ---- ---------- ------------- ----------- ------------ -----------------
<S> <C> <C>
Bob Magness 1996 $863,462 $ 65,900(3)(4) -- -- $17,000(15)(16)
Formerly Chairman 1995 $850,000 $ -- -- 1,475,000(10) $17,500(15)(16)
of the Board 1994 $830,769 $ -- -- -- $ 2,500(16)
John C. Malone 1996 $900,000 $ 4,496(3) -- 50,000(12) $17,500(15)(16)
Chief Executive 1995 $850,000(1) $ 3,758(3) -- 1,475,000(10) $17,500(15)(16)
Officer 1994 $821,731(1) $ 2,610(3) -- -- $17,500(15)(16)
Fred A. Vierra 1996 $650,000(2) $ 4,231(3) -- -- $15,000(15)
Executive Vice 1995 $650,000(2) $ 3,207(3) $ 380,625(6) 400,000(10) $15,000(15)
President 1994 $669,613(2) $ 1,024(3) -- 295,000(11) $15,000(15)
Brendan R. Clouston 1996 $650,000 $244,147(3x5) $1,999,500(7) 664,106(13) $15,000(15)
Executive Vice 1995 $550,000 $ 3,181(3) $2,062,500(8) 1,100,000(10) $15,000(15)
President 1994 $525,000 $ 1,000(3) -- 295,000(11) $15,000(15)
Peter R. Barton 1996 $503,846 $ 1,315(3) -- -- $ 9,500(15)
Executive Vice 1995 $400,000 $ 1,283(3) -- 1,500,000(10) $ 9,240(15)
President 1994 $350,000 $ -- -- 295,000(11) $ 9,240(15)
Larry E. Romrell 1996 $500,000 $ 4,910(3) -- 664,086(14) $15,000(15)
Executive Vice 1995 $408,654 $ 3,788 $1,087,500(9) 442,500(10) $15,000(15)
President 1994 $391,347 $ 1,659(3) -- 295,000(11) $15,000(15)
</TABLE>
- - --------------------
(1) Includes deferred compensation of $320,000 in each of 1995 and 1994.
(2) Includes deferred compensation of $250,000 in each of the years
presented.
(3) Consists of amounts reimbursed during the year for the payment of
taxes. During 1996, a total of $4,207 was paid to Mr. Clouston and
$4,159 was paid to Mr. Magness.
(4) Includes $61,741 in 1996 representing the Company's allocated cost for
personal use of the Company's aircraft and flight crew.
(5) Includes $239,940 in 1996 of dividend income received on WestMarc
preferred stock which is subject to forfeiture (see note 7 below).
(6) International has a stock incentive plan (the "International Plan").
On December 13, 1995, pursuant to the International Plan, Mr. Vierra
was granted 15,000 restricted shares of TINTA Series A Stock. Such
restricted shares vest as to 50% of such shares on December 13, 1999
and as to the remaining 50% of such shares on December 13, 2000. The
value of such restricted stock award was $198,750 at the end of 1996
based upon the closing price of TINTA Series A Stock on December 31,
1996. International has not paid cash dividends on TINTA Series A
Stock and does not anticipate declaring and paying cash dividends on
the TINTA Series A Stock at any time in the foreseeable future.
(7) On July 1, 1996, pursuant to a Restricted Stock Award Agreement, Mr.
Clouston was transferred all of the Company's right, title and
interest in and to 62 shares of the 12% Series C Cumulative
Compounding Preferred Stock of WestMarc owned by the Company. Such
preferred stock is subject to forfeiture in the event of certain
circumstances from the date of grant through December 13, 2005.
(8) The Company has a stock incentive plan, the Tele-Communications, Inc.
1994 Stock Incentive Plan (the "1994 Plan"). On December 13, 1995,
pursuant to the 1994 Plan, Mr. Clouston was granted 100,000 restricted
shares of Series A TCI Group Common Stock and 10,000 restricted shares
of SATCo Series A Stock. Such restricted shares vest as to 50%
[81]
<PAGE> 91
of such shares on December 13, 1999 and as to the remaining 50% of
such shares on December 13, 2000. The value of such restricted stock
award was $1,405,000 at the end of 1996 based upon the closing price
of Series A TCI Group Common Stock and SATCo Series A Stock on
December 31, 1996. TCI has not paid cash dividends on the Series A
TCI Group Common Stock and does not anticipate declaring and paying
cash dividends on the Series A TCI Group Common Stock at any time in
the foreseeable future.
(9) On December 13, 1995, pursuant to the 1994 Plan, Mr. Romrell was
granted 40,000 restricted shares of Series A TCI Group Common Stock,
15,000 restricted shares of Series A Liberty Media Group Common Stock
and 4,000 restricted shares of SATCo Series A Stock. Such restricted
shares vest as to 50% of such shares on December 13, 1999 and as to
the remaining 50% of such shares on December 13, 2000. The value of
such restricted stock award was $847,630 at the end of 1996 based upon
the closing prices of Series A TCI Group Common Stock, Series A
Liberty Media Group Common Stock and SATCo Series A Stock on December
31, 1996. TCI has not paid cash dividends on the Series A Liberty
Media Group Common Stock and does not anticipate declaring and paying
cash dividends on the Series A Liberty Media Group Common Stock at any
time in the foreseeable future.
(10) On December 13, 1995, pursuant to an incentive plan (the "1996 Plan"),
certain executive officers of TCI were granted an aggregate of
2,000,000 options in tandem with stock appreciation rights to acquire
shares of Series A TCI Group Common Stock, 1,650,000 options in tandem
with stock appreciation rights to acquire shares of Series A Liberty
Media Group Common Stock and 200,000 options in tandem with stock
appreciation rights to acquire shares of SATCo Series A Stock at
adjusted purchase prices of $14.62, $16.00 and $23.76 per share,
respectively. Each such grant of options with tandem stock
appreciation rights vests evenly over five years with such vesting
period beginning August 4, 1995, first becomes exercisable beginning
on August 4, 1996 and expires on August 4, 2005.
On December 13, 1995, pursuant to the 1994 Plan, certain executive
officers were granted an aggregate of 2,650,000 options in tandem with
stock appreciation rights to acquire shares of Series A TCI Group
Common Stock, an aggregate of 1,012,500 options, in tandem with stock
appreciation rights to acquire shares of Series A Liberty Media Group
Common Stock and 265,000 options in tandem with stock appreciation
rights to acquire shares of SATCo Series A Stock at adjusted purchase
prices of $14.62, $16.00 and $23.76 per share, respectively.
Additionally, the Company has a stock incentive plan, the
Tele-Communications, Inc. 1995 Stock Incentive Plan (the "1995 Plan").
On December 13, 1995, pursuant to the 1995 Plan, certain key employees
were granted an aggregate of 2,757,500 options in tandem with stock
appreciation rights to acquire shares of Series A TCI Group Common
Stock, an aggregate of 654,000 options in tandem with stock
appreciation rights to acquire shares of Series A Liberty Media Group
Common Stock and 275,750 options in tandem with stock appreciation
rights to acquire shares of SATCo Series A Stock at adjusted purchase
prices of $14.62, $16.00 and $23.76 per share, respectively. Each
such grant of options with tandem stock appreciation rights vests
evenly over five years with such vesting period beginning August 4,
1995, first becomes exercisable beginning on August 4, 1996 and
expires on August 4, 2005.
Notwithstanding the vesting schedule as set forth in the option
agreement, the option shares shall become available for purchase if
grantee's employment with the Company (a) shall terminate by reason of
(i) termination by the Company without cause (ii) termination by the
grantee for good reason (as defined in the agreement) or (iii)
disability, (b) shall terminate pursuant to provisions of a written
employment agreement, if any, between the grantee and the Company
which expressly permits the grantee to terminate such employment upon
occurrence of specified events (other than the giving of notice and
passage of time), or (c) if grantee dies while employed by the
Company. Further, the option shares will become available for
purchase in the event of an Approved Transaction, Board Change, or
Control Purchase (each as defined in the applicable Plan), unless in
the case of an Approved Transaction, the Compensation Committee under
the circumstances specified in the Plan determines otherwise.
(11) On November 17, 1994, pursuant to the 1994 Plan, certain executive
officers and other key employees were granted an aggregate of
3,220,000 options in tandem with stock appreciation rights to acquire
shares of Series A TCI Group Common Stock at an adjusted purchase
price of $14.19 per share, an aggregate of 1,196,625 options in tandem
with stock appreciation rights to acquire shares of Series A Liberty
Media Group Common Stock at a purchase price of $14.67 per share and
322,000 options in tandem with stock appreciation rights to acquire
shares of SATCo Series A Stock at an adjusted purchase price of $23.06
per share. Such options vest evenly over five years, became
exercisable beginning on November 17, 1995 and expire on November 17,
2004.
[82]
<PAGE> 92
(12) On April 11, 1996, Dr. Malone was granted, pursuant to the
International Director Stock Option Plan, options to acquire 50,000
shares of TINTA Series A Stock. For additional information relating
to this grant, see note 4 to the Option/SAR Grants Table of TCI,
below.
(13) On December 1, 1996, Mr. Clouston was granted options to acquire 10
shares of TCI Telephony Services, Inc. Common Stock (the "Telephone
Options"), 10 shares of TCI Wireline, Inc. Common Stock (the "Wireline
Options") and 10 shares of TCI.NET, Inc. Common Stock (the "Internet
Options"). On December 4, 1996, Mr. Clouston was granted options to
acquire 664,076 shares of SATCo Series A Stock. For additional
information with respect to such grants, see the notes to the
Option/SAR Grants Table of TCI, below.
(14) On December 1, 1996, Mr. Romrell was granted an option to acquire 10
shares of TCI.NET, Inc. On December 4, Mr. Romrell was granted
options to acquire 664,076 shares of SATCo Series A Stock. For
additional information with respect to such grants, see the notes to
the Option/SAR Grants Table of TCI, below.
(15) Includes dollar value of annual TCI contributions to TCI's ESPP in
which all named executive officers are fully vested. Directors who
are not employees of TCI are ineligible to participate in the ESPP.
The ESPP, a defined contribution plan, enables participating employees
to acquire a proprietary interest in TCI and benefits upon retirement.
Under the terms of the ESPP, employees are eligible for participation
after one year of service. The ESPP's normal retirement age is 65
years. Participants may contribute up to 10% of their compensation
and TCI (by annual resolution of the Board of Directors) may
contribute up to 100% of the participants' contributions. The ESPP
includes a salary deferral feature in respect of employee
contributions. Forfeitures (due to participants' withdrawal prior to
full vesting) are used to reduce TCI's otherwise determined
contributions. Generally, participants acquire a vested right in TCI
contributions as follows:
<TABLE>
<CAPTION>
Vesting
Years of Service Percentage
---------------- ----------
<S> <C>
Less than 1 .................................... 0
1-2 ................................... 20
2-3 ................................... 30
3-4 ................................... 45
4-5 ................................... 60
5-6 ................................... 80
6 or more ............................. 100
</TABLE>
Participant contributions are fully vested. Although TCI has not
expressed an intent to terminate the ESPP, it may do so, at any time.
The ESPP provides for full and immediate vesting of all participants'
rights upon termination. In each of the years ending December 31,
1996, 1995 and 1994, TCI contributed $15,000 to the ESPP for Dr.
Malone. In each of the years ended December 31, 1996 and 1995, TCI
contributed $15,000 to the ESPP for Mr. Magness.
(16) Includes fees paid to directors for attendance at each meeting of the
Board of Directors ($500 per meeting). During each of the years
ending December 31, 1996, 1995 and 1994, a total of $2,500 of such
fees, respectively, were paid to Dr. Malone. During 1996, 1995 and
1994, $2,000, $2,500 and $2,500 was paid to Mr. Magness, respectively.
(17) Adjusted to reflect the effect of the Distribution and the Liberty
Group Stock Dividend.
Option/SAR Grants Table of TCI. The following table shows all
individual grants of stock options and stock appreciation rights ("SARs")
granted to each of the named executive officers of TCI during the year ended
December 31, 1996:
[83]
<PAGE> 93
<TABLE>
<CAPTION>
SECURITIES % OF TOTAL
UNDERLYING OPTIONS/SARS
NUMBER OF GRANTED TO EXERCISE OR MARKET PRICE GRANT DATE
OPTIONS/SARS EMPLOYEES IN BASE PRICE ON GRANT DATE EXPIRATION PRESENT VALUE
NAME GRANTED(#) FISCAL YEAR ($/SH) ($/SH) DATE ($)
- - ---------- ------------ ----------- ------------ ------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Brendan R. Clouston 10(1) 50% $855,631(1) $2,100,000(6) February 1, 2006 $ 13,477,000(9)
10(2) 50% $ 12,537(2) $ 12,537(6) February 1, 2006 $ 44,000(10)
10(3) 33-1/3% $ 55,246(3) $ 400,000(6) February 1, 2006 $ 3,468,000(11)
664,076(4) 28.6% $ 8.86 12,625(7) February 1, 2006 $ 5,806,083(12)
Larry E. Romrell 10(3) 33-1/3% $ 55,246(3) $ 400,000(6) February 1, 2006 $ 3,468,000(11)
664,076(4) 28.6% $ 8.86 $ 12,625(7) February 1, 2006 $ 5,806,083(12)
John C. Malone 50,000(5) 25% $ 16.00 $ 20.25(8) April 11, 2006 $ 400,450(13)
</TABLE>
(1) Effective December 1, 1996, Mr. Clouston and another employee of TCI
were each granted an option to acquire 1.0% of the Company's common
equity in TTS-Delaware. The aggregate exercise price for each such
option, which is payable to TCI Telephony, is equal to 1.0% of (i) the
Company's cumulative investment in TCI Telephony as of December 1,
1996, adjusted for a 6% per annum interest factor from the date each
such investment was made to the date of such exercise, less (ii) the
sum of (x) $500 million (representing the aggregate initial
liquidation price of TCI Telephony preferred stock) and (y) the amount
of the tax benefits generated by TCI Telephony (up to $500 million) as
and when used by TCI. The per share exercise price on the date of
grant was $850,029. Any exercise by one of such executive officers of
all or part of such options would need to be accompanied by the
exercise by such executive officer of a pro rata portion of the option
described in note 3 below. All such options will vest and become
exercisable in five equal annual installments, with the first annual
installment vesting on February 1, 1997, and will expire on February
1, 2006.
(2) Effective December 1, 1996, Mr. Clouston and another employee of TCI
were each granted an option to acquire 1.0% of the Company's common
equity in TCI Wireline. The aggregate exercise price for each such
option, which is payable to TCI Wireline, is equal to 1.0% of the
Company's cumulative investment in TCI Wireline as of December 1,
1996, adjusted for a 6% per annum interest factor from the date each
such investment was made to the date of such exercise. The per share
exercise price on the date of grant was $12,502. All of such options
will vest and become exercisable in five equal annual installments,
with the first annual installment vesting on February 1, 1997, and
will expire on February 1, 2006. Such options must be exercised on a
pro rata basis with the Telephony Options as discussed in note 1
above.
(3) Effective December 1, 1996, Mr. Clouston, Mr. Romrell and another
employee of TCI were each granted an option to acquire 1.0% of the
Company's common equity in TCI.NET. The aggregate exercise price for
each such option, which is payable to TCI.NET, is equal to 1.0% of the
Company's cumulative investment in TCI.NET as of December 1, 1996,
adjusted for a 6% per annum interest factor from the date each such
investment was made to the date of such exercise. The per share
exercise price on the date of grant was $55,070. All of such options
will vest and become exercisable in five equal annual installments,
with the first annual installment vesting on February 1, 1997, and
will expire on February 1, 2006.
(4) On December 4, 1996, Mr. Clouston and Mr. Romrell were each granted an
option to purchase 664,076 shares of SATCo Series A Stock representing
1.0% of the number of shares of Satellite common stock issued and
outstanding on the date of the Distribution, determined immediately
after giving effect to the Distribution, but before giving effect to
the exercise of such option or the other options to be evidenced by a
stock option agreement. The aggregate exercise price for such option
is equal to 1.0% of TCI's net investment as of the date of the
Distribution, but excluding any portion of TCI's net investment that
as of such date is represented by a promissory note or other evidence
of indebtedness from Satellite to TCI. All of such options will vest
and become exercisable in five equal annual installments, with the
first annual installment vesting on February 1,
[84]
<PAGE> 94
1997, and will expire on February 1, 2006. Another employee of TCI
received a 1.0% option and another employee received a 0.5% option.
(5) On April 11, 1996, pursuant to the International Director Stock Option
Plan, certain directors of International were granted an aggregate of
200,000 options to acquire shares of TINTA Series A Stock at a
purchase price of $16.00 per share. Such options vest evenly over
five years, first become exercisable on April 11, 1997 and expire on
April 11, 2006.
(6) Represents the market value on December 1, 1996 as determined by the
Board of Directors.
(7) Represents the closing market price per share of SATCo Series A Stock
on December 5, 1996, the first day of trading following the date of
grant.
(8) Represents the closing market price per share of TINTA Series A Stock
on April 11, 1996.
(9) The values shown are based on the Black-Scholes model and are stated
in current annualized dollars on a present value basis. The key
assumptions used in the model for purposes of this calculation include
the following: (a) a 6.87% discount rate; (b) a 50% volatility factor;
(c) the 10-year option term; (d) the market value of the Telephony
Option on December 1, 1996 as determined by the Board of Directors of
TCI; (e) a per share exercise price of $850,029 on December 1, 1996;
and (f) a 6% per annum interest adjustment to the exercise price. The
actual value an executive may realize will depend upon the extent to
which the stock price exceeds the exercise price on the date the
option is exercised. Accordingly, the value, if any, realized by an
executive will not necessarily be the value determined by the model.
(10) The values shown are based on the Black-Scholes model and are stated
in current annualized dollars on a present value basis. The key
assumptions used in the model for purposes of this calculation include
the following: (a) a 6.87% discount rate; (b) a 55% volatility factor;
(c) the 10-year option term; (d) the market value of the Wireline
Option on December 1, 1996 as determined by the Board of Directors of
TCI; (e) a per share exercise price of $12,502 on December 1, 1996;
and (f) a 6% per annum interest adjustment to the exercise price. The
actual value an executive may realize will depend upon the extent to
which the stock price exceeds the exercise price on the date the
option is exercised. Accordingly, the value, if any, realized by an
executive will not necessarily be the value determined by the model.
(11) The values shown are based on the Black-Scholes model and are stated
in current annualized dollars on a present value basis. The key
assumptions used in the model for purposes of this calculation include
the following: (a) a 6.87% discount rate; (b) a 60% volatility factor;
(c) the 10-year option term; (d) the market value of the Internet
Option on December 1, 1996 as determined by the Board of Directors of
TCI; (e) a per share exercise price of $55,070 on December 1, 1996;
and (f) a 6% per annum interest adjustment to the exercise price. The
actual value an executive may realize will depend upon the extent to
which the stock price exceeds the exercise price on the date the
option is exercised. Accordingly, the value, if any, realized by an
executive will not necessarily be the value determined by the model.
(12) The values shown are based on the Black-Scholes model and are stated
in current annualized dollars on a present value basis. The key
assumptions used in the model for purposes of this calculation include
the following: (a) a 6.22% discount rate; (b) a 35% volatility factor;
(c) the 10-year option term; (d) the closing price of SATCo Series A
Stock on December 5, 1996; and (e) a per share exercise price of
$8.86. The actual value an executive may realize will depend upon the
extent to which the stock price exceeds the exercise price on the date
the option is exercised. Accordingly, the value, if any, realized by
an executive will not necessarily be the value determined by the
model.
(13) The values shown are based on the Black-Scholes model and are stated
in current annualized dollars on a present value basis. The key
assumptions used in the model for purposes of this calculation include
the following: (a) a 6.25% discount rate; (b) a 35% volatility factor;
(c) the 10-year option term; (d) the closing price of TINTA Series A
Stock on February 14, 1997; and (e) a per share exercise price of
$16.00. The actual value an executive may realize will depend upon the
extent to which the stock price exceeds the exercise price
[85]
<PAGE> 95
on the date the option is exercised. Accordingly, the value, if any,
realized by an executive will not necessarily be the value determined
by the model.
Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value
Table of TCI. The following table shows each exercise of stock options and
SARs during the year ended December 31, 1996 by each of the named executive
officers of TCI and the December 31, 1996 number and year-end value of
unexercised options and SARs on an aggregated basis:
[86]
<PAGE> 96
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF
UNEXERCISED UNEXERCISED
OPTIONS/SARS AT IN-THE-MONEY
DECEMBER 31, OPTIONS/SARS AT
VALUE 1996 (#) DECEMBER 31, 1996
SHARES ACQUIRED REALIZED EXERCISABLE/ ($) EXERCISABLE/
NAME ON EXERCISE (#) ($) UNEXERCISABLE UNEXERCISABLE
- - ---- --------------- --- ------------- -------------
<S> <C> <C> <C> <C>
John C. Malone
Exercisable
TCI Group Series A -- -- 1,000,000 $ 1,850,000
Liberty Group Series A -- -- 375,000 $ 2,592,750
TINTA Series A -- -- -- --
SATCo Series A -- -- 100,000 --
Unexercisable
TCI Group Series A -- -- 1,000,000 $ 462,500
Liberty Group Series A -- -- 375,000 $ 1,503,750
TINTA Series A -- -- 50,000 --
SATCo Series A -- -- 100,000 --
Fred A. Vierra
Exercisable
TCI Group Series A -- -- 235,000 $ 358,438
Liberty Group Series A -- -- 88,125 $ 589,301
TINTA Series A -- -- 80,000 --
SATCo Series A -- -- 23,500 --
Unexercisable
TCI Group Series A -- -- 165,000 $ 104,063
Liberty Group Series A -- -- 61,875 $ 329,749
TINTA Series A -- -- 320,000 --
SATCo Series A -- -- 16,500 --
Brendan R. Clouston
Exercisable
TCI Group Series A -- -- 730,000 $ 1,040,625
Liberty Group Series A -- -- 198,750 $ 1,461,248
SATCo Series A -- -- 80,125 --
Telephony -- -- -- --
Wireline -- -- -- --
Internet -- -- -- --
Unexercisable
TCI Group Series A -- -- 1,145,000 $ 520,313
Liberty Group Series A -- -- 129,375 $ 861,784
SATCo Series A -- -- 771,451 $ 674,037
Telephony -- -- 10 $ 12,443,692
Wireline -- -- 10 --
Internet -- -- 10 $ 3,447,538
Peter R. Barton
Exercisable
TCI Group Series A -- -- 719,321 $ 8,018,689
Liberty Group Series A -- -- 569,745 $ 5,479,514
SATCo Series -- -- 71,933 $ 577,631
Unexercisable Series
TCI Group Series A -- -- 226,554 $ 1,336,448
Liberty Group Series A -- -- 1,284,957 $ 4,586,432
SATCo Series A -- -- 22,655 $ 96,272
</TABLE>
[87]
<PAGE> 97
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF
UNEXERCISED UNEXERCISED
OPTIONS/SARS AT IN-THE-MONEY
DECEMBER 31, OPTIONS/SARS AT
VALUE 1996 (#) DECEMBER 31, 1996
SHARES ACQUIRED REALIZED EXERCISABLE/ ($) EXERCISABLE/
NAME ON EXERCISE (#) ($) UNEXERCISABLE UNEXERCISABLE
- - ---- --------------- --- ------------- -------------
<S> <C> <C> <C> <C>
Larry E. Romrell
Exercisable
TCI Group Series A -- -- 295,000 $ 358,438
Liberty Group Series A -- -- 110,625 $ 657,746
SATCo Series A -- -- 29,500 --
Internet -- -- -- --
Unexercisable
TCI Group Series A -- -- 405,000 $ 104,063
Liberty Group Series A -- -- 151,875 $ 603,529
SATCo Series A -- -- 704,576 $ 674,037
Internet -- -- 10 $ 3,447,538
</TABLE>
[88]
<PAGE> 98
Employment Contracts and Termination of Employment and Change of
Control Arrangements. Effective November 1, 1992 the employment agreement
between TCIC and Dr. Malone, as amended, was further amended and restated.
Pursuant to an Assignment and Assumption Agreement, dated August 4, 1994, the
payment, performance and other obligations of such employment agreements were
assumed by TCI. The term of each agreement is extended daily so that the
remainder of the employment term shall at all times on and prior to the
effective date of the termination of employment as provided by each agreement
be five years. Dr. Malone's employment agreement provides for an annual salary
of $800,000, subject to increase upon approval of the board of directors.
During 1996, Dr. Malone was given a salary increase such that his annual salary
in 1996 was $900,000. Dr. Malone has elected to take a reduction in
compensation until certain financial goals are reached to the extent of 20% of
his compensation. Additionally, this employment agreement provides for
personal use of the Company's aircraft and flight crew, limited to an aggregate
value of $35,000 per year.
Prior to Mr. Bob Magness' death, he was party to an employment
agreement with comparable provisions to the previously described employment
agreement for Dr. Malone.
Dr. Malone's employment agreement provides, among other things, for
deferral of a portion (40% in 1993 and not in excess of 40% thereafter) of the
monthly compensation payable to him. Pursuant to a letter agreement entered
into between Dr. Malone and the Company subsequent to the date of his
employment agreement, Dr. Malone deferred $150,000 in 1993 in lieu of 40% of
his compensation for such year. The deferred amounts will be payable in
monthly installments over a 20-year period commencing on the termination of Dr.
Malone's employment, together with interest thereon at the rate of 8% per annum
compounded annually from the date of deferral to the date of payment. The
amendment also provides for the payment of certain benefits, discussed below.
Dr. Malone's agreement described above also provides that upon
termination of such executive's employment by the Company (other than for
cause, as defined in the agreement), or if Dr. Malone elects to terminate the
agreement because of a change in control of the Company, all remaining
compensation due under the agreement for the balance of the employment term
shall be immediately due and payable.
Dr. Malone's agreement provides that during his employment with the
Company and for a period of two years following the effective date of his
termination of employment with the Company, unless termination results from a
change in control of the Company, he will not be connected with any entity in
any manner specified in the agreement, which competes in a material respect
with the business of the Company. However, the agreement provides that Dr.
Malone may own securities of any corporation listed on a national securities
exchange or quoted in the Nasdaq Stock Market to the extent of an aggregate of
5% of the amount of such securities outstanding.
Dr. Malone's agreement also provides that in the event of termination
of his employment with the Company, he will be entitled to receive 240
consecutive monthly payments of $15,000 (increased at the rate of 12% per annum
compounded annually from January 1, 1988 to the date payment commences), the
first of which will be payable on the first day of the month succeeding the
termination of Dr. Malone's employment. In the event of Dr. Malone's death,
his beneficiaries will be entitled to receive the foregoing monthly payments.
The Company currently owns a whole-life insurance policy on Dr. Malone, the
face value of which is sufficient to meet its obligation under the salary
continuation arrangement. The premiums payable by the Company on such
insurance policy are currently being funded through earnings on the policy.
Dr. Malone has no interest in this policy.
The Company pays a portion of the annual premiums (equal to the
"PS-58" costs) on three whole-life insurance policies of which Dr. Malone is
the insured and trusts for the benefit of members of his family are the owners.
The Company is the designated beneficiary of the proceeds of such policies less
an amount equal to the greater of the cash surrender value thereof at the time
of Dr. Malone's death and the amount of the premiums paid by the policy owners.
Dr. Malone deferred a portion of his monthly compensation under his
previous employment agreement. Such deferred compensation (together with
interest thereon at the rate of 13% per annum compounded annually from the date
of deferral to the date of payment) will continue to be payable under the terms
of the previous agreement. The rate at which interest accrues on such
previously deferred compensation was established in 1983 pursuant to such
earlier agreement.
[89]
<PAGE> 99
International and TCI have entered into an Amended and Restated
Employment Agreement with Mr. Vierra relating to Mr. Vierra's employment with
International as Vice Chairman and Chief Executive Officer, providing for a
base salary of $650,000 per year. Mr. Vierra's salary is subject to annual
review by the board of directors, which may in its sole discretion increase his
salary. Mr. Vierra's salary for 1996 is currently set at $650,000. Mr.
Vierra's employment agreement provides for the deferral of a portion of each
monthly salary payment so as to result in the deferral of salary at the rate of
$250,000 per annum. The deferred amounts are to be paid in monthly
installments over a 240-month period commencing on the later of December 31,
1998 and the termination of Mr. Vierra's full-time employment with
International, together with interest thereon at the rate of 8% per annum
compounded annually from the date of deferral to the payment date. In the
event of Mr. Vierra's death, all outstanding deferred amounts will be paid in a
lump sum to his beneficiaries.
While he is employed by International pursuant to his employment
agreement, Mr. Vierra is entitled to participate in all formal incentive
compensation plans, stock incentive plans, employee stock purchase plans,
retirement plans and insurance plans or policies adopted for the benefit of
TCI's or International's executive officers or employees generally.
Additionally, Mr. Vierra's employment agreement provides for personal use of
TCI's aircraft and flight crew, limited to an aggregate value of $35,000 per
year.
Mr. Vierra's employment agreement has a stated termination date of
December 31, 1998. It also provides that upon an earlier termination of Mr.
Vierra's employment by International without cause, all remaining compensation
due under such agreement for the balance of the employment term would become
immediately due and payable to Mr. Vierra. Upon his death during the
employment term, International would pay to Mr. Vierra's beneficiaries a lump
sum in an amount equal to the lesser of (i) the compensation due under his
employment agreement for the balance of the employment term and (ii) one year's
salary. In the event of his disability, International would continue to pay
Mr. Vierra his annual salary as and when it would have otherwise become due
until the first to occur of the end of the employment term or the date of his
death.
Mr. Vierra's agreement further provides that during his employment
with International and for the longer of a period of two years following the
effective date of his termination of employment or if Mr. Vierra terminates his
employment before the end of the term of his employment in breach of the
employment agreement, or if Mr. Vierra is terminated "for cause" (as defined in
the employment agreement) by International, until December 31, 1998, he will
not be connected with any entity in any manner specified in the agreement,
which competes in a material respect with the business of International or any
of International's or TCI's majority owned subsidiaries. However, the
agreement provides that Mr. Vierra may own securities of any corporation listed
on a national securities exchange or quoted in the Nasdaq National Market to
the extent of an aggregate of 5% of the amount of such securities outstanding.
Under the employment agreement, substantially all of Mr. Vierra's business
time, attention and efforts will be devoted to the affairs of International.
The Company and Mr. Romrell entered into an employment agreement on
January 1, 1993. Pursuant to an Assignment and Assumption Agreement, dated
August 4, 1994, the payment, performance and other obligations of such
employment agreement were assumed by TCI. The term of Mr. Romrell's agreement
extends through December 31, 1999. Mr. Romrell's employment agreement provides
for a base salary of $350,000 per year to be increased by the amount of $25,000
per annum in each succeeding year commencing January 1, 1994. Mr. Romrell's
salary is subject to annual review by the board of directors which may in its
sole discretion increase his salary. Mr. Romrell's salary for 1996 is
currently set at $500,000.
While he is employed by the Company pursuant to his employment
agreement, Mr. Romrell is entitled to participate in all formal incentive
compensation plans, stock incentive plans, employee stock purchase plans,
retirement plans and insurance plans or policies adopted for the benefit of
TCI's executive officers or employees generally.
Mr. Romrell's employment agreement also provides that upon an earlier
termination of Mr. Romrell's employment by the Company without cause, all
remaining compensation due under such agreement for the balance of the
employment term would become immediately due and payable to Mr. Romrell. Upon
his death during the employment term, the Company would pay to Mr. Romrell's
beneficiaries a lump sum in an amount equal to the lesser of (i) the
compensation due under his employment agreement for the balance of the
employment term and (ii) one year's salary. In the event of his disability,
the Company would continue to pay Mr. Romrell his annual salary as and when it
would have otherwise become due until the first to occur of the end of the
employment term or the date of his death.
[90]
<PAGE> 100
Mr. Romrell's agreement further provides that during his employment
with the Company and for the longer of a period of two years following the
effective date of his termination of employment or if Mr. Romrell terminates
his employment before the end of the term of his employment in breach of the
employment agreement, or if Mr. Romrell is terminated "for cause" (as defined
in the employment agreement) by the Company, until December 31, 1999, he will
not be connected with any entity in any manner specified in the agreement,
which competes in a material respect with the business of TCI or TCI's majority
owned subsidiaries. However, the agreement provides that Mr. Romrell may own
securities of any corporation listed on a national securities exchange or
quoted in the Nasdaq National Market to the extent of an aggregate of 5% of the
amount of such securities outstanding. Under the employment agreement,
substantially all of Mr. Romrell's business time, attention and efforts will be
devoted to the affairs of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS.
The members of the Company's compensation committee are Messrs.
Robert A. Naify, John W. Gallivan and Paul A. Gould, all directors of the
Company. None of the members of the compensation committee are or were
officers of the Company or any of its subsidiaries.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
Neither the report of the Compensation Committee of the Board of
Directors (the "Compensation Committee") nor the stock performance graphs that
follow such report shall be deemed incorporated by reference by any general
statement incorporating by reference this proxy statement into any filing under
the Securities Act of 1933 or under the Exchange Act, except to the extent that
the Company specifically incorporates this information by reference, and shall
not otherwise be deemed filed under such Acts.
Compensation Philosophy. The Compensation Committee's compensation
philosophy is based on the belief that a link should exist between executive
compensation and the return on investment provided to stockholders as reflected
by the appreciation in the price of the Company's stock. In applying this
philosophy, the Compensation Committee has developed and implemented a
compensation policy which seeks to attract and retain highly skilled and
effective executives with the business experience and acumen necessary to
achievement of the long-term business objectives of the Company and to align
the financial interests of the Company's senior executives with those of its
stockholders. The Company attempts to realize these goals by providing
competitive compensation and linking a substantial portion of compensation to
the enhancement of stockholder value.
The Company's executive compensation is based principally on two
components--salary and equity-based incentives--each of which is intended to
serve the Company's overall compensation philosophy. The Compensation Committee
uses independent compensation consultants and compensation surveys furnished
and evaluated by such consultants to provide advice and data to assist it in
developing compensation programs that are competitive with other similarly-
situated cable/media companies and which reinforce the Company's objective of
aligning executive compensation with the interests of the Company's
stockholders.
Base Salary. Base salary for executive officers is generally targeted
at or below the median for executives with comparable qualifications,
experience and responsibilities at other companies in the cable/media industry.
In the aggregate, executive salaries are consistent with this philosophy. Base
salary levels are also based on the employees' relative levels of seniority and
responsibility. Although the 1996 Incentive Plan permits cash bonuses and
other performance based awards, the Company does not usually pay cash bonuses
to its senior executives.
During 1992, TCIC undertook a review of the compensation paid to its
key employees and retained independent consultants to advise it in connection
with setting base salaries. The Compensation Committee then established new
salary levels for its executive officers below the median of the annual
salaries and bonuses of officers in comparable positions and in media companies
in the survey.
In connection with this review, in late 1992, TCIC entered into
employment agreements with six of its executive officers, including the Chief
Executive Officer and three of the four other named executive officers.
Certain of the Company's employment agreements with executives (not including
any of the named executives) required minimum automatic increases of $25,000
per year in base salary. Four of the agreements, including the Chief Executive
Officer's agreement, established a minimum annual salary and provided that any
increases would be in the
[91]
<PAGE> 101
discretion of the Board of Directors. Except as discussed below with respect to
the fourth quarter 1996 salary reductions, the executive officers generally have
been paid in accordance with the salary levels set in 1992 or pursuant to their
employment agreements, with modest increases in the cash compensation paid to
the Company's executives in 1995. Certain terms of the employment agreements of
certain named executive officers are described under "CONCERNING MANAGEMENT --
Executive Compensation -- Employment Contracts and Termination of Employment and
Change of Control Arrangements." The employment agreements do not provide for
an automatic increase in salary for any named executive officer.
In the fourth quarter of 1996, the Company began instituting cost
containment measures as a response to the Company's third quarter financial
results. As part of this cost containment effort, management of the Company
imposed a salary freeze for many employees of the Company who earned over
$100,000 per year in base salary. In addition, for certain more highly
compensated employees, including certain of the named executive officers, the
Company instituted salary reductions ranging from 5% to 20%. In connection
with such reductions, Messrs. Malone and Clouston each became subject to a
voluntary 20% reduction in base salary.
Management anticipated at the time of the implementation of the
freezes and reductions that such measures would stay in place until certain
financial goals of the Company had been met. Management has lifted the
reductions and freezes for certain lower-compensated employees as of the second
quarter of 1997. Such measures continue in effect for Messrs. Malone and
Clouston.
Equity-Based Incentives. In order to make the overall compensation
packages of the Company's executives and other key employees competitive with
other companies in the cable/media industry, the Compensation Committee has
emphasized equity-based incentives rather than salary and bonuses. The
Compensation Committee believes that reliance upon such incentives is
advantageous to the Company because they foster a long-term commitment by the
recipient to the Company and motivate the employees to seek to improve the
long-term market performance of the Company's stock.
During 1995, the Company undertook a review of the compensation paid
to its key employees and retained independent consultants to advise it in
connection with making grants of long-term equity based compensation awards.
The consultants provided the Compensation Committee with a survey of the
compensation packages of the chief executive officers and certain other senior
officers at 13 companies in the cable/media industry. The Compensation
Committee then evaluated the surveys and granted awards to the Company's
executive officers at a level below the median of the awards given to officers
in comparable positions in the cable/media companies included in the survey.
Due to the long-term focus of equity based awards, the Compensation Committee
determined that it was in the best interest of the Company to evaluate such
awards every few years rather than evaluate and grant such awards on an annual
basis.
In 1996, the Company reviewed the long-term, equity based compensation
of certain of its senior officers who were charged with managing certain of the
Company's strategic business units. The Company determined that grants of
stock options in the stock of the companies which owned these business units
was in the long-term best interests of the Company. As a result, the Company
granted the stock options described above in "Executive Compensation". The
Company determined that such awards were consistent with its philosophy of
providing equity-based, long-term incentives to senior management for the
purposes of retaining talented management, and for the purpose of aligning
management's financial interest with stockholders.
Deductibility of Executive Compensation. Section 162(m) of the Code
and the U.S. Treasury regulations relating thereto restrict publicly traded
companies from claiming or receiving a tax deduction on compensation paid to an
executive officer in excess of $1 million, unless such compensation is
performance based. As such, many companies with executive pay levels exceeding
the $1 million limit have revised or amended current compensation programs to
qualify the payments thereunder for deductibility. The Compensation Committee
has taken no action with respect to the Company's executive compensation plans
that were in effect at the time of the adoption of Section
[92]
<PAGE> 102
162(m) in 1994 and has not conformed the 1995 Plan to such requirements. The
1996 Plan has been conformed to the requirements of Section 162(m) to the
extent that the Compensation Committee has discretionary authority under the
1996 Plan to grant awards which conform to the requirements of Section 162(m).
COMPENSATION COMMITTEE
Robert A. Naify
Paul A. Gould
John W. Gallivan
[93]
<PAGE> 103
STOCK PERFORMANCE GRAPHS
On August 3, 1995, TCI amended its Restated Certificate of
Incorporation to, among other things, (i) redesignate its TCI Class A Common
Stock as Series A TCI Group Common Stock and TCI's Class B Common Stock as
Series B TCI Group Common Stock and (ii) authorize the Series A Liberty Media
Group Common Stock and the Series B Liberty Media Group Common Stock.
Thereafter, TCI distributed to the holders of TCI common stock one-fourth of a
share of the corresponding series of Liberty Media Group Common Stock in
respect of each share of TCI Group Common Stock held of record as of August 4,
1995, the record date for such distribution.
The following graphs compare (i) the yearly percentage change in the
cumulative total stockholder return on the Class A Common Stock of TCI (and its
predecessor TCIC) from December 31, 1991 to August 9, 1995 (the date the Series
A TCI Group Common Stock and the Series A Liberty Media Group Common Stock
commenced trading on the Nasdaq National Market), (ii) the percentage change in
the cumulative total stockholder return on the Series A TCI Group Common Stock
from August 9, 1995 to December 31, 1996, and (iii) the percentage change in
the cumulative total stockholder return on the Series A Liberty Media Group
Common Stock from August 9, 1995 to December 31, 1996. The Class A Common
Stock and the Series A TCI Group Common Stock graphs are compared for each time
period with the cumulative total return on the Standard & Poor's 500 Stock
Index and with a selected peer group of 6 companies engaged in the cable
television industry (including the Company): Cablevision Systems Corp., Jones
Intercable, Inc., TCA Cable TV, Inc., Comcast Corporation and Time Warner, Inc.
The Series A Liberty Media Group Common Stock graph is compared for the time
period with the cumulative total return on the Standard & Poor's 500 Stock
Index and with a selected peer group of 5 companies engaged in the cable
television and television programming industry (including the Company):
Cablevision Systems Corp., Time Warner, Inc., Turner Broadcasting System, Inc.,
and Viacom Inc.
The comparisons assume $100 was invested at the beginning of each time
period and assume the reinvestment of dividends.
TOTAL RETURN TO STOCKHOLDERS*
CLASS A COMMON STOCK
DECEMBER 31, 1990 - AUGUST 9, 1995
TOTAL RETURN TO STOCKHOLDERS*
SERIES A TCI GROUP COMMON STOCK
AUGUST 9, 1995 - DECEMBER 31, 1996
- - -------------------
*To be provided by amendment.
[94]
<PAGE> 104
TOTAL RETURN TO STOCKHOLDERS*
SERIES A LIBERTY MEDIA GROUP
COMMON STOCK
AUGUST 9, 1995 - DECEMBER 31, 1996
COMPENSATION OF DIRECTORS
The standard arrangement by which TCI's directors are compensated for
all services (including any amounts payable for committee participation or
special assignments) as a director is as follows: each director receives a fee
of $500 plus travel expenses for attendance at each meeting of the Board of
Directors and each director who is not a full-time employee of TCI receives
additional compensation of $30,000 per year. In addition, the Company's
stockholders approved an option plan for its directors (the "Director Stock
Option Plan"). Each person who becomes a director of the Company and is not an
employee of the Company or any of its subsidiaries will be automatically
granted options upon such person's becoming a director. The exercise price of
each such subsequently granted option will be equal to the fair market value of
the Series A Stock on the date the option is granted. In general, such fair
market value will be 95% of the last sale price for the shares of the Series A
Stock as reported on the Nasdaq Stock Market on the date of the grant, with the
price resulting from such percentage rounded down to the nearest quarter
dollar.
The Company has a deferred compensation plan for all non-employee
directors. Each director may elect to defer receipt of all, but not less than
all, of the annual compensation (excluding meeting fees and reimbursable
expenses) payable to the director for serving on the Company's Board of
Directors for each calendar year for which such deferral is elected. An
election to defer may be made as to the compensation payable for a single
calendar year or period of years. Any compensation deferred shall be credited
to the director's account on the last day of the quarter for which compensation
has accrued. Such deferred compensation bears interest from the date credited
to the date of payment at a rate of 8% per annum in 1993 and 120% of the
applicable federal long-term rate thereafter, compounded annually.
A director may elect payment of deferred compensation to be made at a
specified year in the future or upon termination of the director's service as
director of the Company. Each director may elect payment in a lump sum, three
substantially equal consecutive annual installments or five substantially equal
consecutive annual installments. In the event that a director dies prior to
payment of all the amounts payable pursuant to the plan, any amounts remaining
in the director's deferred compensation account, together with accrued interest
thereon, shall be paid to the director's designated beneficiary.
There are no other arrangements whereby any of TCI's directors
received compensation for services as a director during 1996 in addition to or
in lieu of that specified by the aforedescribed standard arrangement.
BOARD MEETINGS
During 1996, there were five meetings of the full Board of Directors
of TCI. No director attended fewer than 75% of the meetings of the Board of
Directors or of any committee of which he is a member.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has an Executive Committee, an Audit Committee and a
Compensation Committee. There is no standing nomination committee of the
Company's Board of Directors.
- - ------------------------
*To be provided by amendment.
[95]
<PAGE> 105
The members of the Executive Committee are John C. Malone, Paul A.
Gould and John W. Gallivan. The Executive Committee exercises all of the
powers and authority of the Board of Directors between meetings of the entire
Board, other than such powers and authority as the Delaware General Corporation
Law specifically prohibits an executive committee from performing. The
Executive Committee of TCI held no formal meetings during 1996, but actions
were taken by written consent.
The members of the Audit Committee are John W. Gallivan, Robert A.
Naify and Paul A. Gould. The duties of the Audit Committee are to review and
monitor the Company's financial reports and accounting practices to ascertain
that they are within acceptable limits of sound practice, to receive and review
audit reports submitted by the Company's independent auditors and by its
internal auditing staff and make such recommendations to the Board as may seem
appropriate to the Committee to assure that the interests of the Company are
adequately protected and to review all related party transactions and potential
conflict-of-interest situations. The Audit Committee of TCI held one meeting
during 1996.
The members of the Compensation Committee are John W. Gallivan, Paul
A. Gould and Robert A. Naify. The functions of the Compensation Committee are
to review and make recommendations to the Board of Directors concerning the
compensation of the executive officers of the Company, to consider and make
recommendations to the Board of Directors concerning existing and proposed
employment agreements between the Company and its executive officers and to
administer the 1994 Plan, the 1995 Plan and the 1996 Plan. The Compensation
Committee of TCI held no meetings during 1996.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Transactions with Management and Others. Pursuant to a Restricted
Stock Award Agreement dated December 10, 1992, the Company transferred to Mr.
Fisher, a director and until January 1, 1996, an officer of the Company, 124.03
shares (having a liquidation value of $4 million) of WestMarc Preferred Stock
owned by the Company, subject to forfeiture in the event of certain
circumstances from the date of grant through February 1, 2002, with the number
of shares subject to forfeiture decreasing by 10% on February 1 of each year.
Upon Mr. Fisher's resignation as an officer of the Company effective January 1,
1996, he acquired vested title to 37.209 of such shares of WestMarc Preferred
Stock and forfeited the balance of such shares. As described below, effective
as of January 31, 1996, the 37.209 vested shares of WestMarc Series C
Cumulative Compounding Preferred Stock owned by Mr. Fisher were used by one of
his affiliates as the consideration for the purchase of certain partnership
interests held by subsidiaries of the Company.
In 1989, ECP Holdings, Inc., a subsidiary of the Company ("ECP"), and
Halcyon Communications, Inc., an Oklahoma corporation which is not an affiliate
of the Company ("HCI"), formed Halcyon Communications Partners, an Oklahoma
general partnership ("HCP"), for the purpose of acquiring, owning and operating
cable television systems. In 1994, HCI and American Televenture of
Minersville, Inc., a subsidiary of the Company ("ATM"), as general partners,
and three other subsidiaries of the Company, TCI Cablevision of Nevada, Inc.
("TCINV"), TEMPO Cable, Inc. ("Tempo Cable"), and TCI Cablevision of Utah, Inc.
("TCIU") as limited partners, formed Halcyon Communications Limited
Partnership, an Oklahoma limited partnership ("HCLP"), for the purpose of
acquiring, owning and operating certain other television systems. Effective as
of January 31, 1996, Fisher Communication Associates, L.L.C., a Colorado
limited liability company ("Fisher Communications") controlled by Mr. Donne F.
Fisher, a director (and until January 1, 1996, an executive officer) of the
Company purchased one-third of ECP's partnership interest in HCP and one third
of the partnership interest of each of ATM, TCINV, TCIU and Tempo Cable in
HCLP, a ten-year option to purchase the interest in HCP and ten-year options to
purchase the balance of the partnership interest in HCLP of each of ATM, TCINV,
TCIU and Tempo Cable. The purchase price for each such partnership interest
purchased by Fisher Communications consisted of shares of WestMarc Preferred
Stock. The purchase price for each such option acquired by Fisher
Communications was $100 in cash, and each such option is exercisable for cash
in a specified amount. The number of shares of WestMarc Preferred Stock
delivered to each of the Company's subsidiaries named above as consideration
for one-third of its partnership interest in HCP or HCLP, and the cash exercise
price which Fisher Communications would be required to pay in order to exercise
the options granted by those subsidiaries, are as follows:
[96]
<PAGE> 106
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
WESTMARC PREFERRED STOCK CASH EXERCISE PRICE OF OPTION
------------------------ ------------------------------
<S> <C> <C>
ECP 14.8836 $1,200,000
ATM 0.5224 42,120
TCINV 2.8911 233,100
TCIU 4.3557 351,180
Tempo Cable 14.5562 1,173,600
-------- ----------
37.2090 $3,000,000
======== ==========
</TABLE>
The WestMarc Preferred Stock is not publicly traded. The dividend,
liquidation, and redemption features of the WestMarc Preferred Stock are
determined by reference to "Liquidation Price," which is determined, per share,
as the sum of (i) $32,250 plus (ii) an amount equal to all dividends which
accrued during any quarterly dividend period and were not paid in full at the
end of that period or subsequently.
The Company has entered into an agreement in principle to acquire (1)
all of the partnership interests (other than a .001 percent general partner
interest) in InterMedia Capital Management, a California limited partnership
("ICM I"), (ii) all of the partnership interests (other than a .001 percent
general partner interest and a .001 percent special limited partner interest)
in InterMedia Capital Management III, L.P. ("ICM III"), and (iii) all of the
partnership interests (other than a .001 percent general partner interest and a
.001 percent special limited partner interest) in InterMedia Capital Management
IV, L.P. ("ICM IV") for total consideration of 2,545,455 shares (the "TCI
Shares") of the Company's Series B TCI Group Common Stock, $10,000,000 in cash
(subject to certain adjustments) and assumption of certain liabilities totaling
approximately $11,300,000. The partnership interests in ICM IV to be acquired
by the Company were acquired by the sellers of such interests in January and
July 1996 for $21,750. The other interests to be acquired by the Company were
acquired by the sellers of those interests before April 1995. Mr. Hindery, an
executive officer of the Company, is the beneficial owner of a 66.3% interest
in ICM I, a 94.0% interest in ICM III, and a 81.1% interest in ICM IV, and Mr.
Fisher, a director of the Company, is the beneficial owner of a 1.6% interest
in ICM IV. The Company also has agreed in principle that if InterMedia
Partners VI, L.P. ("IP-VI") is formed and fully funded on terms and conditions
agreed by the Company (the "IP-VI Effective Date"), the Company will acquire
all of the partnership interests (other than a .001 percent general partner
interest) of InterMedia Capital Management VI, L.P. ("ICM-VI") in exchange for
a number of shares of Common Stock which may be Series B TCI Group Common
Stock, Series B Liberty Media Group Common Stock or a combination thereof) (the
"Contingent TCI Shares") determined by dividing $5,000,000 by the average of
the closing prices of the Series A TCI Group Common Stock, Series A Liberty
Media Group Common Stock, or combination thereof, as appropriate, for the 20
trading days preceding the IP VI Effective Date and $1,000,000 in cash. Mr.
Hindery is the beneficial owner of 100% of ICM-VI and acquired his interest in
ICM-VI in July of 1996 for $10,000. Mr. Fisher will be entitled to a
consulting fee in the approximate amount of $400,000 in cash and 31,030 shares
of Series B TCI Group Common Stock upon completion of the aforementioned
transactions involving ICM I, ICM III and ICM IV and in connection with the
formation of IP VI (collectively, the "InterMedia Transactions"). Mr. Peter
Kern, son of Mr. Jerome H. Kern, a director of the Company, will be entitled to
an advisory fee in an amount to be determined upon completion of the InterMedia
Transactions. These fees will be paid by the entities receiving payments from
the Company in the InterMedia Transactions. Dr. Malone, an executive officer
and director of the Company, will have the power to direct the voting of the
TCI Shares and, if they are issued, the Contingent TCI Shares pursuant to a
voting agreement, and Dr. Malone also will have a right of first refusal with
respect to any proposed transfer of the TCI Shares and, if they are issued, the
Contingent TCI Shares. That right of first refusal may be exercised by Dr.
Malone either by the payment of cash or, subject to certain exceptions, by
exchanging shares of Series A TCI Group Common Stock for the TCI Shares or
Contingent TCI Shares to be acquired by him. If not exercised by Dr. Malone,
the right of first refusal may be exercised by the Company.
Completion of the InterMedia Transactions is subject to various
conditions, including execution of definitive agreements, receipt of consents
from governmental authorities and other third parties.
[97]
<PAGE> 107
The interests of Messrs. Hindery, Fisher and Malone in the InterMedia
Transactions were disclosed to the Company's Board of Directors which approved
the InterMedia Transactions pursuant to a vote in which Messrs. Fisher, Kern
and Malone abstained from voting.
On April 1, 1996, Dr. Malone sold 450,000 shares of TINTA Series A
Stock to the Company for a total purchase price of $9,787,500. Such shares
were owned of record and beneficially by Dr. Malone. Dr. Malone purchased the
shares of TINTA Series A Stock in the initial public offering of the TINTA
Series A Stock at a price of $16.00 per share. Dr. Malone sold such shares to
the Company at a price of $21.75 per share, the market price for the TINTA
Series A Stock as of the close of business on April 1, 1996.
Effective January 1, 1996, Mr. Fisher resigned as an executive officer
of the Company and the Company and Mr. Fisher entered into a consulting
agreement. During the term of the consulting agreement, which extends until
January 1, 2006 unless sooner terminated as provided in the agreement, Mr.
Fisher is obligated to provide consulting services for up to 70 hours per month
and 700 hours during any period of twelve consecutive months as and if
requested by the Company's chief executive officer. Whether or not his
services are requested, Mr. Fisher will receive compensation as follows: (i)
during the period from January 1, 1996 through December 31, 2000, inclusive,
the rate of $475,000 per annum, increased annually by the amount of $25,000 per
annum in each successive year of such period commencing January 1, 1997 and
(ii) from and after January 1, 2001 throughout the balance of the Term, the
rate of $500,000 per annum. If he dies before the end of the term of his
consulting services, the Company is required to pay his designated
beneficiaries a lump sum equal to one year's compensation at the then-current
rate. During the term of the agreement, Mr. Fisher will continue to be
entitled to participate in, and to be accorded all rights and benefits under,
all group insurance policies (including, but not limited to, all disability,
life, health and medical insurance policies) maintained by the Company for the
benefit of its employees. The consulting agreement also provides for Mr.
Fisher's personal use of the Company's aircraft and flight crew, limited to an
aggregate value of $35,000 per year.
Under a prior employment agreement between Mr. Fisher and the Company,
a portion of Mr. Fisher's salary was deferred, and the deferred amounts, plus
interest at an annual rate of 13%, were to be paid to him in 240 monthly
installments which would have commenced on the date of termination of his
full-time employment with the Company. The consulting agreement provides for
such payment to be made to Mr. Fisher in 240 monthly installments of $21,425.92
each, without interest, commencing on January 1, 2001, with any remaining
payments due after Mr. Fisher's death being paid in a lump-sum to his
designated beneficiaries. Similarly, Mr. Fisher's 1992 employment agreement
with the Company provided for Mr. Fisher to receive, commencing on termination
of his employment, 240 consecutive monthly salary continuation payments of
$6,250, increased at the rate of 12% per annum, compounded annually from
January 1, 1988 to the date of such termination. The consulting agreement
provides that such salary continuation payments will be made in 240 consecutive
monthly payments of $27,271.84 each, without interest, commencing on January 1,
2001, with any remaining payments due after Mr. Fisher's death being made to
his designated beneficiaries.
Mr. Fisher's consulting agreement provides that during its term, Mr.
Fisher will not be connected in any manner specified with any entity which
competes in a material respect with the business of the Company; however, he
may own securities of any corporation listed on a national securities exchange
or quoted in the Nasdaq Stock Market to the extent of an aggregate of 5% of the
amount of such securities outstanding.
Effective March 11, 1995, Mr. Sparkman resigned as an executive
officer of the Company and the Company and Mr. Sparkman entered into a
consulting agreement. During the term of the consulting agreement, which
extends until September 30, 2002 unless sooner terminated as provided in the
agreement, Mr. Sparkman is required to provide consulting services for no more
than 700 hours per year as and if requested by the Company's chief executive
officer. Whether or not his services are requested, Mr. Sparkman will receive
compensation as follows: (i) during the period from March 11, 1995 through
December 31, 1997, a sum equal to the rate of $773,000 per annum and (ii) from
and after January 1, 1998 throughout the balance of the term, the rate of
$500,000 per annum. If he dies before the end of the term of his consulting
services, the Company is required to pay his designated beneficiaries a lump
sum equal to one year's compensation at the then-current rate. During the term
of the agreement, Mr. Sparkman will continue to be entitled to participate in,
and to be accorded all rights and benefits under, all group insurance policies
(including, but not limited to, all disability, life, health and medical
insurance policies) maintained by the Company for the benefit of its employees.
[98]
<PAGE> 108
Under a prior employment agreement between Mr. Sparkman and the
Company, a portion of Mr. Sparkman's salary was deferred, and the deferred
amounts, plus interest at an annual rate of 8%, were to be paid to him in 120
monthly installments which would have commenced on the date of termination of
his full-time employment with the Company. The consulting agreement provides
for such payment to be made to Mr. Sparkman in 120 monthly installments of
$7,294.32 each, without interest, commencing on January 1, 1998, with any
remaining payments due after Mr. Sparkman's death being paid in a lump-sum to
his designated beneficiaries. Under Mr. Sparkman's 1993 employment agreement
with the Company, a portion of Mr. Sparkman's salary was deferred, and the
deferred amounts, plus interest at an annual rate of 13%, were to be paid to
him in 240 monthly installments which would have commenced on the date of
termination of his full-time employment with the Company. The consulting
agreement provides for such payment to be made to Mr. Sparkman in 240 monthly
payments of $15,116.03 each, without interest, commencing on January 1, 1998,
with any remaining payments due after Mr. Sparkman's death being paid in a
lump-sum to his designated beneficiaries. Similarly, Mr. Sparkman's 1993
employment agreement with the Company provided for Mr. Sparkman to receive,
commencing on termination of his employment, 240 consecutive monthly salary
continuation payments of $6,250, increased at the rate of 12% per annum,
compounded annually from January 1, 1988 to the date of such termination. The
consulting agreement provides that such salary continuation payments will be
made in 240 consecutive monthly payments of $19,411.55 each, without interest,
commencing on January 1, 1998, with any remaining payments due after Mr.
Sparkman's death being made to his designated beneficiaries.
Mr. Sparkman's consulting agreement provides that during its term, Mr.
Sparkman will not be connected in any manner specified with any entity which
competes in a material respect with the business of the Company; however, he
may own securities of any corporation listed on a national securities exchange
or quoted in the Nasdaq Stock Market to the extent of an aggregate of 5% of the
amount of such securities outstanding.
The Company entered into an employment agreement with Tony Coelho,
which was effective as of October 1, 1995, with respect to the terms of Mr.
Coelho's employment as the Chairman of the Board and Chief Executive Officer of
the education business which is now conducted by ETC w/tci. The employment
agreement runs through September 30, 2000. Under the terms of the employment
agreement, Mr. Coelho is entitled to an annual base salary of not less than
$400,000 as well as benefits commensurate with similarly situated executives of
the Company. In the event that Mr. Coelho's employment is terminated by the
Company other than as a result of death or for any cause (as defined in the
employment agreement), Mr. Coelho will be entitled to receive all remaining
compensation to which he would have been entitled through the term of his
employment agreement. In connection with his employment, Mr. Coelho was
granted options to acquire 100,000 shares of Series A TCI Group Common Stock at
an exercise price of $14.62 per share and 10,000 shares of SATCo Series A Stock
at an exercise price of $23.76 per share subject to customary terms and was
granted 1,500 shares of common stock of ETC w/tci (which at the time of such
grant represented 15% of the common equity outstanding of ETC w/tci) at a price
of $0.10 per share. Under certain circumstances, Mr. Coelho will be entitled
to increase his percentage ownership in ETC w/tci to up to 20%. The terms of
the agreements under which Mr. Coelho will acquire such additional equity
interest in ETC w/tci will, among other rights, afford him the right at any
time after September 30, 2000 to require the Company to purchase his equity
interest at fair market value and require the Company to purchase his entire
equity interest at fair market value on September 30, 2001.
The Company and Mr. Brendan Clouston have entered into a letter
agreement, as amended (the "Agreement"). Mr. Clouston has notified the
Company that a financial institution may lend him certain amounts of money (the
"Loan"), which Loan may be secured in whole or in part, by the Agreement.
Pursuant to the Agreement, TCI agrees to purchase from Mr. Clouston, at his
request or by the request of such financial institution upon a default as
provided under the relevant agreements evidencing the Loan, all, but not less
than all of Mr. Clouston's grants of options and restricted stock awards as of
April 7, 1997 (the "Grants") (as previously described in Items 11 and 12) at a
price of $10 million. The $10 million amount shall decrease upon the exercise
of any options included in the Grants, by the amount of the difference between
the exercise price and the fair market value of the exercised options at the
respective time of such exercise and by the fair market value of any of the
restricted stock awards that vest at the time of such vesting. Additionally,
Mr. Clouston will apply the amounts referred to in the previous sentence, less
only applicable taxes, to prepay the Loan. The Agreement expires on March 31,
2002.
The Company believes that the foregoing business dealings with
management during 1996 were based upon terms no less advantageous to the
Company than those which would be available in dealing with unaffiliated
persons.
[99]
<PAGE> 109
Certain Business Relationships. Mr. Jerome H. Kern, a director of
TCI, is special counsel with the law firm of Baker & Botts, L.L.P., the
principal outside counsel for TCI. Fees paid to Baker & Botts, L.L.P. by TCI
and consolidated subsidiaries were approximately $11 million for the 1996
fiscal year.
John Malone is currently the Chief Executive Officer, Chairman of the
Board and a director of TCI and is also the Chairman of the Board and a
director of Satellite. Dr. Malone is also a principal stockholder of both TCI
and Satellite.
Since the consummation of the Distribution, Satellite and TCI have
operated independently, and neither has any stock ownership, beneficial or
otherwise, in the other. However, for the purposes of governing certain of the
ongoing relationships between Satellite and TCI after the Distribution, and to
provide mechanisms for an orderly transition, Satellite and TCI have entered
into various agreements, including the "Reorganization Agreement," the
"Transition Services Agreement," an amendment to TCI's existing "Tax Sharing
Agreement," the "Indemnification Agreements," the "Trade Name and Service Mark
Agreement" and the "Share Purchase Agreement," all of which are described
below. In addition, TCIC continues to provide installation, maintenance,
retrieval and other customer fulfillment services for certain customers of
Satellite, pursuant to the "Fulfillment Agreement," and entered into the "TCIC
Credit Facility" with Satellite, both of which are described below.
Reorganization Agreement. On the Distribution date, TCI, TCIC and a
number of other TCI subsidiaries, including Satellite, entered into the
Reorganization Agreement, which provided for, among other things, the principal
corporate transactions required to effect the Distribution, the conditions
thereto and certain provisions governing the relationship between Satellite and
TCI with respect to and resulting from the Distribution.
Certain of Satellite's assets relating to the digital satellite
business were historically owned by subsidiaries of TCI other than Satellite
and its predecessors. These assets include the capital stock of Tempo
Satellite, Inc. ("Tempo") and the 20.86% partnership interests in PRIMESTAR
Partners, L.P. ("PRIMESTAR Partners"). The Reorganization Agreement provided
for, among other things, the transfer of these assets to Satellite and for the
assumption by Satellite of related liabilities. No consideration was payable
by Satellite for these transfers, except that two subsidiaries of Satellite
purchased TCI's partnership interests in PRIMESTAR Partners for consideration
payable by delivery of promissory notes issued by such subsidiaries (the "K-1
Notes"), which promissory notes were assumed by TCI on the Distribution date in
the form of a capital contribution to Satellite. The Reorganization Agreement
also provides for certain cross-indemnities designed to make Satellite
financially responsible for all liabilities relating to the digital satellite
business prior to the Distribution, as well as for all liabilities incurred by
Satellite after the Distribution, and makes TCI financially responsible for all
potential liabilities of Satellite which are not related to the digital
satellite business, including, for example, liabilities arising as a result of
Satellite's having been a subsidiary of TCI. The Reorganization Agreement
further provided for each of Satellite and TCI to preserve the confidentiality
of all confidential or proprietary information of the other party, for five
years following the Distribution, subject to customary exceptions, including
disclosures required by law, court order or government regulation.
Pursuant to the Reorganization Agreement, on the Distribution date,
Satellite issued to TCIC a note in the principal amount of $250,000,000 (the
"Satellite Note") representing a portion of Satellite's intercompany balance
owed to TCIC on such date. See "TCIC Credit Facility" below. Pursuant to the
Reorganization Agreement, the remainder of Satellite's intercompany balance
owed to TCIC on the Distribution date (other than certain advances to Satellite
made by TCIC in 1996 to fund certain construction and related costs associated
with TCI Satellite Entertainment, Inc.'s Satellites ("SATCo Satellites"), as
described below under "Reimbursement of Certain Satellite Expenses "), and the
indebtedness represented by the K-1 Notes were assumed by TCI in the form of
(i) a $100 million capital contribution to Satellite, (ii) consideration for
Satellite's assumption of TCI's obligations under options granted to Brendan R.
Clouston, Larry E. Romrell and another employee of TCI to purchase shares of
SATCo Series A Stock representing 1.0%, 1.0% and 0.5%, respectively, of the
shares of Satellite common stock issued and outstanding on the Distribution
date, determined immediately after giving effect to the Distribution but before
giving effect to the issuance of the shares of SATCo Series A Stock issuable
upon exercise of such options, and (iii) consideration for Satellite's grant of
an option to TCI to purchase up to 4,765,000 shares of SATCo Series A Stock (as
such number may be adjusted to reflect stock dividends, stock splits and the
like), for a purchase price equal to the par value of such shares, as necessary
to satisfy TCI's obligations to deliver shares of SATCo Series A Stock upon
conversion of certain convertible securities of TCI as a result of the
Distribution. See "Other Arrangements" below.
[100]
<PAGE> 110
Transition Service Agreement. Pursuant to the Transition Services
Agreement between TCI and Satellite, TCI is obligated to provide to Satellite
certain services and other benefits, including certain administrative and other
services that were provided by TCI prior to the Distribution. Such services
include (i) tax reporting, financial reporting, payroll, employee benefit
administration, workers' compensation administration, telephone, fleet
management, package delivery, management information systems, billing, lock
box, remittance processing and risk management services, (ii) other services
typically performed by TCI's accounting, finance, treasury, corporate, legal,
tax, benefits, insurance, facilities, purchasing, fleet management and advanced
information technology department personnel, (iii) use of telecommunications
and data facilities and of systems and software developed, acquired or licensed
by TCI from time to time for financial forecasting, budgeting and similar
purposes, including without limitation any such software for use on personal
computers, in any case to the extent available under copyright law or any
applicable third-party contract, (iv) technology support and consulting
services, and (v) such other management, supervisory, strategic planning or
other services as Satellite and TCI may from time to time mutually determine to
be necessary or desirable.
Pursuant to the Transition Services Agreement, TCI has also agreed to
provide Satellite with certain most-favored-customer rights to programming
services that TCI or a wholly owned subsidiary of TCI may own in the future and
access to any volume discounts that may be available to TCI for purchase of
home satellite dishes, satellite receivers and other equipment.
As compensation for services rendered to Satellite and for the
benefits made available to Satellite pursuant to the Transition Services
Agreement, Satellite is required to pay TCI a fee of $1.50 per qualified
subscribing household or other residential or commercial unit (counted as one
subscriber regardless of the number of satellite receivers) per month,
commencing with the Distribution date, up to a maximum of $3 million per month,
and reimburse TCI quarterly for direct, out-of-pocket expenses incurred by TCI
to third parties in providing the services.
The Transition Services Agreement continues in effect until the close
of business on December 31, 1999 and will be renewed automatically for
successive one-year periods thereafter, unless earlier terminated by (i) either
party at the end of the initial term or the then current renewal term, as
applicable, on not less than 180 days' prior written notice to the other party,
(ii) TCI upon written notice to Satellite following certain changes in control
of Satellite, and (iii) either party if the other party is the subject of
certain bankruptcy or insolvency-related events. During the period commencing
with the Distribution date and ending on December 31, 1996, Satellite paid
$763,000 to TCIC pursuant to the Transition Services Agreement.
Tax Sharing Agreement. Through the Distribution date, Satellite's
results of operations were included in TCI's consolidated U.S. federal income
tax returns, in accordance with the existing tax sharing arrangements among TCI
and its consolidated subsidiaries. Effective July 1, 1995, TCI, TCIC and
certain other subsidiaries of TCI entered into the Tax Sharing Agreement, which
formalized such pre-existing tax sharing arrangements and implemented
additional procedures for the allocation of certain consolidated income tax
attributes and the settlement of certain intercompany tax allocations. The Tax
Sharing Agreement encompasses U.S. Federal, state, local and foreign tax
consequences and relies upon the Code and any applicable state, local and
foreign tax law and related regulations. Prior to the Distribution date, the
Tax Sharing Agreement was amended to provide that Satellite be treated as if it
had been a party to the Tax Sharing Agreement, effective July 1, 1995.
Pursuant to the Amended Tax Sharing Agreement, beginning on the July 1, 1995
effective date, Satellite is responsible to TCI for its share of current
consolidated income tax liabilities through the Distribution date; TCI is
responsible to the extent that Satellite's income tax attributes generated
after the effective date and through the Distribution date are utilized by TCI
to reduce its consolidated income tax liabilities.
Indemnification Agreements. On the Distribution date, Satellite
entered into the Indemnification Agreements with TCIC and TCI UA 1. The
Indemnification Agreement with TCIC provides for Satellite to reimburse TCIC
for any amounts drawn under an irrevocable transferable letter of credit issued
by the Bank of New York for the account of TCIC to support Satellite's share of
PRIMESTAR Partners' obligations under the Amended and Restated Memorandum of
Agreement between PRIMESTAR Partners and GE American Communications, Inc. ("GE
Americom"), with respect to PRIMESTAR Partners' use of transponders on the GE
Americom medium power satellite that was launched on January 30, 1997, and
which was declared commercially operational on March 6, 1997 ("GE-2"). At
December 31, 1996, the drawable amount of such letter of credit was
$25,000,000.
The Indemnification Agreement with TCI UA 1 provides for Satellite to
reimburse TCI UA 1 for any amounts drawn under the TCI UA I Letter of Credit,
which supports the PRIMESTAR Credit Facility that was obtained by
[101]
<PAGE> 111
PRIMESTAR Partners to finance advances to Tempo for payments due in respect of
the construction of SATCo Satellites and that is supported by letters of credit
arranged for by affiliates of the partners of the PRIMESTAR Partners (other
than G.E. Americom Services, Inc.). The amount of the TCI UA I Letter of Credit
was $141,250,000 at December 31, 1996.
The Indemnification Agreements further provide for Satellite to
indemnify and hold harmless TCIC and TCI UA I and certain related persons from
and against any losses, claims, and liabilities arising out of the respective
letters of credit or any drawings thereunder. The payment obligations of
Satellite to TCIC and TCI UA 1 under such Indemnification Agreements are
subordinated in right of payment with respect to certain future obligations of
Satellite to financial institutions. During the year ended December 31, 1996,
the aggregate amount paid by Satellite to TCI under the Indemnification
Agreements was $1,623,000. Such amount represents the aggregate fees incurred
by TCI with respect to the TCI UA 1 Letter of Credit from the Distribution date
through December 31, 1996.
Trade Name and Service Mark License Agreement. Pursuant to the Trade
Name and Service Mark License Agreement (the "License Agreement"), TCI granted
to Satellite, for an initial term of three years following the Distribution, a
non-exclusive non-assignable license to use certain trade names and service
marks specifically identified in the License Agreement, including the mark
"TCI" in the context of the digital satellite business. The License Agreement
provides, among other things, that all advertising, promotion and use of
certain of TCI's trade names and service marks by Satellite shall be consistent
with TCI guidelines and standards, as well as subject to TCI approval in
certain circumstances.
Fulfillment Agreement. TCIC has historically provided Satellite with
certain customer fulfillment services for PRIMESTAR customers enrolled by
Satellite's direct sales force or the national call center maintained by
Satellite for orders, information and customer service. Charges for such
services have been allocated to Satellite by TCIC based on scheduled rates.
Pursuant to the Fulfillment Agreement entered into by TCIC and
Satellite, TCIC continues to provide fulfillment services to Satellite
following the Distribution with respect to customers of the PRIMESTAR medium
power service. Such services include installation, maintenance, retrieval,
inventory management and other customer fulfillment services. The Fulfillment
Agreement became effective on January 1, 1997. Among other matters, the
Fulfillment Agreement (i) sets forth the responsibilities of TCIC with respect
to fulfillment services, including performance standards and penalties for
nonperformance, (ii) provides for TCIC's fulfillment sites to be connected to
the billing and information systems used by Satellite, allowing for on-line
scheduling and dispatch of installation and other service calls, and (iii)
provides scheduled rates to be charged to Satellite for the various customer
fulfillment services to be provided by TCIC. Satellite retains sole control
under the Fulfillment Agreement to establish the retail prices and other terms
and conditions on which installation and other services are provided to
Satellite's customers. The Fulfillment Agreement also provides that, during
the term of the Fulfillment Agreement, TCIC will not provide fulfillment
services to any other Ku-band, Ka-band, direct broadcast satellite ("DBS"),
broadcast satellite service, fixed satellite service, C-band, wireless or
other similar or competitive provider or distributor of television programming
services (other than traditional cable). The Fulfillment Agreement has an
initial term of two years and is terminable, on 180 days notice to TCIC, by
Satellite at any time during the first six months following the Distribution
date. The scheduled rates for the services to be provided by TCIC under the
Fulfillment Agreement exceed the scheduled rates upon which charges
historically have been allocated to Satellite for such services, reflecting in
part the value to Satellite, as determined by Satellite's management, of the
performance standards, exclusivity, termination right and certain other
provisions included in the Fulfillment Agreement. Satellite and TCIC are
currently discussing certain proposed changes to the Fulfillment Agreement, but
there can be no assurance that any such changes will be agreed to or that
Satellite will not exercise its rights to terminate the Fulfillment Agreement
if an acceptable amendment is not agreed to prior to the end of Satellite's
six-month termination window. There can be no assurance that the terms of the
Fulfillment Agreement are not more or less favorable than those which could be
obtained from unaffiliated third parties, or that comparable services could be
obtained by Satellite from third parties on any terms if the Fulfillment
Agreement is terminated. During the year ended December 31, 1996, the
aggregate amount paid by Satellite to TCIC for fulfillment services was
$74,049,000 (including $6,432,000 paid subsequent to the Distribution date).
TCIC Credit Facility. In connection with the Distribution, Satellite
and TCIC entered into the TCIC Credit Facility to provide for the terms of the
Satellite Note and to provide for a revolving credit facility (the "TCIC
Revolving Loans"). The TCIC Credit Facility required Satellite to use its best
efforts to obtain external debt or equity financing
[102]
<PAGE> 112
after the Distribution date and provided for mandatory prepayment of the TCIC
Revolving Loans and the Satellite Note from the proceeds thereof. The initial
borrowings under the Bank Credit Facility were used to repay the Satellite Note
in full. In connection with the February 1997 issuance of the Senior
Subordinated Notes and Senior Subordinated Discount Notes by Satellite and the
March 1997 determination that GE-2 was commercially operational, borrowing
availability pursuant to the TCIC Credit Facility was terminated.
Borrowings under the TCIC Revolving Loans bore interest at 10% per
annum, compounded semi-annually. Commitment fees equal to 3/8% of the average
unborrowed availability under the TCIC Credit Facility were payable to TCIC
annually. Commitment fees paid to TCIC during the year ended December 31, 1996
aggregated $141,000. From the Distribution date through December 31, 1996, the
aggregate amount of interest paid by Satellite to TCIC pursuant to the TCIC
Credit Facility was $1,946,000.
Reimbursement of Certain Satellite Expenses. During 1996, TCIC made
intercompany advances to Satellite to fund the majority of the construction and
related costs associated with the SATCo Satellites. Prior to 1996, PRIMESTAR
Partners had funded substantially all of the construction and related costs
associated with SATCo Satellites. In connection with the Distribution, a
determination was made to provide that such 1996 advances from TCIC would be
repaid by Satellite to TCIC (notwithstanding the Reorganization Agreement), to
the extent (and only to the extent) that Tempo received corresponding advances
from PRIMESTAR Partners.
As a result of negotiations between Satellite and PRIMESTAR Partners,
PRIMESTAR Partners advanced $73,786,000 to Tempo in December 1996 to reimburse
Tempo for all the 1996 costs which previously had been funded by TCIC. Upon
receipt, such advance was paid to TCIC by Tempo in repayment of such 1996
advance by TCIC.
Other Arrangements. On the Distribution date, TCI and Satellite
entered into the Share Purchase Agreement, which obligates TCI and Satellite to
sell to each other from time to time, at the then current market price, shares
of Series A TCI Group Common Stock and SATCo Series A Stock, respectively, as
necessary to satisfy their respective obligations under TCI Group Series A
Options and SATCo Series A Options held after the Distribution date by their
respective employees and non-employee directors.
[103]
<PAGE> 113
Certain officers of Satellite who were officers or directors of TCI
and/or TCIC prior to the Distribution received undertakings of indemnification
from TCI and/or TCIC. Such undertakings survived the Distribution.
NDTC, an indirect subsidiary of TCI, has obtained a nontransferable,
nonexclusive license to use certain proprietary technology of Imedia
Corporation currently under development ("Imedia Technology") to provide
statistical multiplexing of digitally compressed video signals. Although there
can be no assurance that the Imedia Technology will be successfully
implemented, if successful, such technology would increase the number of
digital program signals that could be transmitted simultaneously over a single
satellite transponder, thus effectively increasing the digital compression
ratio. NDTC has agreed that if, prior to September 1, 1997, Satellite engages
NDTC to provide digitization, compression and uplinking services for any high
power DBS system operated by Satellite, and NDTC is authorized to use Imedia
Technology or other proprietary technologies to provide multiplexing of
digitally compressed video signals for Satellite, NDTC shall provide such
multiplexing services to Satellite for an agreed fee, based on NDTC's
incremental costs and other factors. Satellite's rights to receive
multiplexing services under its agreement with NDTC are assignable by Satellite
to any affiliate of Satellite, including for this purpose PRIMESTAR Partners.
Indebtedness of Management. On March 4, 1997, Dr. Malone received an
advance from a wholly-owned subsidiary of the Company in the amount of
$5,787,505. On March 5, 1997, Dr. Malone received a second advance from a
wholly-owned subsidiary of the Company in the amount of $5,813,755. The terms
of the advances were memorialized by a promissory note entered into by Dr.
Malone. The interest rate on such loans is 1% over the one-month LIBOR rate
compounded annually. As of April 1, 1997, $58,451 of interest was accrued on
the note. Principal outstanding on the note is due March 31, 1999 and interest
is payable annually on March 1 of each year. The loan is secured by the pledge
by Dr. Malone of 193,400 shares of Class B Preferred Stock owned beneficially
and of record by Dr. Malone. Dr. Malone used the proceeds of the advances to
purchase shares of SATCo Series A Stock.
INDEPENDENT AUDITORS
The firm of KPMG Peat Marwick LLP serves as the Company's independent
certified public accountants. A partner of KPMG Peat Marwick LLP will be
present at the Annual Meeting with the opportunity to make a statement if KPMG
Peat Marwick LLP so desires and will be available to respond to appropriate
questions.
INCORPORATION BY REFERENCE
The following financial statements are hereby incorporated by
reference to the Company's 1996 Annual Report to Stockholders: (i) the
consolidated financial statements of the Company and its subsidiaries as of
December 31, 1996 and 1995, and for each of the years in the three-year period
then ended; (ii) the combined financial statements of the TCI Group as of
December 31, 1996 and 1995, and for each of the years in the three-year period
then ended, and (iii) the combined financial statements of the Liberty Media
Group as of December 31, 1996 and 1995, and for each of the years in the
three-year period then ended.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein (or in any
other subsequently filed document that is or is deemed to be incorporated by
reference herein) modifies or supersedes such previous statement. Any
statement so modified or superseded shall not be deemed to constitute a part
hereof except as so modified or superseded.
All information appearing in this Proxy Statement is qualified in its
entirety by the information and financial statements (including notes thereto)
incorporated herein by reference.
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Exchange
Act and in accordance therewith files reports, proxy statements and other
information with the SEC. Such reports, proxy statements and other information
filed with the SEC can be inspected and copied at the public reference
facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549, and at the following Regional Offices
of the
[104]
<PAGE> 114
Commission: 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and 7
World Trade Center, Suite 1300, New York, New York 10048. Copies of such
material can be obtained at prescribed rates from the Public Reference Section
of the SEC at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549.
STOCKHOLDERS PROPOSALS
Proposals by stockholders for which consideration is desired at the
1998 annual meeting of stockholders must be received by the Company by
____________, 1998 in order to be considered for inclusion in proxy materials
for the 1998 annual meeting.
[105]
<PAGE> 115
ANNEX I
INDEX OF CERTAIN DEFINED TERMS
<TABLE>
<CAPTION>
PAGE ON WHICH
TERM IS DEFINED
IN THE
TERM PROXY STATEMENT
- - ---- ---------------
<S> <C>
@Home . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [26]
@Home Cable Partners . . . . . . . . . . . . . . . . . . . . . . . . . . III-41
@Home IPO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-40
@Home Principal Cable Stockholders . . . . . . . . . . . . . . . . . . . III-41
@Home Principal Stockholders . . . . . . . . . . . . . . . . . . . . . . III-45
@Home Stockholders Agreement . . . . . . . . . . . . . . . . . . . . . . III-45
@Network . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-40
1992 Cable Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-37
1994 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [81]
1995 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [82]
1996 Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-24
1996 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [82]
ABN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-7
Acclaim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-48
Adjusted Liberty Media Group Outstanding Interest Fraction . . . . . . . II-A-26
Adjusted Outstanding Shares of Liberty Media Group Common Stock . . . . . II-A-4
Adjusted Outstanding Shares of TCI Ventures Group Common Stock . . . . . II-A-5
Adjusted TCI Ventures Group Outstanding Interest Fraction . . . . . . . . II-A-26
Affiliated Franchises . . . . . . . . . . . . . . . . . . . . . . . . . . . III-8
Affiliated LCOs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-42
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [99]
Amended Charter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [25]
America Online . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-44
Ameritech . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-33
Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [1]
Antec . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-48
APC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-19
Appraisal Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-A-26
Appraiser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-A-26
Aster City . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-6
ATM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [96]
Available Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [66]
BBC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-10
BBC Joint Ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-9
BBC Worldwide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-5
BIP Poland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-6
BizTel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-23
BSkyB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-16
BTA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-19
Business Line Restructuring . . . . . . . . . . . . . . . . . . . . . . . . [28]
Cablevision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-12
</TABLE>
I-1
<PAGE> 116
<TABLE>
<S> <C>
Caguas/Humacao . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-13
CALEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-30
Canal + . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-11
Capital Contribution Agreement . . . . . . . . . . . . . . . . . . . . . III-20
CAPs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-18
CareerTrack . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-47
Carrier Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-27
CERFnet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-24
Certificate of Amendment . . . . . . . . . . . . . . . . . . . . . . . . . [25]
Chile Restructuring Agreements . . . . . . . . . . . . . . . . . . . . . III-12
CIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-34
Class A Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . [72]
Class B Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . [1]
CLEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-17
CMRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-30
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [48]
Comcast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [26]
COMFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-12
Committed Acquisition Shares . . . . . . . . . . . . . . . . . . . . . . II-A-27
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [1]
Communications Act . . . . . . . . . . . . . . . . . . . . . . . . . . . III-28
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [1]
Company Charter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [1]
Company Earnings (Loss) Attributable to the Liberty Media Group . . . . . . [64]
Company Earnings (Loss) Attributable to the TCI Group . . . . . . . . . . . [65]
Company Earnings (Loss) Attributable to the TCI Ventures Group . . . . . . [51]
Compensation Committee . . . . . . . . . . . . . . . . . . . . . . . . . . [91]
CompuServe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-44
Consumer Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-42
Continental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-25
Contingent TCI Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . [97]
Contributed Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . III-12
Conversion Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-A-27
Convertible Securities . . . . . . . . . . . . . . . . . . . . . . . . . II-A-27
Copyright Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-38
Cordillera . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-12
Corporation Earnings (Loss) Attributable to the Liberty Media Group . . . II-A-27
Corporation Earnings (Loss) Attributable to the TCI Group . . . . . . . . II-A-27
Corporation Earnings (Loss) Attributable to the TCI Ventures Group . . . II-A-27
Cox . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [26]
Cox PCS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-19
CTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-12
DBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [102]
DGCL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [37]
Digital Satellite Business . . . . . . . . . . . . . . . . . . . . . . . . [28]
DigiVentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-48
Director Stock Option Plan . . . . . . . . . . . . . . . . . . . . . . . . [95]
Disposition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-A-27
Dow Jones . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-15
DSL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-43
DTH Satellite . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-7
</TABLE>
I-2
<PAGE> 117
<TABLE>
<S> <C>
DTH Ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-13
ECP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [96]
Election of Directors Proposal . . . . . . . . . . . . . . . . . . . . . . . [1]
ESPP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [4]
ETC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [22]
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [45]
Exchange Offers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-A-27
FCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-18
First Appraiser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-A-28
Fisher Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . [96]
Flextech . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-5
FM Cubed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-37
GCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-18
GDI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-11
GE Americom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [101]
GE-2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [101]
Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [99]
Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [30]
HCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [96]
HCLP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [96]
HCP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [96]
Headend in the Sky . . . . . . . . . . . . . . . . . . . . . . . . . . . .III-48
HFC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-41
Higher Appraised Amount . . . . . . . . . . . . . . . . . . . . . . . . . II-A-28
HITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-48
ICM I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [97]
ICM III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [97]
ICM IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [97]
ICM-VI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [97]
ILECs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-23
Imedia Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [104]
Independent Committee . . . . . . . . . . . . . . . . . . . . . . . . . . II-A-28
Inter-Group Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . [25]
Interconnection Orders . . . . . . . . . . . . . . . . . . . . . . . . . III-32
InterLATA services . . . . . . . . . . . . . . . . . . . . . . . . . . . III-33
InterMedia Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . [97]
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [11]
International Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . [81]
International Programming Opportunity . . . . . . . . . . . . . . . . . . . [49]
International Sports Territory . . . . . . . . . . . . . . . . . . . . . III-13
Internet Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [83]
IP-VI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [97]
IP-VI Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . [97]
IPO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-45
ISDN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-43
ISPs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-43
ITC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-8
IXCs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-23
JPC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-11
Jupiter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-14
K-1 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [100]
Kbps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-42
</TABLE>
I-3
<PAGE> 118
<TABLE>
<S> <C>
Kearns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [9]
KPCB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-40
KPCB Put . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-46
Liberty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [20]
Liberty Group Stock Dividend . . . . . . . . . . . . . . . . . . . . . . . [10]
Liberty Media Group . . . . . . . . . . . . . . . . . . . . . . . . . . . II-A-28
Liberty Media Group Amendment Proposal . . . . . . . . . . . . . . . . . . . [1]
Liberty Media Group Available Dividend Amount . . . . . . . . . . . . . . II-A-29
Liberty Media Group Common Stock . . . . . . . . . . . . . . . . . . . . . . [1]
Liberty Media Group Common Stock Per Share Value . . . . . . . . . . . . II-A-4
Liberty Media Group Distribution . . . . . . . . . . . . . . . . . . . . II-A-29
Liberty Media Group Inter-Group Interest Fraction . . . . . . . . . . . . II-A-29
Liberty Media Group Net Proceeds . . . . . . . . . . . . . . . . . . . . II-A-29
Liberty Media Group Optional Conversion Ratio . . . . . . . . . . . . . . II-A-3
Liberty Media Group Outstanding Interest Fraction . . . . . . . . . . . . II-A-29
Liberty Media Group Private Market Value . . . . . . . . . . . . . . . . II-A-30
Liberty Media Group Proposal . . . . . . . . . . . . . . . . . . . . . . . [28]
Liberty Media Group Subsidiaries . . . . . . . . . . . . . . . . . . . . II-A-10
License Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [102]
Liquidation Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [97]
LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-13
LMDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-44
Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [99]
Lower Appraised Amount . . . . . . . . . . . . . . . . . . . . . . . . . II-A-30
Market Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . II-A-30
Market Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-A-30
Maximum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [25]
Melita . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-5
Metropolis-Intercom . . . . . . . . . . . . . . . . . . . . . . . . . . . III-12
Microsoft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-44
MMDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-16
MPT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-15
MSN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-44
MSOs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [47]
MTAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-18
Multi Thematiques . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-11
Mutually Appraised Amount . . . . . . . . . . . . . . . . . . . . . . . . II-A-30
Mutually Designated Appraiser . . . . . . . . . . . . . . . . . . . . . . II-A-30
NDTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [26]
NDTC Video Services . . . . . . . . . . . . . . . . . . . . . . . . . . . .III-48
Netscape . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-46
News Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-6
Nonresident Alien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [71]
Number of Shares Issuable with Respect to the
Liberty Media Group Inter-Group Interest . . . . . . . . . . . . . . . II-A-30
Number of Shares Issuable with Respect to the
TCI Ventures Group Inter-Group Interest . . . . . . . . . . . . . . . . II-A-31
OSPs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-43
Partnership Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-22
PCIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-30
PCS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [26]
PCS Ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [26]
Percentage Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . III-22
</TABLE>
I-4
<PAGE> 119
<TABLE>
<S> <C>
PhillieCo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [26]
PMP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-16
Pops . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-18
Pre-Distribution Convertible Securities . . . . . . . . . . . . . . . . . II-A-32
Pre-Exchange Offer Securities . . . . . . . . . . . . . . . . . . . . . . II-A-32
Prevue Networks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-35
PrimeCo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-21
PRIMESTAR Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . [100]
Princes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-5
Principal Joint Venture . . . . . . . . . . . . . . . . . . . . . . . . . III-10
Programming Companies . . . . . . . . . . . . . . . . . . . . . . . . . . III-17
Programming Distributors . . . . . . . . . . . . . . . . . . . . . . . . III-35
Proposal No. 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [2]
PUCs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-30
Qualifying Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . II-A-32
RBOCs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-33
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [2]
Redemption Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-A-33
Reimbursement of Certain Satellite Expenses . . . . . . . . . . . . . . . . [100]
Related Business Transaction . . . . . . . . . . . . . . . . . . . . . . II-A-33
Representatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-22
Reserved Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [58]
ResTel Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [27]
Restricted Business . . . . . . . . . . . . . . . . . . . . . . . . . . . III-42
Revolving Credit Facility . . . . . . . . . . . . . . . . . . . . . . . . . [41]
RF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-30
Rogers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-40
SARs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [83]
SATCo Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [79]
SATCo Satellites . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [100]
SATCo Series A Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . [79]
Satellite . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [24]
Satellite Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . [79]
Satellite Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [100]
SBC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-33
SBU . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [28]
Second Appraiser . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-A-33
Second Joint Venture . . . . . . . . . . . . . . . . . . . . . . . . . . III-10
Selection Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-A-33
Series A Common Stock Directors . . . . . . . . . . . . . . . . . . . . . III-46
Series A Liberty Media Group Common Stock . . . . . . . . . . . . . . . . II-A-1
Series A Maximum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [25]
Series A Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-A-37
Series A TCI Group Common Stock . . . . . . . . . . . . . . . . . . . . . II-A-1
Series A TCI Group Exchange Offer . . . . . . . . . . . . . . . . . . . . . [25]
Series A TCI Ventures Group Common Stock . . . . . . . . . . . . . . . . II-A-1
Series A Telephony Group Common Stock . . . . . . . . . . . . . . . . . . . [24]
Series B Liberty Media Group Common Stock . . . . . . . . . . . . . . . . II-A-1
Series B Maximum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [25]
Series B Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-A-37
Series B TCI Group Common Stock . . . . . . . . . . . . . . . . . . . . . II-A-1
Series B TCI Group Exchange Offer . . . . . . . . . . . . . . . . . . . . . [25]
</TABLE>
I-5
<PAGE> 120
<TABLE>
<S> <C>
Series B TCI Ventures Group Common Stock . . . . . . . . . . . . . . . . II-A-1
Series B Telephony Group Common Stock . . . . . . . . . . . . . . . . . . . [24]
Series C Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . [1]
Series D Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . [72]
Series E Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . [72]
Series F Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . [72]
Series G Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . [1]
Series H Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . [1]
Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [33]
share distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . II-A-7
Shaw . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-40
SHVA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-38
SMATV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-16
SNG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-36
SONET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-24
SpaceCom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-37
Sports Venture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-13
Sprint . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [26]
Sprint PCS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [26]
Sprint PCS Parents . . . . . . . . . . . . . . . . . . . . . . . . . . . III-18
Sprint PCS Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . III-18
Sprint PCS Partnership Agreement . . . . . . . . . . . . . . . . . . . . III-19
Sprint PCS Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . [26]
Sprint Spectrum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-20
Sprint Spectrum Notes . . . . . . . . . . . . . . . . . . . . . . . . . . III-20
Sprint Spectrum Registration Statement . . . . . . . . . . . . . . . . . III-23
SSDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-34
StarSight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-35
STV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-10
Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-A-32
Sumitomo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-14
Summitrak . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [26]
Superstar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-36
Tax Sharing Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . [48]
TCG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [26]
TCG Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . III-23
TCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [1]
TCI Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [79]
TCI Call . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-46
TCI Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-A-32
TCI Group Available Dividend Amount . . . . . . . . . . . . . . . . . . . II-A-34
TCI Group Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . [1]
TCI Group Series A Option . . . . . . . . . . . . . . . . . . . . . . . . . [79]
TCI Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [79]
TCI Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [79]
TCI SARs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [79]
TCI Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [97]
TCI Ventures Group . . . . . . . . . . . . . . . . . . . . . . . . . . . II-A-35
TCI Ventures Group Common Stock . . . . . . . . . . . . . . . . . . . . . . . [1]
TCI Ventures Group Common Stock Per Share Value . . . . . . . . . . . . . II-A-5
TCI Ventures Group Available Dividend Amount . . . . . . . . . . . . . . II-A-36
</TABLE>
I-6
<PAGE> 121
<TABLE>
<S> <C>
TCI Ventures Group Inter-Group Interest Fraction . . . . . . . . . . . . II-A-36
TCI Ventures Group Net Proceeds . . . . . . . . . . . . . . . . . . . . . II-A-36
TCI Ventures Group Stock Proposal . . . . . . . . . . . . . . . . . . . . . . [1]
TCI Ventures Group Preferred Interest . . . . . . . . . . . . . . . . . . II-A-36
TCI Ventures Group Private Market Value . . . . . . . . . . . . . . . . . II-A-37
TCI Ventures Group Optional Conversion Ratio . . . . . . . . . . . . . . II-A-5
TCI Ventures Group Outstanding Interest Fraction . . . . . . . . . . . . II-A-36
TCI Ventures Group Subsidiaries . . . . . . . . . . . . . . . . . . . . . II-A-18
TCI Wireline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [22]
TCI.NET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [22]
TCIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [23]
TCIC Revolving Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . [102]
TCINV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [96]
TCIU . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [96]
TeleCable Nacional . . . . . . . . . . . . . . . . . . . . . . . . . . . III-13
Telephone Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [83]
Telephony Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . [25]
Telephony Group Common Stock . . . . . . . . . . . . . . . . . . . . . . . . [1]
Teleport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [26]
Teleport Cable Stockholders . . . . . . . . . . . . . . . . . . . . . . . III-25
Teleport Class A Stock . . . . . . . . . . . . . . . . . . . . . . . . . III-24
Teleport Class B Stock . . . . . . . . . . . . . . . . . . . . . . . . . III-25
Teleport Stockholders Agreement . . . . . . . . . . . . . . . . . . . . . III-26
Telewest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-8
Tempo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [100]
Tempo Cable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [96]
Tevel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-5
Time Warner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-44
TIN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [71]
TINTA Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-5
TINTA Series A Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . [11]
TINTA Series B Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . [11]
Torneos . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-14
TPAC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [23]
TPZS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-11
Trading Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-A-37
TTS-Delaware . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [22]
TW Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-5
U.K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-4
U.S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-4
UII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-11
UKGL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-9
UKLL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-9
United States Real Property Interest . . . . . . . . . . . . . . . . . . . [71]
United Video . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [23]
UPC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-11
US WEST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-8
UVSG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [23]
UVTV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-37
Video Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-28
</TABLE>
I-7
<PAGE> 122
<TABLE>
<S> <C>
Voting Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-A-38
WCS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-29
WestMarc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [22]
WestMarc Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . [22]
Wireless Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-22
Wireline Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [83]
WTCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [26]
</TABLE>
I-8
<PAGE> 123
ANNEX II-A
PROPOSED AMENDMENTS
TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF
TELE-COMMUNICATIONS, INC.
(IMPLEMENTING THE TCI VENTURES GROUP STOCK PROPOSAL)
SECTION E OF ARTICLE IV OF THE RESTATED CERTIFICATE OF INCORPORATION OF THE
CORPORATION IS PROPOSED TO BE AMENDED PURSUANT TO THE TCI VENTURES GROUP STOCK
PROPOSAL TO READ IN ITS ENTIRETY AS FOLLOWS:
"SECTION E
SERIES A TCI GROUP COMMON STOCK, SERIES B TCI GROUP COMMON
STOCK, SERIES A LIBERTY MEDIA GROUP COMMON STOCK,
SERIES B LIBERTY MEDIA GROUP COMMON STOCK,
SERIES A TCI VENTURES GROUP COMMON STOCK AND
SERIES B TCI VENTURES GROUP COMMON STOCK
One billion seven hundred fifty million (1,750,000,000) shares of
Common Stock shall be of a series designated Tele-Communications, Inc. Series A
TCI Group Common Stock (the "Series A TCI Group Common Stock"), one hundred
fifty million (150,000,000) shares of Common Stock shall be of a series
designated Tele-Communications, Inc. Series B TCI Group Common Stock (the
"Series B TCI Group Common Stock"), seven hundred fifty million (750,000,000)
shares of Common Stock shall be of a series designated Tele-Communications,
Inc. Series A Liberty Media Group Common Stock (the "Series A Liberty Media
Group Common Stock"), seventy-five million (75,000,000) shares of Common Stock
shall be of a series designated Tele-Communications, Inc. Series B Liberty
Media Group Common Stock (the "Series B Liberty Media Group Common Stock"),
seven hundred fifty million (750,000,000) shares of Common Stock shall be of a
series designated Tele-Communications, Inc. Series A TCI Ventures Group Common
Stock (the "Series A TCI Ventures Group Common Stock") and seventy five million
(75,000,000) shares of Common Stock shall be of a series designated
Tele-Communications, Inc. Series B TCI Ventures Group Common Stock (the
"Series B TCI Ventures Group Common Stock").
Each share of Series A TCI Group Common Stock and each share of Series
B TCI Group Common Stock shall, except as otherwise provided in this Section E,
be identical in all respects and shall have equal rights, powers and
privileges.
Each share of Series A Liberty Media Group Common Stock and each share
of Series B Liberty Media Group Common Stock shall, except as otherwise
provided in this Section E, be identical in all respects and shall have equal
rights, powers and privileges.
Each share of Series A TCI Ventures Group Common Stock and each share
of Series B TCI Ventures Group Common Stock shall, except as otherwise provided
in this Section E, be identical in all respects and shall have equal rights,
powers and privileges.
1. Voting Rights.
Holders of Series A TCI Group Common Stock shall be entitled to one
vote for each share of such stock held, holders of Series B TCI Group Common
Stock shall be entitled to ten votes for each share of such stock held, holders
of Series A Liberty Media Group Common Stock shall be entitled to one vote for
each share of such stock held, holders of Series B Liberty Media Group Common
Stock shall be entitled to ten votes for each share of such stock held, holders
of Series A TCI Ventures Group Common Stock shall be entitled to one vote for
each share of such stock held, and holders of Series B TCI Ventures Group
Common Stock shall be entitled to ten votes for each share of such stock held,
on all matters presented to such stockholders. Except as may otherwise be
required by the laws of the State of Delaware or, with respect to any class of
Preferred Stock or any series of such a class, in this
<PAGE> 124
Certificate (including any resolution or resolutions providing for the
establishment of such class or series pursuant to authority vested in the Board
of Directors by this Certificate), the holders of shares of Series A TCI Group
Common Stock, the holders of shares of Series B TCI Group Common Stock, the
holders of shares of Series A Liberty Media Group Common Stock, the holders of
shares of Series B Liberty Media Group Common Stock, the holders of shares of
Series A TCI Ventures Group Common Stock, the holders of shares of Series B TCI
Ventures Group Common Stock and the holders of shares of each class or series
of Preferred Stock, if any, entitled to vote thereon, 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 Common Stock or any series thereof or of any
other class or series of stock or decrease the number of authorized shares of
any 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
Series A TCI Group Common Stock, the holders of shares of Series B TCI Group
Common Stock, the holders of shares of Series A Liberty Media Group Common
Stock, the holders of shares of Series B Liberty Media Group Common Stock, the
holders of shares of Series A TCI Ventures Group Common Stock, the holders of
shares of Series B TCI Ventures Group Common Stock, or the holders of shares of
any such class or series of Preferred Stock shall be required for the approval
of any such matter.
2. Conversion Rights.
(a) CONVERSION OF SERIES B TCI GROUP COMMON STOCK INTO SERIES A
TCI GROUP COMMON STOCK. Each share of Series B TCI Group Common Stock shall be
convertible, at the option of the holder thereof, into one share of Series A
TCI Group Common Stock. Any such conversion may be effected by any holder of
Series B TCI Group Common Stock by surrendering such holder's certificate or
certificates for the Series B TCI Group Common Stock to be converted, duly
endorsed, at the office of the Corporation or any transfer agent for the Series
B TCI Group Common Stock, together with a written notice to the Corporation at
such office that such holder elects to convert all or a specified number of
shares of Series B TCI Group Common Stock represented by such certificate and
stating the name or names in which such holder desires the certificate or
certificates for Series A TCI Group Common Stock to be issued. If so required
by the Corporation, any certificate for shares surrendered for conversion shall
be accompanied by instruments of transfer, in form satisfactory to the
Corporation, duly executed by the holder of such shares or the duly authorized
representative of such holder. Promptly thereafter, the Corporation shall
issue and deliver to such holder or such holder's nominee or nominees, a
certificate or certificates for the number of shares of Series A TCI Group
Common Stock to which such holder shall be entitled as herein provided. Such
conversion shall be deemed to have been made at the close of business on the
date of receipt by the Corporation or any such transfer agent of the
certificate or certificates, notice and, if required, instruments of transfer
referred to above, and the person or persons entitled to receive the Series A
TCI Group Common Stock issuable on such conversion shall be treated for all
purposes as the record holder or holders of such Series A TCI Group Common
Stock on that date. A number of shares of Series A TCI Group Common Stock
equal to the number of shares of Series B TCI Group Common Stock outstanding
from time to time shall be set aside and reserved for issuance upon conversion
of shares of Series B TCI Group Common Stock. Shares of Series A TCI Group
Common Stock shall not be convertible into shares of Series B TCI Group Common
Stock.
(b) CONVERSION OF SERIES B LIBERTY MEDIA GROUP COMMON STOCK INTO
SERIES A LIBERTY MEDIA GROUP COMMON STOCK. Each share of Series B Liberty
Media Group Common Stock shall be convertible, at the option of the holder
thereof, into one share of Series A Liberty Media Group Common Stock. Any
such conversion may be effected by any holder of Series B Liberty Media Group
Common Stock by surrendering such holder's certificate or certificates for the
Series B Liberty Media Group Common Stock to be converted, duly endorsed, at
the office of the Corporation or any transfer agent for the Series B Liberty
Media Group Common Stock, together with a written notice to the Corporation at
such office that such holder elects to convert all or a specified number of
shares of Series B Liberty Media Group Common Stock represented by such
certificate and stating the name or names in which such holder desires the
certificate or certificates for Series A Liberty Media Group Common Stock to be
issued. If so required by the Corporation, any certificate for shares
surrendered for conversion shall be accompanied by instruments of transfer, in
form satisfactory to the Corporation, duly executed by the holder of such
shares or the duly authorized representative of such holder. Promptly
thereafter, the Corporation shall issue and deliver to such holder or such
holder's nominee or nominees, a certificate or certificates for the number of
shares of Series A Liberty Media Group Common Stock to which such holder shall
be entitled as herein provided. Such conversion shall be deemed to have been
made at the close of business on the date of receipt by the Corporation or
II-A-2
<PAGE> 125
any such transfer agent of the certificate or certificates, notice and, if
required, instruments of transfer referred to above, and the person or persons
entitled to receive the Series A Liberty Media Group Common Stock issuable on
such conversion shall be treated for all purposes as the record holder or
holders of such Series A Liberty Media Group Common Stock on that date. A
number of shares of Series A Liberty Media Group Common Stock equal to the
number of shares of Series B Liberty Media Group Common Stock outstanding from
time to time shall be set aside and reserved for issuance upon conversion of
shares of Series B Liberty Media Group Common Stock. Shares of Series A
Liberty Media Group Common Stock shall not be convertible into shares of Series
B Liberty Media Group Common Stock.
(c) CONVERSION OF SERIES B TCI VENTURES GROUP COMMON STOCK INTO
SERIES A TCI VENTURES GROUP COMMON STOCK. Each share of Series B TCI Ventures
Group Common Stock shall be convertible, at the option of the holder thereof,
into one share of Series A TCI Ventures Group Common Stock. Any such
conversion may be effected by any holder of Series B TCI Ventures Group Common
Stock by surrendering such holder's certificate or certificates for the Series
B TCI Ventures Group Common Stock to be converted, duly endorsed, at the office
of the Corporation or any transfer agent for the Series B TCI Ventures Group
Common Stock, together with a written notice to the Corporation at such office
that such holder elects to convert all or a specified number of shares of
Series B TCI Ventures Group Common Stock represented by such certificate and
stating the name or names in which such holder desires the certificate or
certificates for Series A TCI Ventures Group Common Stock to be issued. If so
required by the Corporation, any certificate for shares surrendered for
conversion shall be accompanied by instruments of transfer, in form
satisfactory to the Corporation, duly executed by the holder of such shares or
the duly authorized representative of such holder. Promptly thereafter, the
Corporation shall issue and deliver to such holder or such holder's nominee or
nominees, a certificate or certificates for the number of shares of Series A
TCI Ventures Group Common Stock to which such holder shall be entitled as
herein provided. Such conversion shall be deemed to have been made at the
close of business on the date of receipt by the Corporation or any such
transfer agent of the certificate or certificates, notice and, if required,
instruments of transfer referred to above, and the person or persons entitled
to receive the Series A TCI Ventures Group Common Stock issuable on such
conversion shall be treated for all purposes as the record holder or holders of
such Series A TCI Ventures Group Common Stock on that date. A number of shares
of Series A TCI Ventures Group Common Stock equal to the number of shares of
Series B TCI Ventures Group Common Stock outstanding from time to time shall be
set aside and reserved for issuance upon conversion of shares of Series B TCI
Ventures Group Common Stock. Shares of Series A TCI Ventures Group Common
Stock shall not be convertible into shares of Series B TCI Ventures Group
Common Stock.
(d) CONVERSION OF SERIES A LIBERTY MEDIA GROUP COMMON STOCK INTO
SERIES A TCI GROUP COMMON STOCK AND SERIES B LIBERTY MEDIA GROUP COMMON STOCK
INTO SERIES B TCI GROUP COMMON STOCK AT THE OPTION OF THE CORPORATION. (i) At
the option of the Corporation by action of its Board of Directors, (A) all
shares of Series A Liberty Media Group Common Stock shall be converted into a
number (or fraction) of fully paid and nonassessable shares of Series A TCI
Group Common Stock equal to the Liberty Media Group Optional Conversion Ratio,
and (B) all shares of Series B Liberty Media Group Common Stock shall be
convertible into a number (or fraction) of fully paid and nonassessable shares
of Series B TCI Group Common Stock equal to the Liberty Media Group Optional
Conversion Ratio.
(ii) For purposes of this paragraph 2(d), the "Liberty Media Group
Optional Conversion Ratio" shall mean the quotient (calculated to the nearest
five decimal places) obtained by dividing (A) the Liberty Media Group Common
Stock Per Share Value by (B) the average Market Value of one share of Series A
TCI Group Common Stock over the 20-Trading Day period ending on the Trading Day
preceding the Appraisal Date.
(iii) In the event that the Corporation determines to establish the
Liberty Media Group Private Market Value, the Corporation shall designate the
First Appraiser, and the Independent Committee shall designate the Second
Appraiser. Not later than 20 days after the Selection Date, the First
Appraiser and the Second Appraiser shall each determine its initial view as to
the private market value of the Liberty Media Group as of the Appraisal Date
and shall consult with one another with respect thereto. Not later than the
30th day after the Selection Date, the First Appraiser and the Second Appraiser
shall each have determined its final view as to such private market value. If
the Higher Appraised Amount is not more than 120% of the Lower Appraised
Amount, the Liberty Media Group Private Market Value (subject to any adjustment
provided in subparagraph (iv) of this paragraph 2(d)) shall be the average of
those two amounts. If the Higher Appraised Amount is more than 120% of the
Lower Appraised
II-A-3
<PAGE> 126
Amount, the First Appraiser and the Second Appraiser shall agree upon and
jointly designate the Mutually Designated Appraiser to determine such private
market value. The Mutually Designated Appraiser shall not be provided with any
of the work of the First Appraiser and Second Appraiser. The Mutually
Designated Appraiser shall, no later than the 20th day after the date the
Mutually Designated Appraiser is designated, determine the Mutually Appraised
Amount, and the Liberty Media Group Private Market Value (subject to any
adjustment provided in subparagraph (iv) of this paragraph 2(d)) shall be (A)
if the Mutually Appraised Amount is between the Lower Appraised Amount and
the Higher Appraised Amount, (I) the average of (1) the Mutually Appraised
Amount and (2) the Lower Appraised Amount or the Higher Appraised Amount,
whichever is closer to the Mutually Appraised Amount, or (II) the Mutually
Appraised Amount, if neither the Lower Appraised Amount nor the Higher
Appraised Amount is closer to the Mutually Appraised Amount, or (B) if the
Mutually Appraised Amount is greater than the Higher Appraised Amount or less
than the Lower Appraised Amount, the average of the Higher Appraised Amount
and the Lower Appraised Amount. For these purposes, if any such Appraiser
expresses its final view of the private market value of the Liberty Media Group
as a range of values, such Appraiser's final view of such private market value
shall be deemed to be the midpoint of such range of values.
(iv) Following the determination of the Liberty Media Group Private
Market Value, the Appraiser or Appraisers whose final views of the private
market value of the Liberty Media Group were used in the calculation of the
Liberty Media Group Private Market Value shall determine the Adjusted
Outstanding Shares of Liberty Media Group Common Stock together with any
further appropriate adjustments to the Liberty Media Group Private Market Value
resulting from such determination. The "Adjusted Outstanding Shares of Liberty
Media Group Common Stock" shall mean a number, as determined by such
Appraiser(s) as of the Appraisal Date, equal to the sum of the number of shares
of Series A Liberty Media Group Common Stock and Series B Liberty Media Group
Common Stock outstanding, the Number of Shares Issuable with Respect to the
Liberty Media Group Inter-Group Interest, the number of Committed Acquisition
Shares issuable, the number of shares of Series A Liberty Media Group Common
Stock and Series B Liberty Media Group Common Stock issuable upon the
conversion, exercise or exchange of all Pre-Distribution Convertible Securities
and the number of shares of Series A Liberty Media Group Common Stock and
Series B Liberty Media Group Common Stock issuable upon the conversion,
exercise or exchange of those Convertible Securities (other than
Pre-Distribution Convertible Securities and other than Convertible Securities
which are convertible into or exercisable or exchangeable for Committed
Acquisition Shares) the holders of which would derive an economic benefit from
conversion, exercise or exchange of such Convertible Securities which exceeds
the economic benefit of not converting, exercising or exchanging such
Convertible Securities. The "Liberty Media Group Common Stock Per Share Value"
shall mean the quotient obtained by dividing the Liberty Media Group Private
Market Value by the Adjusted Outstanding Shares of Liberty Media Group Common
Stock, provided that if such Appraiser(s) do not agree on the determinations
provided for in this subparagraph (iv), the Liberty Media Group Common Stock
Per Share Value shall be the average of the quotients so obtained on the basis
of the respective determinations of such firms.
(v) If the Corporation determines to convert shares of Series A
Liberty Media Group Common Stock into Series A TCI Group Common Stock and
shares of Series B Liberty Media Group Common Stock into Series B TCI Group
Common Stock at the Liberty Media Group Optional Conversion Ratio, such
conversion shall occur on a Conversion Date on or prior to the 120th day
following the Appraisal Date. If the Corporation determines not to undertake
such conversion, the Corporation may at any time thereafter undertake to
reestablish the Liberty Media Group Common Stock Per Share Value as of a
subsequent date.
(vi) The Corporation shall not convert shares of Series A Liberty
Media Group Common Stock into shares of Series A TCI Group Common Stock without
converting shares of Series B Liberty Media Group Common Stock into shares of
Series B TCI Group Common Stock, and the Corporation shall not convert shares
of Series B Liberty Media Group Common Stock into shares of Series B TCI Group
Common Stock without converting shares of Series A Liberty Media Group Common
Stock into shares of Series A TCI Group Common Stock. The Series A Liberty
Media Group Common Stock and the Series B Liberty Media Group Common Stock
shall also be convertible at the option of the Corporation in accordance with
paragraph 5(b)(iii) of this Section E.
(e) CONVERSION OF SERIES A TCI VENTURES GROUP COMMON STOCK INTO
SERIES A TCI GROUP COMMON STOCK AND SERIES B TCI VENTURES GROUP COMMON STOCK
INTO SERIES B TCI GROUP COMMON STOCK AT THE OPTION OF THE CORPORATION. (i) At
the option of the Corporation by action of its Board of Directors, (A) all
shares of Series A TCI Ventures Group Common Stock shall be converted into a
number (or fraction) of fully paid
II-A-4
<PAGE> 127
and nonassessable shares of Series A TCI Group Common Stock equal to the TCI
Ventures Group Optional Conversion Ratio, and (B) all shares of Series B TCI
Ventures Group Common Stock shall be convertible into a number (or fraction) of
fully paid and nonassessable shares of Series B TCI Group Common Stock equal to
the TCI Ventures Group Optional Conversion Ratio.
(ii) For purposes of this paragraph 2(e), the "TCI Ventures Group
Optional Conversion Ratio" shall mean the quotient (calculated to the nearest
five decimal places) obtained by dividing (A) the TCI Ventures Group Common
Stock Per Share Value by (B) the average Market Value of one share of Series A
TCI Group Common Stock over the 20-Trading Day period ending on the Trading Day
preceding the Appraisal Date.
(iii) In the event that the Corporation determines to establish the
TCI Ventures Group Private Market Value, the Corporation shall designate the
First Appraiser, and the Independent Committee shall designate the Second
Appraiser. Not later than 20 days after the Selection Date, the First
Appraiser and the Second Appraiser shall each determine its initial view as to
the private market value of the TCI Ventures Group as of the Appraisal Date and
shall consult with one another with respect thereto. Not later than the 30th
day after the Selection Date, the First Appraiser and the Second Appraiser
shall each have determined its final view as to such private market value. If
the Higher Appraised Amount is not more than 120% of the Lower Appraised
Amount, the TCI Ventures Group Private Market Value (subject to any adjustment
provided in subparagraph (iv) of this paragraph 2(e)) shall be the average of
those two amounts. If the Higher Appraised Amount is more than 120% of the
Lower Appraised Amount, the First Appraiser and the Second Appraiser shall
agree upon and jointly designate the Mutually Designated Appraiser to determine
such private market value. The Mutually Designated Appraiser shall not be
provided with any of the work of the First Appraiser and Second Appraiser. The
Mutually Designated Appraiser shall, no later than the 20th day after the date
the Mutually Designated Appraiser is designated, determine the Mutually
Appraised Amount and the TCI Ventures Group Private Market Value (subject to
any adjustment provided in subparagraph (iv) of this paragraph 2(e)) shall be
(A) if the Mutually Appraised Amount is between the Lower Appraised Amount and
the Higher Appraised Amount, (I) the average of (1) the Mutually Appraised
Amount and (2) the Lower Appraised Amount or the Higher Appraised Amount,
whichever is closer to the Mutually Appraised Amount, or (II) the Mutually
Appraised Amount, if neither the Lower Appraised Amount nor the Higher
Appraised Amount is closer to the Mutually Appraised Amount, or (B) if the
Mutually Appraised Amount is greater than the Higher Appraised Amount or less
than the Lower Appraised Amount, the average of the Higher Appraised Amount and
the Lower Appraised Amount. For these purposes, if any such Appraiser
expresses its final view of the private market value of the TCI Ventures Group
as a range of values, such Appraiser's final view of such private market value
shall be deemed to be the midpoint of such range of values.
(iv) Following the determination of the TCI Ventures Group Private
Market Value, the Appraiser or Appraisers whose final views of the private
market value of the TCI Ventures Group were used in the calculation of the TCI
Ventures Group Private Market Value shall determine the Adjusted Outstanding
Shares of TCI Ventures Group Common Stock together with any further appropriate
adjustments to the TCI Ventures Group Private Market Value resulting from such
determination. The "Adjusted Outstanding Shares of TCI Ventures Group Common
Stock" shall mean a number, as determined by such Appraiser(s) as of the
Appraisal Date, equal to the sum of the number of shares of Series A TCI
Ventures Group Common Stock and Series B TCI Ventures Group Common Stock
outstanding, the Number of Shares Issuable with Respect to the TCI Ventures
Group Inter-Group Interest, the number of shares of Series A TCI Ventures Group
Common Stock and Series B TCI Ventures Group Common Stock issuable upon the
exchange of all Pre-Exchange Offer Securities and the number of shares of
Series A TCI Ventures Group Common Stock and Series B TCI Ventures Group Common
Stock issuable upon the conversion, exercise or exchange of those Convertible
Securities (other than Pre-Exchange Offer Securities) the holders of which
would derive an economic benefit from conversion, exercise or exchange of such
Convertible Securities which exceeds the economic benefit of not converting,
exercising or exchanging such Convertible Securities. The "TCI Ventures Group
Common Stock Per Share Value" shall mean the quotient obtained by dividing the
TCI Ventures Group Private Market Value by the Adjusted Outstanding Shares of
TCI Ventures Group Common Stock, provided that if such Appraiser(s) do not
agree on the determinations provided for in this subparagraph (iv), the TCI
Ventures Group Common Stock Per Share Value shall be the average of the
quotients so obtained on the basis of the respective determinations of such
firms.
(v) If the Corporation determines to convert shares of Series A
TCI Ventures Group Common Stock into Series A TCI Group Common Stock and shares
of Series B TCI Ventures Group Common Stock into Series B
II-A-5
<PAGE> 128
TCI Group Common Stock at the TCI Ventures Group Optional Conversion Ratio,
such conversion shall occur on a Conversion Date on or prior to the 120th day
following the Appraisal Date. If the Corporation determines not to undertake
such conversion, the Corporation may at any time thereafter undertake to
reestablish the TCI Ventures Group Common Stock Per Share Value as of a
subsequent date.
(vi) The Corporation shall not convert shares of Series A TCI
Ventures Group Common Stock into shares of Series A TCI Group Common Stock
without converting shares of Series B TCI Ventures Group Common Stock into
shares of Series B TCI Group Common Stock, and the Corporation shall not
convert shares of Series B TCI Ventures Group Common Stock into shares of
Series B TCI Group Common Stock without converting shares of Series A TCI
Ventures Group Common Stock into shares of Series A TCI Group Common Stock.
The Series A TCI Ventures Group Common Stock and the Series B TCI Ventures
Group Common Stock shall also be convertible at the option of the Corporation
in accordance with paragraph 6(b)(iii) of this Section E.
3. Dividends.
(a) DIVIDENDS ON SERIES A TCI GROUP COMMON STOCK AND SERIES B TCI
GROUP COMMON STOCK. Dividends on the Series A TCI Group Common Stock and the
Series B TCI Group Common Stock may be declared and paid only out of the lesser
of (i) assets of the Corporation legally available therefor and (ii) the TCI
Group Available Dividend Amount. Subject to paragraph 4 of this Section E,
whenever a dividend is paid to the holders of Series A TCI Group Common Stock,
the Corporation shall also pay to the holders of Series B TCI Group Common
Stock a dividend per share equal to the dividend per share paid to the holders
of Series A TCI Group Common Stock, and whenever a dividend is paid to the
holders of Series B TCI Group Common Stock, the Corporation shall also pay to
the holders of Series A TCI Group Common Stock a dividend per share equal to
the dividend per share paid to the holders of Series B TCI Group Common Stock.
(b) DIVIDENDS ON SERIES A LIBERTY MEDIA GROUP COMMON STOCK AND
SERIES B LIBERTY MEDIA GROUP COMMON STOCK. Dividends on the Series A Liberty
Media Group Common Stock and the Series B Liberty Media Group Common Stock may
be declared and paid only out of the lesser of (i) assets of the Corporation
legally available therefor and (ii) the Liberty Media Group Available Dividend
Amount. Subject to paragraph 4 and the last sentence of paragraph 5(b) of this
Section E, whenever a dividend is paid to the holders of Series A Liberty Media
Group Common Stock, the Corporation shall also pay to the holders of Series B
Liberty Media Group Common Stock a dividend per share equal to the dividend per
share paid to the holders of Series A Liberty Media Group Common Stock, and
whenever a dividend is paid to the holders of Series B Liberty Media Group
Common Stock, the Corporation shall also pay to the holders of Series A Liberty
Media Group Common Stock a dividend per share equal to the dividend per share
paid to the holders of Series B Liberty Media Group Common Stock.
(c) DIVIDENDS ON SERIES A TCI VENTURES GROUP COMMON STOCK AND
SERIES B TCI VENTURES GROUP COMMON STOCK. Dividends on the Series A TCI
Ventures Group Common Stock and the Series B TCI Ventures Group Common Stock
may be declared and paid only out of the lesser of (i) assets of the
Corporation legally available therefor and (ii) the TCI Ventures Group
Available Dividend Amount. Subject to paragraph 4 and the last sentence of
paragraph 6(b) of this Section E, whenever a dividend is paid to the holders of
Series A TCI Ventures Group Common Stock, the Corporation shall also pay to the
holders of Series B TCI Ventures Group Common Stock a dividend per share equal
to the dividend per share paid to the holders of Series A TCI Ventures Group
Common Stock, and whenever a dividend is paid to the holders of Series B TCI
Ventures Group Common Stock, the Corporation shall also pay to the holders of
Series A TCI Ventures Group Common Stock a dividend per share equal to the
dividend per share paid to the holders of Series B TCI Ventures Group Common
Stock.
(d) DISCRIMINATION BETWEEN OR AMONG SERIES OF COMMON STOCK. The
Board of Directors, subject to the provisions of paragraph 3(a), 3(b) and 3(c)
of this Section E, shall have the authority and discretion to declare and pay
dividends on (i) the Series A TCI Group Common Stock and Series B TCI Group
Common Stock, (ii) the Series A Liberty Media Group Common Stock and Series B
Liberty Media Group Common Stock, or (iii) the Series A TCI Ventures Group
Common Stock and Series B TCI Ventures Group Common Stock, in equal or unequal
amounts, notwithstanding the relationship between the TCI Group Available
Dividend Amount, the Liberty Media Group Available Dividend Amount and the TCI
Ventures Group Available Dividend Amount, the respective amounts of prior
dividends declared on, or the liquidation rights of, the Series A TCI Group
Common Stock and Series B TCI Group Common Stock, the Series A Liberty Media
Group Common Stock and Series B Liberty
II-A-6
<PAGE> 129
Media Group Common Stock, or the Series A TCI Ventures Group Common Stock and
the Series B TCI Ventures Group Common Stock, or any other factor.
4. Share Distributions.
The Corporation may declare and pay a distribution consisting of
shares of Series A TCI Group Common Stock, Series B TCI Group Common Stock,
Series A Liberty Media Group Common Stock, Series B Liberty Media Group Common
Stock, Series A TCI Ventures Group Common Stock, Series B TCI Ventures Group
Common Stock or any other securities of the Corporation or any other Person
(hereinafter sometimes called a "share distribution") to holders of the Common
Stock only in accordance with the provisions of this paragraph 4.
(a) DISTRIBUTIONS ON SERIES A TCI GROUP COMMON STOCK AND SERIES B
TCI GROUP COMMON STOCK. If at any time a share distribution is to be made with
respect to the Series A TCI Group Common Stock or Series B TCI Group Common
Stock, such share distribution may be declared and paid only as follows:
(i) a share distribution consisting of shares of Series A
TCI Group Common Stock (or Convertible Securities convertible into or
exercisable or exchangeable for shares of Series A TCI Group Common
Stock) to holders of Series A TCI Group Common Stock and Series B TCI
Group Common Stock, on an equal per share basis; or consisting of
shares of Series B TCI Group Common Stock (or Convertible Securities
convertible into or exercisable or exchangeable for shares of Series B
TCI Group Common Stock) to holders of Series A TCI Group Common Stock
and Series B TCI Group Common Stock, on an equal per share basis; or
consisting of shares of Series A TCI Group Common Stock (or
Convertible Securities convertible into or exercisable or exchangeable
for shares of Series A TCI Group Common Stock) to holders of Series A
TCI Group Common Stock and, on an equal per share basis, shares of
Series B TCI Group Common Stock (or like Convertible Securities
convertible into or exercisable or exchangeable for shares of Series B
TCI Group Common Stock) to holders of Series B TCI Group Common Stock;
(ii) subsequent to the Liberty Media Group Distribution, a
share distribution consisting of shares of Series A Liberty Media
Group Common Stock (or Convertible Securities convertible into or
exercisable or exchangeable for shares of Series A Liberty Media Group
Common Stock) to holders of Series A TCI Group Common Stock and Series
B TCI Group Common Stock, on an equal per share basis; provided that
the sum of (A) the aggregate number of shares of Series A Liberty
Media Group Common Stock to be so issued (or the number of such shares
which would be issuable upon conversion, exercise or exchange of any
Convertible Securities to be so issued) and (B) the number of shares
of such series that are subject to issuance upon conversion, exercise
or exchange of any Convertible Securities then outstanding that are
attributed to the TCI Group (other than Pre-Distribution Convertible
Securities and other than Convertible Securities convertible into or
exercisable or exchangeable for Committed Acquisition Shares) is less
than or equal to the Number of Shares Issuable with Respect to the
Liberty Media Group Inter-Group Interest;
(iii) a share distribution consisting of shares of Series A
TCI Ventures Group Common Stock (or Convertible Securities convertible
into or exercisable or exchangeable for shares of Series A TCI
Ventures Group Common Stock) to holders of Series A TCI Group Common
Stock and Series B TCI Group Common Stock, on an equal per share
basis; or consisting of shares of Series B TCI Ventures Group Common
Stock (or Convertible Securities convertible into or exercisable or
exchangeable for shares of Series B TCI Ventures Group Common Stock)
to holders of Series A TCI Group Common Stock and Series B TCI Group
Common Stock, on an equal per share basis; or consisting of shares of
Series A TCI Ventures Group Common Stock (or Convertible Securities
convertible into or exercisable or exchangeable for shares of Series A
TCI Ventures Group Common Stock) to holders of Series A TCI Group
Common Stock and, on an equal per share basis, shares of Series B TCI
Ventures Group Common Stock (or like Convertible Securities
convertible into or exercisable or exchangeable for shares of Series B
TCI Ventures Group Common Stock) to holders of Series B TCI Group
Common Stock; provided that the sum of (A) the aggregate number of
shares of Series A TCI Ventures Group Common Stock and Series B TCI
Ventures Group Common Stock to be so distributed (or the number of
such shares of Series A TCI Ventures Group Common Stock and Series B
TCI Ventures Group Common Stock which would be issuable upon
II-A-7
<PAGE> 130
conversion, exercise or exchange of any Convertible Securities to be
so distributed) and (B) the number of shares of Series A TCI Ventures
Group Common Stock and Series B TCI Ventures Group Common Stock that
are subject to issuance upon conversion, exercise or exchange of any
Convertible Securities then outstanding that are attributed to the TCI
Group (other than Pre-Exchange Offer Securities), is less than or
equal to the Number of Shares Issuable with Respect to the TCI
Ventures Group Inter-Group Interest.
(iv) a share distribution consisting of any class or
series of securities of the Corporation or any other Person other than
Series A TCI Group Common Stock, Series B TCI Group Common Stock,
Series A Liberty Media Group Common Stock, Series B Liberty Media
Group Common Stock, Series A TCI Ventures Group Common Stock or Series
B TCI Ventures Group Common Stock (or Convertible Securities
convertible into or exercisable or exchangeable for shares of Series A
TCI Group Common Stock, Series B TCI Group Common Stock, Series A
Liberty Media Group Common Stock, Series B Liberty Media Group Common
Stock, Series A TCI Ventures Group Common Stock or Series B TCI
Ventures Group Common Stock), either on the basis of a distribution of
identical securities, on an equal per share basis, to holders of
Series A TCI Group Common Stock and Series B TCI Group Common Stock or
on the basis of a distribution of one class or series of securities to
holders of Series A TCI Group Common Stock and another class or series
of securities to holders of Series B TCI Group Common Stock, provided
that the securities so distributed (and, if the distribution consists
of Convertible Securities, the securities into which such Convertible
Securities are convertible or for which they are exercisable or
exchangeable) do not differ in any respect other than their relative
voting rights and related differences in designation, conversion,
redemption and share distribution provisions, with holders of shares
of Series B TCI Group Common Stock receiving the class or series
having the higher relative voting rights (without regard to whether
such rights differ to a greater or lesser extent than the
corresponding differences in voting rights, designation, conversion,
redemption and share distribution provisions between the Series A TCI
Group Common Stock and the Series B TCI Group Common Stock), provided
that if the securities so distributed constitute capital stock of a
Subsidiary of the Corporation, such rights shall not differ to a
greater extent than the corresponding differences in voting rights,
designation, conversion, redemption and share distribution provisions
between the Series A TCI Group Common Stock and the Series B TCI Group
Common Stock, and provided in each case that such distribution is
otherwise made on an equal per share basis.
The Corporation shall not reclassify, subdivide or combine the Series
A TCI Group Common Stock without reclassifying, subdividing or combining the
Series B TCI Group Common Stock, on an equal per share basis, and the
Corporation shall not reclassify, subdivide or combine the Series B TCI Group
Common Stock without reclassifying, subdividing or combining the Series A TCI
Group Common Stock, on an equal per share basis.
(b) DISTRIBUTIONS ON SERIES A LIBERTY MEDIA GROUP COMMON STOCK AND
SERIES B LIBERTY MEDIA GROUP COMMON STOCK. If at any time a share distribution
is to be made with respect to the Series A Liberty Media Group Common Stock or
Series B Liberty Media Group Common Stock, such share distribution may be
declared and paid only as follows (or as permitted by paragraph 5 of this
Section E with respect to the redemptions and other distributions referred to
therein):
(i) a share distribution consisting of shares of Series A
Liberty Media Group Common Stock (or Convertible Securities
convertible into or exercisable or exchangeable for shares of Series A
Liberty Media Group Common Stock) to holders of Series A Liberty Media
Group Common Stock and Series B Liberty Media Group Common Stock, on
an equal per share basis; or consisting of shares of Series B Liberty
Media Group Common Stock (or Convertible Securities convertible into
or exercisable or exchangeable for shares of Series B Liberty Media
Group Common Stock) to holders of Series A Liberty Media Group Common
Stock and Series B Liberty Media Group Common Stock, on an equal per
share basis; or consisting of shares of Series A Liberty Media Group
Common Stock (or Convertible Securities convertible into or
exercisable or exchangeable for shares of Series A Liberty Media Group
Common Stock) to holders of Series A Liberty Media Group Common Stock
and, on an equal per share basis, shares of Series B Liberty Media
Group Common Stock (or like Convertible Securities convertible into or
exercisable or exchangeable for shares of Series B Liberty Media Group
Common Stock) to holders of Series B Liberty Media Group Common Stock;
and
II-A-8
<PAGE> 131
(ii) a share distribution consisting of any class or
series of securities of the Corporation or any other Person other than
as described in clause (i) of this paragraph 4(b) and other than
Series A TCI Group Common Stock, Series B TCI Group Common Stock,
Series A TCI Ventures Group Common Stock or Series B TCI Ventures
Group Common Stock (or Convertible Securities convertible into or
exercisable or exchangeable for shares of Series A TCI Group Common
Stock, Series B TCI Group Common Stock, Series A TCI Ventures Group
Common Stock or Series B TCI Ventures Group Common Stock) either on
the basis of a distribution of identical securities, on an equal per
share basis, to holders of Series A Liberty Media Group Common Stock
and Series B Liberty Media Group Common Stock or on the basis of a
distribution of one class or series of securities to holders of Series
A Liberty Media Group Common Stock and another class or series of
securities to holders of Series B Liberty Media Group Common Stock,
provided that the securities so distributed (and, if the distribution
consists of Convertible Securities, the securities into which such
Convertible Securities are convertible or for which they are
exercisable or exchangeable) do not differ in any respect other than
their relative voting rights and related differences in designation,
conversion, redemption and share distribution provisions, with holders
of shares of Series B Liberty Media Group Common Stock receiving the
class or series having the higher relative voting rights (without
regard to whether such rights differ to a greater or lesser extent
than the corresponding differences in voting rights, designation,
conversion, redemption and share distribution provisions between the
Series A Liberty Media Group Common Stock and the Series B Liberty
Media Group Common Stock), provided that if the securities so
distributed constitute capital stock of a Subsidiary of the
Corporation, such rights shall not differ to a greater extent than the
corresponding differences in voting rights, designation, conversion,
redemption and share distribution provisions between the Series A
Liberty Media Group Common Stock and the Series B Liberty Media Group
Common Stock, and provided in each case that such distribution is
otherwise made on an equal per share basis.
The Corporation shall not reclassify, subdivide or combine the Series
A Liberty Media Group Common Stock without reclassifying, subdividing or
combining the Series B Liberty Media Group Common Stock, on an equal per share
basis, and the Corporation shall not reclassify, subdivide or combine the
Series B Liberty Media Group Common Stock without reclassifying, subdividing or
combining the Series A Liberty Media Group Common Stock, on an equal per share
basis.
(c) DISTRIBUTIONS ON SERIES A TCI VENTURES GROUP COMMON STOCK AND
SERIES B TCI VENTURES GROUP COMMON STOCK. If at any time a share distribution
is to be made with respect to the Series A TCI Ventures Group Common Stock or
Series B TCI Ventures Group Common Stock, such share distribution may be
declared and paid only as follows (or as permitted by paragraph 6 of this
Section E with respect to the redemptions and other distributions referred to
therein):
(i) a share distribution consisting of shares of Series A
TCI Ventures Group Common Stock (or Convertible Securities convertible
into or exercisable or exchangeable for shares of Series A TCI
Ventures Group Common Stock) to holders of Series A TCI Ventures Group
Common Stock and Series B TCI Ventures Group Common Stock, on an equal
per share basis; or consisting of shares of Series B TCI Ventures
Group Common Stock (or Convertible Securities convertible into or
exercisable or exchangeable for shares of Series B TCI Ventures Group
Common Stock) to holders of Series A TCI Ventures Group Common Stock
and Series B TCI Ventures Group Common Stock, on an equal per share
basis; or consisting of shares of Series A TCI Ventures Group Common
Stock (or Convertible Securities convertible into or exercisable or
exchangeable for shares of Series A TCI Ventures Group Common Stock)
to holders of Series A TCI Ventures Group Common Stock and, on an
equal per share basis, shares of Series B TCI Ventures Group Common
Stock (or like Convertible Securities convertible into or exercisable
or exchangeable for shares of Series B TCI Ventures Group Common
Stock) to holders of Series B TCI Ventures Group Common Stock; and
(ii) a share distribution consisting of any class or
series of securities of the Corporation or any other Person other than
as described in clause (i) of this paragraph 4(c) and other than
Series A TCI Group Common Stock, Series B TCI Group Common Stock,
Series A Liberty Media Group Common Stock or Series B Liberty Media
Group Common Stock (or Convertible Securities convertible into or
exercisable or exchangeable for shares of Series A TCI Group Common
Stock, Series B TCI Group Common Stock, Series A Liberty Media Group
Common Stock or Series B Liberty Media Group Common
II-A-9
<PAGE> 132
Stock) either on the basis of a distribution of identical securities,
on an equal per share basis, to holders of Series A TCI Ventures Group
Common Stock and Series B TCI Ventures Group Common Stock, or on the
basis of a distribution of one class or series of securities to
holders of Series A TCI Ventures Group Common Stock and another class
or series of securities to holders of Series B TCI Ventures Group
Common Stock, provided that the securities so distributed (and, if the
distribution consists of Convertible Securities, the securities into
which such Convertible Securities are convertible or for which they
are exercisable or exchangeable) do not differ in any respect other
than their relative voting rights and related differences in
designation, conversion, redemption and share distribution provisions,
with holders of shares of Series B TCI Ventures Group Common Stock
receiving the class or series having the higher relative voting rights
(without regard to whether such rights differ to a greater or lesser
extent than the corresponding differences in voting rights,
designation, conversion, redemption and share distribution provisions
between the Series A TCI Ventures Group Common Stock and the Series B
TCI Ventures Group Common Stock), provided that if the securities so
distributed constitute capital stock of a Subsidiary of the
Corporation, such rights shall not differ to a greater extent than the
corresponding differences in voting rights, designation, conversion,
redemption and share distribution provisions between the Series A TCI
Ventures Group Common Stock and the Series B TCI Ventures Group Common
Stock, and provided in each case that such distribution is otherwise
made on an equal per share basis.
The Corporation shall not reclassify, subdivide or combine the Series
A TCI Ventures Group Common Stock without reclassifying, subdividing or
combining the Series B TCI Ventures Group Common Stock, on an equal per share
basis, and the Corporation shall not reclassify, subdivide or combine the
Series B TCI Ventures Group Common Stock without reclassifying, subdividing or
combining the Series A TCI Ventures Group Common Stock, on an equal per share
basis.
5. Redemption and Other Provisions Relating to the Series A
Liberty Media Group Common Stock and Series B Liberty Media Group Common Stock.
(a) REDEMPTION IN EXCHANGE FOR STOCK OF LIBERTY MEDIA GROUP
SUBSIDIARIES. At any time at which all of the assets and liabilities
attributed to the Liberty Media Group have become and continue to be held
directly or indirectly by any one or more corporations all of the capital stock
of which is owned by the Corporation (the "Liberty Media Group Subsidiaries"),
the Board of Directors may, subject to the availability of assets of the
Corporation legally available therefor, redeem, on a pro rata basis, all of the
outstanding shares of Series A Liberty Media Group Common Stock and Series B
Liberty Media Group Common Stock in exchange for an aggregate number of
outstanding fully paid and nonassessable shares of common stock of each Liberty
Media Group Subsidiary equal to the product of the Adjusted Liberty Media Group
Outstanding Interest Fraction and the number of outstanding shares of common
stock of such Liberty Media Group Subsidiary held by the Corporation. Any such
redemption shall occur on a Redemption Date set forth in a notice to holders of
Series A Liberty Media Group Common Stock and Series B Liberty Media Group
Common Stock and Convertible Securities convertible into or exercisable or
exchangeable for shares of either such series (unless provision for notice is
otherwise made pursuant to the terms of such Convertible Securities) pursuant
to paragraph 5(d)(vi). In effecting such a redemption, the Board of Directors
may determine either to (i) redeem shares of Series A Liberty Media Group
Common Stock and Series B Liberty Media Group Common Stock in exchange for
shares of separate classes or series of common stock of each Liberty Media
Group Subsidiary with relative voting rights and related differences in
designation, conversion, redemption and share distribution provisions not
greater than the corresponding differences in voting rights, designation,
conversion, redemption and share distribution provisions between the Series A
Liberty Media Group Common Stock and Series B Liberty Media Group Common Stock,
with holders of shares of Series B Liberty Media Group Common Stock receiving
the class or series having the higher relative voting rights, or (ii) redeem
shares of Series A Liberty Media Group Common Stock and Series B Liberty Media
Group Common Stock in exchange for shares of a single class of common stock of
each Liberty Media Group Subsidiary without distinction between the shares
distributed to the holders of the Series A Liberty Media Group Common Stock and
Series B Liberty Media Group Common Stock. If the Corporation determines to
undertake a redemption as described in clause (i) of the preceding sentence,
the outstanding shares of common stock of each Liberty Media Group Subsidiary
not distributed to holders of Series A Liberty Media Group Common Stock or
Series B Liberty Media Group Common Stock shall consist solely of the class or
series having the lower relative voting rights.
II-A-10
<PAGE> 133
[Note: If both the TCI Ventures Group Stock Proposal and the Liberty Media
Group Amendment Proposal are approved by stockholders, paragraph 5(a) will
instead be amended to read in its entirety as set forth in Annex II-B.]
(b) MANDATORY DIVIDEND, REDEMPTION OR CONVERSION IN CASE OF
DISPOSITION OF LIBERTY MEDIA GROUP ASSETS. In the event of the Disposition, in
one transaction or a series of related transactions, by the Corporation and its
subsidiaries of all or substantially all of the properties and assets of the
Liberty Media Group to one or more persons, entities or groups (other than (w)
in connection with the Disposition by the Corporation of all of the
Corporation's properties and assets in one transaction or a series of related
transactions in connection with the liquidation, dissolution or winding up of
the Corporation within the meaning of paragraph 7 of this Section E, (x) a
dividend, other distribution or redemption in accordance with any provision of
paragraph 3, paragraph 4, paragraph 5(a) or paragraph 7 of this Section E, (y)
to any person, entity or group which the Corporation, directly or indirectly,
after giving effect to the Disposition, controls or (z) in connection with a
Related Business Transaction), the Corporation shall, on or prior to the 85th
Trading Day following the consummation of such Disposition, either:
(i) subject to paragraph 3(b) of this Section E, declare
and pay a dividend in cash and/or in securities or other property
(other than a dividend or distribution of Common Stock) to the holders
of the outstanding shares of Series A Liberty Media Group Common Stock
and Series B Liberty Media Group Common Stock equally on a share for
share basis (subject to the last sentence of this Section 5(b)), in an
aggregate amount equal to the product of the Liberty Media Group
Outstanding Interest Fraction as of the record date for determining
the holders entitled to receive such dividend and the Liberty Media
Group Net Proceeds of such Disposition; or
(ii) provided that there are assets of the Corporation
legally available therefor and the Liberty Media Group Available
Dividend Amount would have been sufficient to pay a dividend in lieu
thereof pursuant to clause (i) of this paragraph 5(b), then:
(A) if such Disposition involves all (not merely
substantially all) of the properties and assets of the Liberty
Media Group, redeem all outstanding shares of Series A Liberty
Media Group Common Stock and Series B Liberty Media Group
Common Stock in exchange for cash and/or securities or other
property (other than Common Stock) in an aggregate amount
equal to the product of the Adjusted Liberty Media Group
Outstanding Interest Fraction as of the date of such
redemption and the Liberty Media Group Net Proceeds, such
aggregate amount to be allocated (subject to the last sentence
of this paragraph 5(b)) to shares of Series A Liberty Media
Group Common Stock and Series B Liberty Media Group Common
Stock in the ratio of the number of shares of each such series
outstanding (so that the amount of consideration paid for the
redemption of each share of Series A Liberty Media Group
Common Stock and each share of Series B Liberty Media Group
Common Stock is the same); or
(B) if such Disposition involves substantially all
(but not all) of the properties and assets of the Liberty
Media Group, apply an aggregate amount of cash and/or
securities or other property (other than Common Stock) equal
to the product of the Liberty Media Group Outstanding Interest
Fraction as of the date shares are selected for redemption and
the Liberty Media Group Net Proceeds to the redemption of
outstanding shares of Series A Liberty Media Group Common
Stock and Series B Liberty Media Group Common Stock, such
aggregate amount to be allocated (subject to the last sentence
of this paragraph 5(b)) to shares of Series A Liberty Media
Group Common Stock and Series B Liberty Media Group Common
Stock in the ratio of the number of shares of each such series
outstanding, and the number of shares of each such series to
be redeemed to equal the lesser of (x) the whole number
nearest the number determined by dividing the aggregate amount
so allocated to the redemption of such series by the average
Market Value of one share of Series A Liberty Media Group
Common Stock during the ten-Trading Day period beginning on
the 16th Trading Day following the consummation of such
Disposition and (y) the number of shares of such series
outstanding (so that the amount of consideration paid for the
redemption of each share of Series A Liberty Media Group
Common Stock and each share of Series B Liberty Media Group
Common Stock is the same);
II-A-11
<PAGE> 134
such redemption to be effected in accordance with the applicable
provisions of paragraph 5(d) of this Section E; or
(iii) convert (A) each outstanding share of Series A
Liberty Media Group Common Stock into a number (or fraction) of fully
paid and nonassessable shares of Series A TCI Group Common Stock and
(B) each outstanding share of Series B Liberty Media Group Common
Stock into a number (or fraction) of fully paid and nonassessable
shares of Series B TCI Group Common Stock, in each case equal to 110%
of the average daily ratio (calculated to the nearest five decimal
places) of the Market Value of one share of Series A Liberty Media
Group Common Stock to the Market Value of one share of Series A TCI
Group Common Stock during the ten-Trading Day period referred to in
clause (ii)(B) of this paragraph 5(b).
For purposes of this paragraph 5(b):
(x) as of any date, "substantially all of the properties
and assets of the Liberty Media Group" shall mean a portion of such
properties and assets that represents at least 80% of the then-current
market value (as determined by the Board of Directors) of the
properties and assets of the Liberty Media Group as of such date;
(y) in the case of a Disposition of properties and assets
in a series of related transactions, such Disposition shall not be
deemed to have been consummated until the consummation of the last of
such transactions; and
(z) the Corporation may pay the dividend or redemption
price referred to in clause (i) or (ii) of this subparagraph 5(b)
either in the same form as the proceeds of the Disposition were
received or in any other combination of cash or securities or other
property (other than Common Stock) that the Board of Directors
determines will have an aggregate market value on a fully distributed
basis, of not less than the amount of the Liberty Media Group Net
Proceeds. If the dividend or redemption price is paid in the form of
securities of an issuer other than the Corporation, the Board of
Directors may determine either to (1) pay the dividend or redemption
price in the form of separate classes or series of securities, with
one class or series of such securities to holders of Series A Liberty
Media Group Common Stock and another class or series of securities to
holders of Series B Liberty Media Group Common Stock, provided that
such securities (and, if such securities are convertible into or
exercisable or exchangeable for shares of another class or series of
securities, the securities so issuable upon such conversion, exercise
or exchange) do not differ in any respect other than their relative
voting rights and related differences in designation, conversion,
redemption and share distribution provisions, with holders of shares
of Series B Liberty Media Group Common Stock receiving the class or
series having the higher relative voting rights (without regard to
whether such rights differ to a greater or lesser extent than the
corresponding differences in voting rights, designation, conversion,
redemption and share distribution provisions between the Series A
Liberty Media Group Common Stock and the Series B Liberty Media Group
Common Stock), provided that if such securities constitute capital
stock of a Subsidiary of the Corporation, such rights shall not differ
to a greater extent than the corresponding differences in voting
rights, designation, conversion, redemption and share distribution
provisions between the Series A Liberty Media Group Common Stock and
Series B Liberty Media Group Common Stock, and otherwise such
securities shall be distributed on an equal per share basis, or (2)
pay the dividend or redemption price in the form of a single class of
securities without distinction between the shares received by the
holders of Series A Liberty Media Group Common Stock and Series B
Liberty Media Group Common Stock.
(c) CERTAIN PROVISIONS RESPECTING CONVERTIBLE SECURITIES. Unless
the provisions of any class or series of Pre-Distribution Convertible
Securities or Convertible Securities which are convertible into or exercisable
or exchangeable for Committed Acquisition Shares provide specifically to the
contrary, after any Conversion Date or Redemption Date on which all outstanding
shares of Series A Liberty Media Group Common Stock and Series B Liberty Media
Group Common Stock were converted or redeemed, any share of Series A Liberty
Media Group Common Stock or Series B Liberty Media Group Common Stock that is
issued on conversion, exercise or exchange of any Pre-Distribution Convertible
Securities or any Convertible Securities which are convertible into or
exercisable or exchangeable for Committed Acquisition Shares shall, immediately
upon issuance pursuant to such conversion, exercise or exchange and without any
notice or any other action on the part of the Corporation or its
II-A-12
<PAGE> 135
Board of Directors or the holder of such share of Series A Liberty Media Group
Common Stock or Series B Liberty Media Group Common Stock, be converted into
(in case all such outstanding shares were converted) or redeemed in exchange
for (in case all such outstanding shares were redeemed) the kind and amount of
shares of capital stock, cash and/or other securities or property that a holder
of such Pre-Distribution Convertible Securities or any Convertible Securities
which are convertible into or exercisable or exchangeable for Committed
Acquisition Shares would have been entitled to receive pursuant to the terms of
such securities had such terms provided that the conversion, exercise or
exchange privilege in effect immediately prior to any such conversion or
redemption of all outstanding shares of Series A Liberty Media Group Common
Stock and Series B Liberty Media Group Common Stock would be adjusted so that
the holder of any such Pre-Distribution Convertible Securities or any
Convertible Securities which are convertible into or exercisable or
exchangeable for Committed Acquisition Shares thereafter surrendered for
conversion, exercise or exchange would be entitled to receive the kind and
amount of shares of capital stock, cash and/or other securities or property
such holder would have received as a result of such action had such securities
been converted, exercised or exchanged immediately prior thereto. With respect
to any Convertible Securities which are created, established or otherwise first
authorized for issuance subsequent to the record date for the Liberty
Distribution (other than Pre-Distribution Convertible Securities and
Convertible Securities which are convertible into or exercisable or
exchangeable for Committed Acquisition Shares), the terms and provisions of
which do not provide for adjustments specifying the kind and amount of capital
stock, cash and/or securities or other property that such holder would be
entitled to receive upon the conversion, exercise or exchange of such
Convertible Securities following any Conversion Date or Redemption Date on
which all outstanding shares of Series A Liberty Media Group Common Stock and
Series B Liberty Media Group Common Stock were converted or redeemed, then upon
such conversion, exercise or exchange of such Convertible Securities, any share
of Series A Liberty Media Group Common Stock or Series B Liberty Media Group
Common Stock that is issued on conversion, exercise or exchange of any such
Convertible Securities shall, immediately upon issuance pursuant to such
conversion, exercise or exchange and without any notice or any other action on
the part of the Corporation or its Board of Directors or the holder of such
share of Series A Liberty Media Group Common Stock or Series B Liberty Media
Group Common Stock, be redeemed in exchange for, to the extent assets of the
Corporation are legally available therefor, the amount of $.01 per share in
cash.
(d) GENERAL.
(i) Not later than the 10th Trading Day following the consummation
of a Disposition referred to in subparagraph 5(b) of this Section E, the
Corporation shall announce publicly by press release (A) the Liberty Media
Group Net Proceeds of such Disposition, (B) the number of outstanding shares of
Series A Liberty Media Group Common Stock and Series B Liberty Media Group
Common Stock, (C) the number of shares of Series A Liberty Media Group Common
Stock and Series B Liberty Media Group Common Stock into or for which
Convertible Securities are then convertible, exercisable or exchangeable and
the conversion, exercise or exchange prices thereof (and stating which, if any,
of such Convertible Securities constitute Pre-Distribution Convertible
Securities or Convertible Securities which are convertible into or exercisable
or exchangeable for Committed Acquisition Shares) and the number of Committed
Acquisition Shares issuable, (D) the Liberty Media Group Outstanding Interest
Fraction as of a recent date preceding the date of such notice and (E) the
Adjusted Liberty Media Group Outstanding Interest Fraction as of a recent date
preceding the date of such notice. Not earlier than the 26th Trading Day and
not later than the 30th Trading Day following the consummation of such
Disposition, the Corporation shall announce publicly by press release which of
the actions specified in clauses (i), (ii) or (iii) of paragraph 5(b) of this
Section E it has irrevocably determined to take.
(ii) If the Corporation determines to pay a dividend pursuant to
clause (i) of subparagraph 5(b) of this Section E, the Corporation shall, not
later than the 30th Trading Day following the consummation of such Disposition,
cause to be given to each holder of outstanding shares of Series A Liberty
Media Group Common Stock and Series B Liberty Media Group Common Stock, and to
each holder of Convertible Securities convertible into or exercisable or
exchangeable for shares of either such series (unless provision for notice is
otherwise made pursuant to the terms of such Convertible Securities), a notice
setting forth (A) the record date for determining holders entitled to receive
such dividend, which shall be not earlier than the 40th Trading Day and not
later than the 50th Trading Day following the consummation of such Disposition,
(B) the anticipated payment date of such dividend (which shall not be more than
85 Trading Days following the consummation of such Disposition), (C) the kind
of shares of capital stock, cash and/or other securities or property to be
distributed in respect of shares of Series A Liberty Media Group Common Stock
and Series B Liberty Media Group Common Stock, (D) the Liberty Media
II-A-13
<PAGE> 136
Group Net Proceeds of such Disposition, (E) the Liberty Media Group Outstanding
Interest Fraction as of a recent date preceding the date of such notice, (F)
the number of outstanding shares of Series A Liberty Media Group Common Stock
and Series B Liberty Media Group Common Stock and the number of shares of
Series A Liberty Media Group Common Stock and Series B Liberty Media Group
Common Stock into or for which outstanding Convertible Securities are then
convertible, exercisable or exchangeable and the conversion, exercise or
exchange prices thereof and (G) in the case of a notice to holders of
Convertible Securities, a statement to the effect that holders of such
Convertible Securities shall be entitled to receive such dividend only if they
appropriately convert, exercise or exchange such Convertible Securities prior
to the record date referred to in clause (A) of this sentence. Such notice
shall be sent by first-class mail, postage prepaid, at such holder's address as
the same appears on the transfer books of the Corporation.
(iii) If the Corporation determines to undertake a redemption of
shares of Series A Liberty Media Group Common Stock and Series B Liberty Media
Group Common Stock following a Disposition of all (not merely substantially
all) of the properties and assets of the Liberty Media Group pursuant to clause
(ii) (A) of paragraph 5(b) of this Section E, the Corporation shall cause to be
given to each holder of outstanding shares of Series A Liberty Media Group
Common Stock and Series B Liberty Media Group Common Stock and to each holder
of Convertible Securities convertible into or exercisable or exchangeable for
shares of either such series (unless provision for notice is otherwise made
pursuant to the terms of such Convertible Securities), a notice setting forth
(A) a statement that all shares of Series A Liberty Media Group Common Stock
and Series B Liberty Media Group Common Stock outstanding on the Redemption
Date shall be redeemed, (B) the Redemption Date (which shall not be more than
85 Trading Days following the consummation of such Disposition), (C) the kind
of shares of capital stock, cash and/or other securities or property to be paid
as a redemption price in respect of shares of Series A Liberty Media Group
Common Stock and Series B Liberty Media Group Common Stock outstanding on the
Redemption Date, (D) the Liberty Media Group Net Proceeds of such Disposition,
(E) the Adjusted Liberty Media Group Outstanding Interest Fraction as of a
recent date preceding the date of such notice, (F) the place or places where
certificates for shares of Series A Liberty Media Group Common Stock and Series
B Liberty Media Group Common Stock, properly endorsed or assigned for transfer
(unless the Corporation waives such requirement), are to be surrendered for
delivery of certificates for shares of such capital stock, cash and/or other
securities or property, (G) the number of outstanding shares of Series A
Liberty Media Group Common Stock and Series B Liberty Media Group Common Stock
and the number of shares of Series A Liberty Media Group Common Stock and
Series B Liberty Media Group Common Stock into or for which outstanding
Convertible Securities are then convertible, exercisable or exchangeable and
the conversion, exercise or exchange prices thereof (and stating which, if any,
of such Convertible Securities constitute Pre-Distribution Convertible
Securities or Convertible Securities which are convertible into or exercisable
or exchangeable for Committed Acquisition Shares) and the number of Committed
Acquisition Shares issuable, and (H) in the case of a notice to holders of
Convertible Securities (other than Pre-Distribution Convertible Securities or
Convertible Securities which are convertible into or exercisable or
exchangeable for Committed Acquisition Shares), a statement to the effect that
holders of such Convertible Securities shall be entitled to participate in such
redemption only if such holders appropriately convert, exercise or exchange
such Convertible Securities on or prior to the Redemption Date referred to in
clause (B) of this sentence and a statement as to what, if anything, such
holders shall be entitled to receive pursuant to the terms of such Convertible
Securities or, if applicable, paragraph 5(c) of this Section E if such holders
convert, exercise or exchange such Convertible Securities following such
Redemption Date. Such notice shall be sent by first-class mail, postage
prepaid, not less than 35 Trading Days nor more than 45 Trading Days prior to
the Redemption Date, at such holder's address as the same appears on the
transfer books of the Corporation.
(iv) If the Corporation determines to undertake a redemption of
shares of Series A Liberty Media Group Common Stock and Series B Liberty Media
Group Common Stock following a Disposition of substantially all (but not all)
of the properties and assets of the Liberty Media Group pursuant to clause
(ii)(B) of paragraph 5(b) of this Section E, the Corporation shall, not later
than the 30th Trading Day following the consummation of such Disposition, cause
to be given to each holder of record of outstanding shares of Series A Liberty
Media Group Common Stock and Series B Liberty Media Group Common Stock, and to
each holder of Convertible Securities convertible into or exercisable or
exchangeable for shares of either such series (unless provision for notice is
otherwise made pursuant to the terms of such Convertible Securities), a notice
setting forth (A) a date not earlier than the 40th Trading Day and not later
than the 50th Trading Day following the consummation of such Disposition which
shall be the date on which shares of the Series A Liberty Media Group Common
Stock and Series B Liberty Media Group Common Stock then outstanding shall be
selected for redemption, (B) the anticipated Redemption
II-A-14
<PAGE> 137
Date (which shall not be more than 85 Trading Days following the consummation
of such Disposition), (C) the kind of shares of capital stock, cash and/or
other securities or property to be paid as a redemption price in respect of
shares of Series A Liberty Media Group Common Stock and Series B Liberty Media
Group Common Stock selected for redemption, (D) the Liberty Media Group Net
Proceeds of such Disposition, (E) the Liberty Media Group Outstanding Interest
Fraction as of a recent date preceding the date of such notice, (F) the number
of outstanding shares of Series A Liberty Media Group Common Stock and Series B
Liberty Media Group Common Stock and the number of shares of Series A Liberty
Media Group Common Stock and Series B Liberty Media Group Common Stock into or
for which outstanding Convertible Securities are then convertible, exercisable
or exchangeable and the conversion or exercise prices thereof, (G) in the case
of a notice to holders of Convertible Securities, a statement to the effect
that holders of such Convertible Securities shall be entitled to participate in
such selection for redemption only if such holders appropriately convert,
exercise or exchange such Convertible Securities on or prior to the date
referred to in clause (A) of this sentence and a statement as to what, if
anything, such holders shall be entitled to receive pursuant to the terms of
such Convertible Securities if such holders convert, exercise or exchange such
Convertible Securities following such date and (H) a statement that the
Corporation will not be required to register a transfer of any shares of Series
A Liberty Media Group Common Stock or Series B Liberty Media Group Common Stock
for a period of 15 Trading Days next preceding the date referred to in clause
(A) of this sentence. Promptly following the date referred to in clause (A) of
the preceding sentence, but not earlier than the 40th Trading Day and not later
than the 50th Trading Day following the consummation of such Disposition, the
Corporation shall cause to be given to each holder of shares of Series A
Liberty Media Group Common Stock and Series B Liberty Media Group Common Stock
to be so redeemed, a notice setting forth (A) the number of shares of Series A
Liberty Media Group Common Stock and Series B Liberty Media Group Common Stock
held by such holder to be redeemed, (B) a statement that such shares of Series
A Liberty Media Group Common Stock and Series B Liberty Media Group Common
Stock shall be redeemed, (C) the Redemption Date (which shall not be more than
85 Trading Days following the consummation of such Disposition), (D) the kind
and per share amount of shares of capital stock, cash and/or other securities
or property to be received by such holder with respect to each share of such
Series A Liberty Media Group Common Stock and Series B Liberty Media Group
Common Stock to be redeemed, including details as to the calculation thereof,
and (E) the place or places where certificates for shares of such Series A
Liberty Media Group Common Stock or Series B Liberty Media Group Common Stock,
properly endorsed or assigned for transfer (unless the Corporation waives such
requirement), are to be surrendered for delivery of certificates for shares of
such capital stock, cash and/or other securities or property. The notices
referred to in this clause (iv) shall be sent by first-class mail, postage
prepaid, at such holder's address as the same appears on the transfer books of
the Corporation. The outstanding shares of Series A Liberty Media Group Common
Stock and Series B Liberty Media Group Common Stock to be redeemed shall be
redeemed by the Corporation pro rata among the holders of Series A Liberty
Media Group Common Stock and Series B Liberty Media Group Common Stock or by
such other method as may be determined by the Board of Directors to be
equitable.
(v) In the event of any conversion pursuant to paragraph 2(d) of
this Section E or pursuant to this paragraph 5 (other than pursuant to
paragraph 5(c)), the Corporation shall cause to be given to each holder of
outstanding shares of Series A Liberty Media Group Common Stock and Series B
Liberty Media Group Common Stock and to each holder of Convertible Securities
convertible into or exercisable or exchangeable for shares of either such
series (unless provision for such notice is otherwise made pursuant to the
terms of such Convertible Securities), a notice setting forth (A) a statement
that all outstanding shares of Series A Liberty Media Group Common Stock and
Series B Liberty Media Group Common Stock shall be converted, (B) the
Conversion Date (which shall not be more than 85 Trading Days following the
consummation of such Disposition in the event of a conversion pursuant to
paragraph 5(b) and which shall not be more than 120 days after the Appraisal
Date in the event of a conversion pursuant to paragraph 2(d)), (C) the per
share number of shares of Series A TCI Group Common Stock or Series B TCI Group
Common Stock, as applicable, to be received with respect to each share of
Series A Liberty Media Group Common Stock or Series B Liberty Media Group
Common Stock, including details as to the calculation thereof, (D) the place or
places where certificates for shares of Series A Liberty Media Group Common
Stock or Series B Liberty Media Group Common Stock, properly endorsed or
assigned for transfer (unless the Corporation shall waive such requirement),
are to be surrendered, (E) the number of outstanding shares of Series A Liberty
Media Group Common Stock and Series B Liberty Media Group Common Stock, the
number of Committed Acquisition Shares issuable and the number of shares of
Series A Liberty Media Group Common Stock and Series B Liberty Media Group
Common Stock into or for which outstanding Convertible Securities are then
convertible, exercisable or exchangeable and the conversion, exercise or
exchange prices thereof and (F) in the case of a notice to holders of
Convertible Securities, a statement to the effect that holders of such
Convertible Securities
II-A-15
<PAGE> 138
shall be entitled to participate in such conversion only if such holders
appropriately convert, exercise or exchange such Convertible Securities on or
prior to the Conversion Date referred to in clause (B) of this sentence and a
statement as to what, if anything, such holders shall be entitled to receive
pursuant to the terms of such Convertible Securities or, if applicable,
paragraph 5(c) of this Section E if such holders convert, exercise or exchange
such Convertible Securities following such Conversion Date. Such notice shall
be sent by first-class mail, postage prepaid, not less than 35 Trading Days nor
more than 45 Trading Days prior to the Conversion Date, at such holder's
address as the same appears on the transfer books of the Corporation.
(vi) If the Corporation determines to redeem shares of Series A
Liberty Media Group Common Stock and Series B Liberty Media Group Common Stock
pursuant to subparagraph (a) of this paragraph 5, the Corporation shall
promptly cause to be given to each holder of Series A Liberty Media Group
Common Stock and Series B Liberty Media Group Common Stock and to each holder
of Convertible Securities convertible into or exercisable or exchangeable for
shares of either such series (unless provision for such notice is otherwise
made pursuant to the terms of such Convertible Securities), a notice setting
forth (A) a statement that all outstanding shares of Series A Liberty Media
Group Common Stock and Series B Liberty Media Group Common Stock shall be
redeemed in exchange for shares of common stock of the Liberty Media Group
Subsidiaries, (B) the Redemption Date, (C) the Adjusted Liberty Media Group
Outstanding Interest Fraction as of a recent date preceding the date of such
notice, (D) the place or places where certificates for shares of Series A
Liberty Media Group Common Stock and Series B Liberty Media Group Common Stock,
properly endorsed or assigned for transfer (unless the Corporation shall waive
such requirement), are to be surrendered for delivery of certificates for
shares of common stock of the Liberty Media Group Subsidiaries, (E) the number
of outstanding shares of Series A Liberty Media Group Common Stock and Series B
Liberty Media Group Common Stock and the number of shares of Series A Liberty
Media Group Common Stock and Series B Liberty Media Group Common Stock into or
for which outstanding Convertible Securities are then convertible, exercisable
or exchangeable and the conversion, exercise or exchange prices thereof (and
stating which, if any, of such Convertible Securities constitute
Pre-Distribution Convertible Securities or Convertible Securities which are
convertible into or exercisable or exchangeable for Committed Acquisition
Shares) and the number of Committed Acquisition Shares issuable, and (F) in the
case of a notice to holders of Convertible Securities (other than
Pre-Distribution Convertible Securities or Convertible Securities which are
convertible into or exercisable or exchangeable for Committed Acquisition
Shares), a statement to the effect that holders of such Convertible Securities
shall be entitled to participate in such redemption only if such holders
appropriately convert, exercise or exchange such Convertible Securities on or
prior to the Redemption Date referred to in clause (B) of this sentence and a
statement as to what, if anything, such holders shall be entitled to receive
pursuant to the terms of such Convertible Securities or, if applicable,
paragraph 5(c) of this Section E if such holders convert, exercise or exchange
such Convertible Securities following the Redemption Date. Such notice shall
be sent by first-class mail, postage prepaid, not less than 35 Trading Days nor
more than 45 Trading Days prior to the Redemption Date, at such holder's
address as the same appears on the transfer books of the Corporation.
(vii) Neither the failure to mail any notice required by this
paragraph 5(d) to any particular holder of Series A Liberty Media Group Common
Stock, Series B Liberty Media Group Common Stock or of Convertible Securities
nor any defect therein shall affect the sufficiency thereof with respect to any
other holder of outstanding shares of Series A Liberty Media Group Common Stock
or Series B Liberty Media Group Common Stock or of Convertible Securities, or
the validity of any conversion or redemption.
(viii) The Corporation shall not be required to issue or deliver
fractional shares of any class of capital stock or any fractional securities to
any holder of Series A Liberty Media Group Common Stock or Series B Liberty
Media Group Common Stock upon any conversion, redemption, dividend or other
distribution pursuant to paragraph 2(d) of this Section E or pursuant to this
paragraph 5. In connection with the determination of the number of shares of
any class of capital stock that shall be issuable or the amount of securities
that shall be deliverable to any holder of record upon any such conversion,
redemption, dividend or other distribution (including any fractions of shares
or securities), the Corporation may aggregate the number of shares of Series A
Liberty Media Group Common Stock or Series B Liberty Media Group Common Stock
held at the relevant time by such holder of record. If the number of shares of
any class of capital stock or the amount of securities remaining to be issued
or delivered to any holder of Series A Liberty Media Group Common Stock or
Series B Liberty Media Group Common Stock is a fraction, the Corporation shall,
if such fraction is not issued or delivered to such holder, pay a cash
adjustment in respect of such fraction in an amount equal to the fair market
value of such fraction on the fifth
II-A-16
<PAGE> 139
Trading Day prior to the date such payment is to be made (without interest).
For purposes of the preceding sentence, "fair market value" of any fraction
shall be (A) in the case of any fraction of a share of capital stock of the
Corporation, the product of such fraction and the Market Value of one share of
such capital stock and (B) in the case of any other fractional security, such
value as is determined by the Board of Directors.
(ix) No adjustments in respect of dividends shall be made upon the
conversion or redemption of any shares of Series A Liberty Media Group Common
Stock or Series B Liberty Media Group Common Stock; provided, however, that if
the Conversion Date or the Redemption Date with respect to the Series A Liberty
Media Group Common Stock or Series B Liberty Media Group Common Stock shall be
subsequent to the record date for the payment of a dividend or other
distribution thereon or with respect thereto, the holders of shares of Series A
Liberty Media Group Common Stock or Series B Liberty Media Group Common Stock
at the close of business on such record date shall be entitled to receive the
dividend or other distribution payable on or with respect to such shares on the
date set for payment of such dividend or other distribution, notwithstanding
the conversion or redemption of such shares or the Corporation's default in
payment of the dividend or distribution due on such date.
(x) Before any holder of shares of Series A Liberty Media Group
Common Stock or Series B Liberty Media Group Common Stock shall be entitled to
receive certificates representing shares of any kind of capital stock or cash
and/or securities or other property to be received by such holder with respect
to shares of Series A Liberty Media Group Common Stock or Series B Liberty
Media Group Common Stock pursuant to paragraph 2(d) of this Section E or
pursuant to this paragraph 5, such holder shall surrender at such place as the
Corporation shall specify certificates for such shares of Series A Liberty
Media Group Common Stock or Series B Liberty Media Group Common Stock, properly
endorsed or assigned for transfer (unless the Corporation shall waive such
requirement). The Corporation shall as soon as practicable after such
surrender of certificates representing shares of Series A Liberty Media Group
Common Stock or Series B Liberty Media Group Common Stock deliver to the person
for whose account shares of Series A Liberty Media Group Common Stock or Series
B Liberty Media Group Common Stock were so surrendered, or to the nominee or
nominees of such person, certificates representing the number of whole shares
of the kind of capital stock or cash and/or securities or other property to
which such person shall be entitled as aforesaid, together with any payment for
fractional securities contemplated by paragraph 5(d)(viii). If less than all
of the shares of Series A Liberty Media Group Common Stock or Series B Liberty
Media Group Common Stock represented by any one certificate are to be redeemed,
the Corporation shall issue and deliver a new certificate for the shares of
Series A Liberty Media Group Common Stock or Series B Liberty Media Group
Common Stock not redeemed. The Corporation shall not be required to register a
transfer of (1) any shares of Series A Liberty Media Group Common Stock or
Series B Liberty Media Group Common Stock for a period of 15 Trading Days next
preceding any selection of shares of Series A Liberty Media Group Common Stock
or Series B Liberty Media Group Common Stock to be redeemed or (2) any shares
of Series A Liberty Media Group Common Stock or Series B Liberty Media Group
Common Stock selected or called for redemption. Shares selected for redemption
may not thereafter be converted pursuant to paragraph 2(b) of this Section E.
(xi) From and after any applicable Conversion Date or Redemption
Date, all rights of a holder of shares of Series A Liberty Media Group Common
Stock or Series B Liberty Media Group Common Stock that were converted or
redeemed shall cease except for the right, upon surrender of the certificates
representing shares of Series A Liberty Media Group Common Stock or Series B
Liberty Media Group Common Stock, to receive certificates representing shares
of the kind and amount of capital stock or cash and/or securities or other
property for which such shares were converted or redeemed, together with any
payment for fractional securities contemplated by paragraph 5(d)(viii) of this
Section E and such holder shall have no other or further rights in respect of
the shares of Series A Liberty Media Group Common Stock or Series B Liberty
Media Group Common Stock so converted or redeemed, including, but not limited
to, any rights with respect to any cash, securities or other properties which
are reserved or otherwise designated by the Corporation as being held for the
satisfaction of the Corporation's obligations to pay or deliver any cash,
securities or other property upon the conversion, exercise or exchange of any
Convertible Securities outstanding as of the date of such conversion or
redemption or any Committed Acquisition Shares which may then be issuable. No
holder of a certificate that, immediately prior to the applicable Conversion
Date or Redemption Date for the Series A Liberty Media Group Common Stock or
Series B Liberty Media Group Common Stock, represented shares of Series A
Liberty Media Group Common Stock or Series B Liberty Media Group Common Stock
shall be entitled to receive any dividend or other distribution with respect to
shares of any kind of capital stock into or in exchange for which the Series A
Liberty Media Group Common Stock or Series B Liberty Media Group Common Stock
was converted or redeemed until surrender of such holder's certificate for a
II-A-17
<PAGE> 140
certificate or certificates representing shares of such kind of capital stock.
Upon such surrender, there shall be paid to the holder the amount of any
dividends or other distributions (without interest) which theretofore became
payable with respect to a record date after the Conversion Date or Redemption
Date, as the case may be, but that were not paid by reason of the foregoing,
with respect to the number of whole shares of the kind of capital stock
represented by the certificate or certificates issued upon such surrender.
From and after a Conversion Date or Redemption Date, as the case may be, for
any shares of Series A Liberty Media Group Common Stock or Series B Liberty
Media Group Common Stock, the Corporation shall, however, be entitled to treat
the certificates for shares of Series A Liberty Media Group Common Stock or
Series B Liberty Media Group Common Stock that have not yet been surrendered
for conversion or redemption as evidencing the ownership of the number of whole
shares of the kind or kinds of capital stock for which the shares of Series A
Liberty Media Group Common Stock or Series B Liberty Media Group Common Stock
represented by such certificates shall have been converted or redeemed,
notwithstanding the failure to surrender such certificates.
(xii) The Corporation shall pay any and all documentary, stamp or
similar issue or transfer taxes that may be payable in respect of the issue or
delivery of any shares of capital stock and/or other securities on conversion
or redemption of shares of Series A Liberty Media Group Common Stock or Series
B Liberty Media Group Common Stock pursuant to this Section E. The Corporation
shall not, however, be required to pay any tax that may be payable in respect
of any transfer involved in the issue and delivery of any shares of capital
stock in a name other than that in which the shares of Series A Liberty Media
Group Common Stock or Series B Liberty Media Group Common Stock so converted or
redeemed were registered and no such issue or delivery shall be made unless and
until the person requesting such issue has paid to the Corporation the amount
of any such tax, or has established to the satisfaction of the Corporation that
such tax has been paid.
6. Redemption and Other Provisions Relating to the Series A TCI
Ventures Group Common Stock and Series B TCI Ventures Group Common Stock.
(a) REDEMPTION IN EXCHANGE FOR STOCK OF TCI VENTURES GROUP
SUBSIDIARIES. At any time at which all of the assets and liabilities
attributed to the TCI Ventures Group have become and continue to be held
directly or indirectly by any one or more Qualifying Subsidiaries (the "TCI
Ventures Group Subsidiaries"), the Board of Directors may, subject to the
availability of assets of the Corporation legally available therefor, redeem,
on a pro rata basis, all of the outstanding shares of Series A TCI Ventures
Group Common Stock and Series B TCI Ventures Group Common Stock in exchange for
an aggregate number of outstanding fully paid and nonassessable shares of
common stock of each TCI Ventures Group Subsidiary equal to the product of the
Adjusted TCI Ventures Group Outstanding Interest Fraction and the number of
outstanding shares of common stock of such TCI Ventures Group Subsidiary held
by the Corporation. Any such redemption shall occur on a Redemption Date set
forth in a notice to holders of Series A TCI Ventures Group Common Stock and
Series B TCI Ventures Group Common Stock and Convertible Securities convertible
into or exercisable or exchangeable for shares of either such series (unless
provision for notice is otherwise made pursuant to the terms of such
Convertible Securities) pursuant to paragraph 6(d)(vi). In effecting such a
redemption, the Board of Directors may determine either to (i) redeem shares of
Series A TCI Ventures Group Common Stock and Series B TCI Ventures Group Common
Stock in exchange for shares of separate classes or series of common stock of
each TCI Ventures Group Subsidiary with relative voting rights and related
differences in designation, conversion, redemption and share distribution
provisions not greater than the corresponding differences in voting rights,
designation, conversion, redemption and share distribution provisions between
the Series A TCI Ventures Group Common Stock and Series B TCI Ventures Group
Common Stock, with holders of shares of Series B TCI Ventures Group Common
Stock receiving the class or series having the higher relative voting rights,
or (ii) redeem shares of Series A TCI Ventures Group Common Stock and Series B
TCI Ventures Group Common Stock in exchange for shares of a single class of
common stock of each TCI Ventures Group Subsidiary without distinction between
the shares distributed to the holders of the Series A TCI Ventures Group Common
Stock and Series B TCI Ventures Group Common Stock.
(b) MANDATORY DIVIDEND, REDEMPTION OR CONVERSION IN CASE OF
DISPOSITION OF TCI VENTURES GROUP ASSETS. In the event of the Disposition, in
one transaction or a series of related transactions, by the Corporation and its
subsidiaries of all or substantially all of the properties and assets of the
TCI Ventures Group to one or more persons, entities or groups (other than (w)
in connection with the Disposition by the Corporation of all of the
Corporation's properties and assets in one transaction or a series of related
transactions in connection with the liquidation, dissolution or winding up of
the Corporation within the meaning of paragraph 7 of this Section E, (x) a
II-A-18
<PAGE> 141
dividend, other distribution or redemption in accordance with any provision of
paragraph 3, paragraph 4, paragraph 6(a) or paragraph 7 of this Section E, (y)
to any person, entity or group which the Corporation, directly or indirectly,
after giving effect to the Disposition, controls or (z) in connection with a
Related Business Transaction), the Corporation shall, on or prior to the 85th
Trading Day following the consummation of such Disposition, either:
(i) subject to paragraph 3(c) of this Section E, declare
and pay a dividend in cash and/or in securities or other property
(other than a dividend or distribution of Common Stock) to the holders
of the outstanding shares of Series A TCI Ventures Group Common Stock
and Series B TCI Ventures Group Common Stock equally on a share for
share basis (subject to the last sentence of this Section 6(b)), in an
aggregate amount equal to the product of the TCI Ventures Group
Outstanding Interest Fraction as of the record date for determining
the holders entitled to receive such dividend and the TCI Ventures
Group Net Proceeds of such Disposition; or
(ii) provided that there are assets of the Corporation
legally available therefor and the TCI Ventures Group Available
Dividend Amount would have been sufficient to pay a dividend in lieu
thereof pursuant to clause (i) of this paragraph 6(b), then:
(A) if such Disposition involves all (not merely
substantially all) of the properties and assets of the TCI
Ventures Group, redeem all outstanding shares of Series A TCI
Ventures Group Common Stock and Series B TCI Ventures Group
Common Stock in exchange for cash and/or securities or other
property (other than Common Stock) in an aggregate amount
equal to the product of the Adjusted TCI Ventures Group
Outstanding Interest Fraction as of the date of such
redemption and the TCI Ventures Group Net Proceeds, such
aggregate amount to be allocated (subject to the last sentence
of this paragraph 6(b)) to shares of Series A TCI Ventures
Group Common Stock and Series B TCI Ventures Group Common
Stock in the ratio of the number of shares of each such series
outstanding (so that the amount of consideration paid for the
redemption of each share of Series A TCI Ventures Group Common
Stock and each share of Series B TCI Ventures Group Common
Stock is the same); or
(B) if such Disposition involves substantially all
(but not all) of the properties and assets of the TCI Ventures
Group, apply an aggregate amount of cash and/or securities or
other property (other than Common Stock) equal to the product
of the TCI Ventures Group Outstanding Interest Fraction as of
the date shares are selected for redemption and the TCI
Ventures Group Net Proceeds to the redemption of outstanding
shares of Series A TCI Ventures Group Common Stock and Series
B TCI Ventures Group Common Stock, such aggregate amount to be
allocated (subject to the last sentence of this paragraph
6(b)) to shares of Series A TCI Ventures Group Common Stock
and Series B TCI Ventures Group Common Stock in the ratio of
the number of shares of each such series outstanding, and the
number of shares of each such series to be redeemed to equal
the lesser of (x) the whole number nearest the number
determined by dividing the aggregate amount so allocated to
the redemption of such series by the average Market Value of
one share of Series A TCI Ventures Group Common Stock during
the ten-Trading Day period beginning on the 16th Trading Day
following the consummation of such Disposition and (y) the
number of shares of such series outstanding (so that the
amount of consideration paid for the redemption of each share
of Series A TCI Ventures Group Common Stock and each share of
Series B TCI Ventures Group Common Stock is the same);
such redemption to be effected in accordance with the applicable
provisions of paragraph 6(d) of this Section E; or
(iii) convert (A) each outstanding share of Series A TCI
Ventures Group Common Stock into a number (or fraction) of fully paid
and nonassessable shares of Series A TCI Group Common Stock and (B)
each outstanding share of Series B TCI Ventures Group Common Stock
into a number (or fraction) of fully paid and nonassessable shares of
Series B TCI Group Common Stock, in each case equal to 110% of the
average daily ratio (calculated to the nearest five decimal places) of
the Market Value of one share of Series A TCI Ventures Group Common
Stock to the Market Value of one share of Series A TCI Group Common
Stock during the ten-Trading Day period referred to in clause (ii)(B)
of this paragraph 6(b).
II-A-19
<PAGE> 142
For purposes of this paragraph 6(b):
(x) as of any date, "substantially all of the properties
and assets of the TCI Ventures Group" shall mean a portion of such
properties and assets that represents at least 80% of the then-current
market value (as determined by the Board of Directors) of the
properties and assets of the TCI Ventures Group as of such date;
(y) in the case of a Disposition of properties and assets
in a series of related transactions, such Disposition shall not be
deemed to have been consummated until the consummation of the last of
such transactions; and
(z) the Corporation may pay the dividend or redemption
price referred to in clause (i) or (ii) of this subparagraph 6(b)
either in the same form as the proceeds of the Disposition were
received or in any other combination of cash or securities or other
property (other than Common Stock) that the Board of Directors
determines will have an aggregate market value on a fully distributed
basis, of not less than the amount of the TCI Ventures Group Net
Proceeds. If the dividend or redemption price is paid in the form of
securities of an issuer other than the Corporation, the Board of
Directors may determine either to (1) pay the dividend or redemption
price in the form of separate classes or series of securities, with
one class or series of such securities to holders of Series A TCI
Ventures Group Common Stock and another class or series of securities
to holders of Series B TCI Ventures Group Common Stock, provided that
such securities (and, if such securities are convertible into or
exercisable or exchangeable for shares of another class or series of
securities, the securities so issuable upon such conversion, exercise
or exchange) do not differ in any respect other than their relative
voting rights and related differences in designation, conversion,
redemption and share distribution provisions, with holders of shares
of Series B TCI Ventures Group Common Stock receiving the class or
series having the higher relative voting rights (without regard to
whether such rights differ to a greater or lesser extent than the
corresponding differences in voting rights, designation, conversion,
redemption and share distribution provisions between the Series A TCI
Ventures Group Common Stock and the Series B TCI Ventures Group Common
Stock), provided that if such securities constitute capital stock of a
Subsidiary of the Corporation, such rights shall not differ to a
greater extent than the corresponding differences in voting rights,
designation, conversion, redemption and share distribution provisions
between the Series A TCI Ventures Group Common Stock and Series B TCI
Ventures Group Common Stock, and otherwise such securities shall be
distributed on an equal per share basis, or (2) pay the dividend or
redemption price in the form of a single class of securities without
distinction between the shares received by the holders of Series A TCI
Ventures Group Common Stock and Series B TCI Ventures Group Common
Stock.
(c) CERTAIN PROVISIONS RESPECTING CONVERTIBLE SECURITIES. Unless
the provisions of any class or series of Pre-Exchange Offer Securities provide
specifically to the contrary, after any Conversion Date or Redemption Date on
which all outstanding shares of Series A TCI Ventures Group Common Stock and
Series B TCI Ventures Group Common Stock were converted or redeemed, any share
of Series A TCI Ventures Group Common Stock that is issued on exchange of any
Pre-Exchange Offer Securities shall, immediately upon issuance pursuant to
such exchange and without any notice or any other action on the part of the
Corporation or its Board of Directors or the holder of such share of Series A
TCI Ventures Group Common Stock, be converted into (in case all such
outstanding shares were converted) or redeemed in exchange for (in case all
such outstanding shares were redeemed) the kind and amount of shares of capital
stock, cash and/or other securities or property that a holder of such
Pre-Exchange Offer Securities would have been entitled to receive pursuant to
the terms of such securities had such terms provided that the exchange
privilege in effect immediately prior to any such conversion or redemption of
all outstanding shares of Series A TCI Ventures Group Common Stock and Series B
TCI Ventures Group Common Stock would be adjusted so that the holder of any
such Pre-Exchange Offer Securities thereafter surrendered for exchange would be
entitled to receive the kind and amount of shares of capital stock, cash and/or
other securities or property such holder would have received as a result of
such action had such securities been exchanged immediately prior thereto.
Unless the provisions of any class or series of Convertible Securities (other
than Pre-Exchange Offer Securities) which are or become convertible into or
exercisable or exchangeable for shares of Series A TCI Ventures Group Common
Stock or Series B TCI Ventures Group Common Stock provide specifically to the
contrary, after any Conversion Date or Redemption Date on which all outstanding
shares of Series A TCI Ventures Group Common Stock and Series B TCI Ventures
Group Common Stock were converted or redeemed, any share of Series
II-A-20
<PAGE> 143
A TCI Ventures Group Common Stock or Series B TCI Ventures Group Common Stock
that is issued on conversion, exercise or exchange of any such Convertible
Securities will, immediately upon issuance pursuant to such conversion,
exercise or exchange and without any notice or any other action on the part of
the Corporation or its Board of Directors or the holder of such share of Series
A TCI Ventures Group Common Stock or Series B TCI Ventures Group Common Stock,
be redeemed in exchange for, to the extent assets of the Corporation are
legally available therefor, the amount of $.01 per share in cash.
(d) GENERAL.
(i) Not later than the 10th Trading Day following the consummation
of a Disposition referred to in subparagraph 6(b) of this Section E, the
Corporation shall announce publicly by press release (A) the TCI Ventures Group
Net Proceeds of such Disposition, (B) the number of outstanding shares of
Series A TCI Ventures Group Common Stock and Series B TCI Ventures Group Common
Stock, (C) the number of shares of Series A TCI Ventures Group Common Stock and
Series B TCI Ventures Group Common Stock into or for which Convertible
Securities are then convertible, exercisable or exchangeable and the
conversion, exercise or exchange prices thereof (and stating which, if any, of
such Convertible Securities constitute Pre-Exchange Offer Securities), (D) the
TCI Ventures Group Outstanding Interest Fraction as of a recent date preceding
the date of such notice, and (E) the Adjusted TCI Ventures Group Outstanding
Interest Fraction as of a recent date preceding the date of such notice. Not
earlier than the 26th Trading Day and not later than the 30th Trading Day
following the consummation of such Disposition, the Corporation shall announce
publicly by press release which of the actions specified in clauses (i), (ii)
or (iii) of paragraph 6(b) of this Section E it has irrevocably determined to
take.
(ii) If the Corporation determines to pay a dividend pursuant to
clause (i) of subparagraph 6(b) of this Section E, the Corporation shall, not
later than the 30th Trading Day following the consummation of such Disposition,
cause to be given to each holder of outstanding shares of Series A TCI Ventures
Group Common Stock and Series B TCI Ventures Group Common Stock, and to each
holder of Convertible Securities convertible into or exercisable or
exchangeable for shares of either such series (unless provision for notice is
otherwise made pursuant to the terms of such Convertible Securities), a notice
setting forth (A) the record date for determining holders entitled to receive
such dividend, which shall be not earlier than the 40th Trading Day and not
later than the 50th Trading Day following the consummation of such Disposition,
(B) the anticipated payment date of such dividend (which shall not be more than
85 Trading Days following the consummation of such Disposition), (C) the kind
of shares of capital stock, cash and/or other securities or property to be
distributed in respect of shares of Series A TCI Ventures Group Common Stock
and Series B TCI Ventures Group Common Stock, (D) the TCI Ventures Group Net
Proceeds of such Disposition, (E) the TCI Ventures Group Outstanding Interest
Fraction as of a recent date preceding the date of such notice, (F) the number
of outstanding shares of Series A TCI Ventures Group Common Stock and Series B
TCI Ventures Group Common Stock and the number of shares of Series A TCI
Ventures Group Common Stock and Series B TCI Ventures Group Common Stock into
or for which outstanding Convertible Securities are then convertible,
exercisable or exchangeable and the conversion, exercise or exchange prices
thereof and (G) in the case of a notice to holders of Convertible Securities, a
statement to the effect that holders of such Convertible Securities shall be
entitled to receive such dividend only if they appropriately convert, exercise
or exchange such Convertible Securities prior to the record date referred to in
clause (A) of this sentence. Such notice shall be sent by first-class mail,
postage prepaid, at such holder's address as the same appears on the transfer
books of the Corporation.
(iii) If the Corporation determines to undertake a redemption of
shares of Series A TCI Ventures Group Common Stock and Series B TCI Ventures
Group Common Stock following a Disposition of all (not merely substantially
all) of the properties and assets of the TCI Ventures Group pursuant to clause
(ii) (A) of paragraph 6(b) of this Section E, the Corporation shall cause to be
given to each holder of outstanding shares of Series A TCI Ventures Group
Common Stock and Series B TCI Ventures Group Common Stock and to each holder of
Convertible Securities convertible into or exercisable or exchangeable for
shares of either such series (unless provision for notice is otherwise made
pursuant to the terms of such Convertible Securities), a notice setting forth
(A) a statement that all shares of Series A TCI Ventures Group Common Stock and
Series B TCI Ventures Group Common Stock outstanding on the Redemption Date
shall be redeemed, (B) the Redemption Date (which shall not be more than 85
Trading Days following the consummation of such Disposition), (C) the kind of
shares of capital stock, cash and/or other securities or property to be paid as
a redemption price in respect of shares of Series A TCI Ventures Group Common
Stock and Series B TCI Ventures Group Common Stock outstanding on the
Redemption
II-A-21
<PAGE> 144
Date, (D) the TCI Ventures Group Net Proceeds of such Disposition, (E) the
Adjusted TCI Ventures Group Outstanding Interest Fraction as of a recent date
preceding the date of such notice, (F) the place or places where certificates
for shares of Series A TCI Ventures Group Common Stock and Series B TCI
Ventures Group Common Stock, properly endorsed or assigned for transfer (unless
the Corporation waives such requirement), are to be surrendered for delivery of
certificates for shares of such capital stock, cash and/or other securities or
property, (G) the number of outstanding shares of Series A TCI Ventures Group
Common Stock and Series B TCI Ventures Group Common Stock and the number of
shares of Series A TCI Ventures Group Common Stock and Series B TCI Ventures
Group Common Stock into or for which outstanding Convertible Securities are
then convertible, exercisable or exchangeable and the conversion, exercise or
exchange prices thereof (and stating which, if any, of such Convertible
Securities constitute Pre-Exchange Offer Securities), and (H) in the case of a
notice to holders of Convertible Securities (other than Pre-Exchange Offer
Securities), a statement to the effect that holders of such Convertible
Securities shall be entitled to participate in such redemption only if such
holders appropriately convert, exercise or exchange such Convertible Securities
on or prior to the Redemption Date referred to in clause (B) of this sentence
and a statement as to what, if anything, such holders shall be entitled to
receive pursuant to the terms of such Convertible Securities or, if applicable,
paragraph 6(c) of this Section E if such holders convert, exercise or exchange
such Convertible Securities following such Redemption Date. Such notice shall
be sent by first-class mail, postage prepaid, not less than 35 Trading Days nor
more than 45 Trading Days prior to the Redemption Date, at such holder's
address as the same appears on the transfer books of the Corporation.
(iv) If the Corporation determines to undertake a redemption of
shares of Series A TCI Ventures Group Common Stock and Series B TCI Ventures
Group Common Stock following a Disposition of substantially all (but not all)
of the properties and assets of the TCI Ventures Group pursuant to clause
(ii)(B) of paragraph 6(b) of this Section E, the Corporation shall, not later
than the 30th Trading Day following the consummation of such Disposition, cause
to be given to each holder of record of outstanding shares of Series A TCI
Ventures Group Common Stock and Series B TCI Ventures Group Common Stock, and
to each holder of Convertible Securities convertible into or exercisable or
exchangeable for shares of either such series (unless provision for notice is
otherwise made pursuant to the terms of such Convertible Securities), a notice
setting forth (A) a date not earlier than the 40th Trading Day and not later
than the 50th Trading Day following the consummation of such Disposition which
shall be the date on which shares of the Series A TCI Ventures Group Common
Stock and Series B TCI Ventures Group Common Stock then outstanding shall be
selected for redemption, (B) the anticipated Redemption Date (which shall not
be more than 85 Trading Days following the consummation of such Disposition),
(C) the kind of shares of capital stock, cash and/or other securities or
property to be paid as a redemption price in respect of shares of Series A TCI
Ventures Group Common Stock and Series B TCI Ventures Group Common Stock
selected for redemption, (D) the TCI Ventures Group Net Proceeds of such
Disposition, (E) the TCI Ventures Group Outstanding Interest Fraction as of a
recent date preceding the date of such notice, (F) the number of outstanding
shares of Series A TCI Ventures Group Common Stock and Series B TCI Ventures
Group Common Stock and the number of shares of Series A TCI Ventures Group
Common Stock and Series B TCI Ventures Group Common Stock into or for which
outstanding Convertible Securities are then convertible, exercisable or
exchangeable and the conversion or exercise prices thereof, (G) in the case of
a notice to holders of Convertible Securities, a statement to the effect that
holders of such Convertible Securities shall be entitled to participate in such
selection for redemption only if such holders appropriately convert, exercise
or exchange such Convertible Securities on or prior to the date referred to in
clause (A) of this sentence and a statement as to what, if anything, such
holders shall be entitled to receive pursuant to the terms of such Convertible
Securities if such holders convert, exercise or exchange such Convertible
Securities following such date and (H) a statement that the Corporation will
not be required to register a transfer of any shares of Series A TCI Ventures
Group Common Stock or Series B TCI Ventures Group Common Stock for a period of
15 Trading Days next preceding the date referred to in clause (A) of this
sentence. Promptly following the date referred to in clause (A) of the
preceding sentence, but not earlier than the 40th Trading Day and not later
than the 50th Trading Day following the consummation of such Disposition, the
Corporation shall cause to be given to each holder of shares of Series A TCI
Ventures Group Common Stock and Series B TCI Ventures Group Common Stock to be
so redeemed, a notice setting forth (A) the number of shares of Series A TCI
Ventures Group Common Stock and Series B TCI Ventures Group Common Stock held
by such holder to be redeemed, (B) a statement that such shares of Series A TCI
Ventures Group Common Stock and Series B TCI Ventures Group Common Stock shall
be redeemed, (C) the Redemption Date (which shall not be more than 85 Trading
Days following the consummation of such Disposition), (D) the kind and per
share amount of shares of capital stock, cash and/or other securities or
property to be received by such holder with respect to each share of such
Series A TCI Ventures Group Common Stock and Series B TCI Ventures Group Common
Stock to be redeemed, including
II-A-22
<PAGE> 145
details as to the calculation thereof, and (E) the place or places where
certificates for shares of such Series A TCI Ventures Group Common Stock or
Series B TCI Ventures Group Common Stock, properly endorsed or assigned for
transfer (unless the Corporation waives such requirement), are to be
surrendered for delivery of certificates for shares of such capital stock, cash
and/or other securities or property. The notices referred to in this clause
(iv) shall be sent by first-class mail, postage prepaid, at such holder's
address as the same appears on the transfer books of the Corporation. The
outstanding shares of Series A TCI Ventures Group Common Stock and Series B TCI
Ventures Group Common Stock to be redeemed shall be redeemed by the Corporation
pro rata among the holders of Series A TCI Ventures Group Common Stock and
Series B TCI Ventures Group Common Stock or by such other method as may be
determined by the Board of Directors to be equitable.
(v) In the event of any conversion pursuant to paragraph 2(e) of
this Section E or pursuant to this paragraph 6 (other than pursuant to
paragraph 6(c)), the Corporation shall cause to be given to each holder of
outstanding shares of Series A TCI Ventures Group Common Stock and Series B TCI
Ventures Group Common Stock and to each holder of Convertible Securities
convertible into or exercisable or exchangeable for shares of either such
series (unless provision for such notice is otherwise made pursuant to the
terms of such Convertible Securities), a notice setting forth (A) a statement
that all outstanding shares of Series A TCI Ventures Group Common Stock and
Series B TCI Ventures Group Common Stock shall be converted, (B) the Conversion
Date (which shall not be more than 85 Trading Days following the consummation
of such Disposition in the event of a conversion pursuant to paragraph 6(b) and
which shall not be more than 120 days after the Appraisal Date in the event of
a conversion pursuant to paragraph 2(e)), (C) the per share number of shares of
Series A TCI Group Common Stock or Series B TCI Group Common Stock, as
applicable, to be received with respect to each share of Series A TCI Ventures
Group Common Stock or Series B TCI Ventures Group Common Stock, including
details as to the calculation thereof, (D) the place or places where
certificates for shares of Series A TCI Ventures Group Common Stock or Series B
TCI Ventures Group Common Stock, properly endorsed or assigned for transfer
(unless the Corporation shall waive such requirement), are to be surrendered,
(E) the number of outstanding shares of Series A TCI Ventures Group Common
Stock and Series B TCI Ventures Group Common Stock and the number of shares of
Series A TCI Ventures Group Common Stock and Series B TCI Ventures Group Common
Stock into or for which outstanding Convertible Securities are then
convertible, exercisable or exchangeable and the conversion, exercise or
exchange prices thereof and (F) in the case of a notice to holders of
Convertible Securities, a statement to the effect that holders of such
Convertible Securities shall be entitled to participate in such conversion only
if such holders appropriately convert, exercise or exchange such Convertible
Securities on or prior to the Conversion Date referred to in clause (B) of this
sentence and a statement as to what, if anything, such holders shall be
entitled to receive pursuant to the terms of such Convertible Securities or, if
applicable, paragraph 6(c) of this Section E if such holders convert, exercise
or exchange such Convertible Securities following such Conversion Date. Such
notice shall be sent by first-class mail, postage prepaid, not less than 35
Trading Days nor more than 45 Trading Days prior to the Conversion Date, at
such holder's address as the same appears on the transfer books of the
Corporation.
(vi) If the Corporation determines to redeem shares of Series A TCI
Ventures Group Common Stock and Series B TCI Ventures Group Common Stock
pursuant to subparagraph (a) of this paragraph 6, the Corporation shall
promptly cause to be given to each holder of Series A TCI Ventures Group Common
Stock and Series B TCI Ventures Group Common Stock and to each holder of
Convertible Securities convertible into or exercisable or exchangeable for
shares of either such series (unless provision for such notice is otherwise
made pursuant to the terms of such Convertible Securities), a notice setting
forth (A) a statement that all outstanding shares of Series A TCI Ventures
Group Common Stock and Series B TCI Ventures Group Common Stock shall be
redeemed in exchange for shares of common stock of the TCI Ventures Group
Subsidiaries, (B) the Redemption Date, (C) the Adjusted TCI Ventures Group
Outstanding Interest Fraction as of a recent date preceding the date of such
notice, (D) the place or places where certificates for shares of Series A TCI
Ventures Group Common Stock and Series B TCI Ventures Group Common Stock,
properly endorsed or assigned for transfer (unless the Corporation shall waive
such requirement), are to be surrendered for delivery of certificates for
shares of common stock of the TCI Ventures Group Subsidiaries, (E) the number
of outstanding shares of Series A TCI Ventures Group Common Stock and Series B
TCI Ventures Group Common Stock and the number of shares of Series A TCI
Ventures Group Common Stock and Series B TCI Ventures Group Common Stock into
or for which outstanding Convertible Securities are then convertible,
exercisable or exchangeable and the conversion, exercise or exchange prices
thereof (and stating which, if any, of such Convertible Securities constitute
Pre-Exchange Offer Securities), and (F) in the case of a notice to holders of
Convertible Securities (other than Pre-Exchange Offer Securities), a statement
to the effect that
II-A-23
<PAGE> 146
holders of such Convertible Securities shall be entitled to participate in such
redemption only if such holders appropriately convert, exercise or exchange
such Convertible Securities on or prior to the Redemption Date referred to in
clause (B) of this sentence and a statement as to what, if anything, such
holders shall be entitled to receive pursuant to the terms of such Convertible
Securities or, if applicable, paragraph 6(c) of this Section E if such holders
convert, exercise or exchange such Convertible Securities following the
Redemption Date. Such notice shall be sent by first-class mail, postage
prepaid, not less than 35 Trading Days nor more than 45 Trading Days prior to
the Redemption Date, at such holder's address as the same appears on the
transfer books of the Corporation.
(vii) Neither the failure to mail any notice required by this
paragraph 6(d) to any particular holder of Series A TCI Ventures Group Common
Stock, Series B TCI Ventures Group Common Stock or of Convertible Securities
nor any defect therein shall affect the sufficiency thereof with respect to any
other holder of outstanding shares of Series A TCI Ventures Group Common Stock
or Series B TCI Ventures Group Common Stock or of Convertible Securities, or
the validity of any conversion or redemption.
(viii) The Corporation shall not be required to issue or deliver
fractional shares of any class of capital stock or any fractional securities to
any holder of Series A TCI Ventures Group Common Stock or Series B TCI Ventures
Group Common Stock upon any conversion, redemption, dividend or other
distribution pursuant to paragraph 2(e) of this Section E or pursuant to this
paragraph 6. In connection with the determination of the number of shares of
any class of capital stock that shall be issuable or the amount of securities
that shall be deliverable to any holder of record upon any such conversion,
redemption, dividend or other distribution (including any fractions of shares
or securities), the Corporation may aggregate the number of shares of Series A
TCI Ventures Group Common Stock or Series B TCI Ventures Group Common Stock
held at the relevant time by such holder of record. If the number of shares of
any class of capital stock or the amount of securities remaining to be issued
or delivered to any holder of Series A TCI Ventures Group Common Stock or
Series B TCI Ventures Group Common Stock is a fraction, the Corporation shall,
if such fraction is not issued or delivered to such holder, pay a cash
adjustment in respect of such fraction in an amount equal to the fair market
value of such fraction on the fifth Trading Day prior to the date such payment
is to be made (without interest). For purposes of the preceding sentence,
"fair market value" of any fraction shall be (A) in the case of any fraction of
a share of capital stock of the Corporation, the product of such fraction and
the Market Value of one share of such capital stock and (B) in the case of any
other fractional security, such value as is determined by the Board of
Directors.
(ix) No adjustments in respect of dividends shall be made upon the
conversion or redemption of any shares of Series A TCI Ventures Group Common
Stock or Series B TCI Ventures Group Common Stock; provided, however, that if
the Conversion Date or the Redemption Date with respect to the Series A TCI
Ventures Group Common Stock or Series B TCI Ventures Group Common Stock shall
be subsequent to the record date for the payment of a dividend or other
distribution thereon or with respect thereto, the holders of shares of Series A
TCI Ventures Group Common Stock or Series B TCI Ventures Group Common Stock at
the close of business on such record date shall be entitled to receive the
dividend or other distribution payable on or with respect to such shares on the
date set for payment of such dividend or other distribution, notwithstanding
the conversion or redemption of such shares or the Corporation's default in
payment of the dividend or distribution due on such date.
(x) Before any holder of shares of Series A TCI Ventures Group
Common Stock or Series B TCI Ventures Group Common Stock shall be entitled to
receive certificates representing shares of any kind of capital stock or cash
and/or securities or other property to be received by such holder with respect
to shares of Series A TCI Ventures Group Common Stock or Series B TCI Ventures
Group Common Stock pursuant to paragraph 2(e) of this Section E or pursuant to
this paragraph 6, such holder shall surrender at such place as the Corporation
shall specify certificates for such shares of Series A TCI Ventures Group
Common Stock or Series B TCI Ventures Group Common Stock, properly endorsed or
assigned for transfer (unless the Corporation shall waive such requirement).
The Corporation shall as soon as practicable after such surrender of
certificates representing shares of Series A TCI Ventures Group Common Stock or
Series B TCI Ventures Group Common Stock deliver to the person for whose
account shares of Series A TCI Ventures Group Common Stock or Series B TCI
Ventures Group Common Stock were so surrendered, or to the nominee or nominees
of such person, certificates representing the number of whole shares of the
kind of capital stock or cash and/or securities or other property to which such
person shall be entitled as aforesaid, together with any payment for fractional
securities contemplated by paragraph 6(d)(viii). If less than all of the
shares of Series A TCI Ventures Group Common Stock or Series B TCI Ventures
Group Common Stock represented by any one certificate are to be redeemed, the
Corporation shall issue and deliver a new certificate for
II-A-24
<PAGE> 147
the shares of Series A TCI Ventures Group Common Stock or Series B TCI Ventures
Group Common Stock not redeemed. The Corporation shall not be required to
register a transfer of (1) any shares of Series A TCI Ventures Group Common
Stock or Series B TCI Ventures Group Common Stock for a period of 15 Trading
Days next preceding any selection of shares of Series A TCI Ventures Group
Common Stock or Series B TCI Ventures Group Common Stock to be redeemed or (2)
any shares of Series A TCI Ventures Group Common Stock or Series B TCI Ventures
Group Common Stock selected or called for redemption. Shares selected for
redemption may not thereafter be converted pursuant to paragraph 2(c) of this
Section E.
(xi) From and after any applicable Conversion Date or Redemption
Date, all rights of a holder of shares of Series A TCI Ventures Group Common
Stock or Series B TCI Ventures Group Common Stock that were converted or
redeemed shall cease except for the right, upon surrender of the certificates
representing shares of Series A TCI Ventures Group Common Stock or Series B TCI
Ventures Group Common Stock, to receive certificates representing shares of the
kind and amount of capital stock or cash and/or securities or other property
for which such shares were converted or redeemed, together with any payment for
fractional securities contemplated by paragraph 6(d)(viii) of this Section E
and such holder shall have no other or further rights in respect of the shares
of Series A TCI Ventures Group Common Stock or Series B TCI Ventures Group
Common Stock so converted or redeemed, including, but not limited to, any
rights with respect to any cash, securities or other properties which are
reserved or otherwise designated by the Corporation as being held for the
satisfaction of the Corporation's obligations to pay or deliver any cash,
securities or other property upon the conversion, exercise or exchange of any
Convertible Securities outstanding as of the date of such conversion or
redemption. No holder of a certificate that, immediately prior to the
applicable Conversion Date or Redemption Date for the Series A TCI Ventures
Group Common Stock or Series B TCI Ventures Group Common Stock, represented
shares of Series A TCI Ventures Group Common Stock or Series B TCI Ventures
Group Common Stock shall be entitled to receive any dividend or other
distribution with respect to shares of any kind of capital stock into or in
exchange for which the Series A TCI Ventures Group Common Stock or Series B TCI
Ventures Group Common Stock was converted or redeemed until surrender of such
holder's certificate for a certificate or certificates representing shares of
such kind of capital stock. Upon such surrender, there shall be paid to the
holder the amount of any dividends or other distributions (without interest)
which theretofore became payable with respect to a record date after the
Conversion Date or Redemption Date, as the case may be, but that were not paid
by reason of the foregoing, with respect to the number of whole shares of the
kind of capital stock represented by the certificate or certificates issued
upon such surrender. From and after a Conversion Date or Redemption Date, as
the case may be, for any shares of Series A TCI Ventures Group Common Stock or
Series B TCI Ventures Group Common Stock, the Corporation shall, however, be
entitled to treat the certificates for shares of Series A TCI Ventures Group
Common Stock or Series B TCI Ventures Group Common Stock that have not yet been
surrendered for conversion or redemption as evidencing the ownership of the
number of whole shares of the kind or kinds of capital stock for which the
shares of Series A TCI Ventures Group Common Stock or Series B TCI Ventures
Group Common Stock represented by such certificates shall have been converted
or redeemed, notwithstanding the failure to surrender such certificates.
(xii) The Corporation shall pay any and all documentary, stamp or
similar issue or transfer taxes that may be payable in respect of the issue or
delivery of any shares of capital stock and/or other securities on conversion
or redemption of shares of Series A TCI Ventures Group Common Stock or Series B
TCI Ventures Group Common Stock pursuant to this Section E. The Corporation
shall not, however, be required to pay any tax that may be payable in respect
of any transfer involved in the issue and delivery of any shares of capital
stock in a name other than that in which the shares of Series A TCI Ventures
Group Common Stock or Series B TCI Ventures Group Common Stock so converted or
redeemed were registered and no such issue or delivery shall be made unless and
until the person requesting such issue has paid to the Corporation the amount
of any such tax, or has established to the satisfaction of the Corporation that
such tax has been paid.
7. Liquidation.
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 other liabilities of the Corporation and subject to
the prior payment in full of the preferential amounts to which any class or
series of Preferred Stock is entitled, (a) the holders of the shares of Series
A TCI Group Common Stock and the holders of the shares of Series B TCI Group
Common Stock shall share equally, on a share for share basis, in a percentage
of the funds of the Corporation remaining for distribution to its common
stockholders equal to 100% multiplied by the average daily ratio
II-A-25
<PAGE> 148
(expressed as a decimal) of W/Z for the 20-Trading Day period ending on the
Trading Day prior to the date of the public announcement of such liquidation,
dissolution or winding up, (b) the holders of the shares of Series A Liberty
Media Group Common Stock and the holders of the shares of Series B Liberty
Media Group Common Stock shall share equally, on a share for share basis, in a
percentage of the funds of the Corporation remaining for distribution to its
common stockholders equal to 100% multiplied by the average daily ratio
(expressed as a decimal) of X/Z for such 20-Trading Day period, and (c) the
holders of the shares of Series A TCI Ventures Group Common Stock and the
holders of the Series B TCI Ventures Group Common Stock shall share equally, on
a share for share basis, in a percentage of the funds of the Corporation
remaining for distribution to its common stockholders equal to 100% multiplied
by the average daily ratio (expressed as a decimal) of Y/Z for such 20-Trading
Day period, where W is the aggregate Market Capitalization of the Series A TCI
Group Common Stock and the Series B TCI Group Common Stock, X is the aggregate
Market Capitalization of the Series A Liberty Media Group Common Stock and the
Series B Liberty Media Group Common Stock, Y is the aggregate Market
Capitalization of the Series A TCI Ventures Group Common Stock and the Series B
TCI Ventures Group Common Stock, and Z is the aggregate Market Capitalization
of the Series A TCI Group Common Stock, the Series B TCI Group Common Stock,
the Series A Liberty Media Group Common Stock, the Series B Liberty Media Group
Common Stock, the Series A TCI Ventures Group Common Stock and the Series B TCI
Ventures Group Common Stock. Neither the consolidation or merger of the
Corporation with or into any other corporation or corporations nor the sale,
transfer or lease of all or substantially all of the assets of the Corporation
shall itself be deemed to be a liquidation, dissolution or winding up of the
Corporation within the meaning of this paragraph 7.
8. Determinations by the Board of Directors.
Any determinations made by the Board of Directors under any provision
in this Section E shall be final and binding on all stockholders of the
Corporation, except as may otherwise be required by law. The Corporation shall
prepare a statement of any such determination by the Board of Directors
respecting the fair market value of any properties, assets or securities and
shall file such statement with the Secretary of the Corporation.
9. Certain Definitions.
Unless the context otherwise requires, the terms defined in this
paragraph 9 shall have, for all purposes of this Section E, the meanings herein
specified:
"Adjusted Liberty Media Group Outstanding Interest Fraction," as of
any date, shall mean a fraction the numerator of which is the aggregate number
of shares of Series A Liberty Media Group Common Stock and Series B Liberty
Media Group Common Stock outstanding on such date and the denominator of which
is the sum of (a) such aggregate number of shares of Series A Liberty Media
Group Common Stock and Series B Liberty Media Group Common Stock outstanding on
such date, (b) the Number of Shares Issuable with Respect to the Liberty Media
Group Inter-Group Interest as of such date, (c) the aggregate number of shares
of Series A Liberty Media Group Common Stock and Series B Liberty Media Group
Common Stock issuable, determined as of such date, upon conversion, exercise or
exchange of Pre-Distribution Convertible Securities and (d) the number of
Committed Acquisition Shares issuable, determined as of such date.
"Adjusted TCI Ventures Group Outstanding Interest Fraction", as of
any date, shall mean a fraction the numerator of which is the aggregate number
of shares of Series A TCI Ventures Group Common Stock and Series B TCI Ventures
Group Common Stock outstanding on such date and the denominator of which is the
sum of (a) such aggregate number of shares of Series A TCI Ventures Group
Common Stock and Series B TCI Ventures Group Common Stock outstanding on such
date, (b) the Number of Shares Issuable with Respect to the TCI Ventures Group
Inter-Group Interest as of such date, and (c) the aggregate number of shares of
Series A TCI Ventures Group Common Stock issuable, determined as of such date,
upon exchange of Pre-Exchange Offer Securities.
"Appraisal Date," with respect to any determination of the Liberty
Media Group Private Market Value or the TCI Ventures Group Private Market
Value, shall mean the last day of the calendar month preceding the month in
which the Selection Date occurs.
"Appraiser" means each of the First Appraiser, the Second Appraiser
and the Mutually Designated Appraiser.
II-A-26
<PAGE> 149
"Committed Acquisition Shares" shall mean (a) the shares of Series A
Liberty Media Group Common Stock that the Corporation had, prior to the record
date for the Liberty Media Group Distribution, agreed to issue, but as of such
record date had not issued, and (b) the shares of Series A Liberty Media Group
Common Stock that are issuable upon conversion, exercise or exchange of
Convertible Securities that the Corporation had, prior to the record date for
the Liberty Media Group Distribution, agreed to issue, but as of such record
date has not issued, in each case including obligations of the Corporation to
issue shares of the Corporation's Class A Common Stock, par value $1.00 per
share, which as a result of the Liberty Media Group Distribution, constitute
obligations to issue, among other securities, Series A Liberty Media Group
Common Stock or Convertible Securities which are convertible into or
exercisable or exchangeable for Series A Liberty Media Group Common Stock;
provided, however, that Committed Acquisition Shares shall not include any
shares of Series A Liberty Media Group Common Stock or Series B Liberty Media
Group Common Stock issuable upon conversion, exercise or exchange of
Pre-Distribution Convertible Securities. The type and amount of Committed
Acquisition Shares issuable shall be appropriately adjusted to reflect
subdivisions and combinations of the Series A Liberty Media Group Common Stock
and dividends or distributions of shares of Series A Liberty Media Group Common
Stock or Series B Liberty Media Group Common Stock to holders of Series A
Liberty Media Group Common Stock and other reclassifications of the Series A
Liberty Media Group Common Stock, in each case occurring (or the record date
for which occurs) after the Liberty Media Group Distribution.
"Conversion Date" shall mean any date fixed by the Board of Directors
for a conversion of shares of (i) Series A Liberty Media Group Common Stock and
Series B Liberty Media Group Common Stock, or (ii) Series A TCI Ventures Group
Common Stock and Series B TCI Ventures Group Common Stock, as the case may be,
as set forth in a notice to holders of the applicable series of Common Stock
pursuant to paragraph 5(d) or 6(d), as applicable, of this Section E.
"Convertible Securities" shall mean any securities of the Corporation
(other than any series of Common Stock) or any Subsidiary thereof that are
convertible into, exchangeable for or evidence the right to purchase any shares
of any series of Common Stock, whether upon conversion, exercise, exchange,
pursuant to antidilution provisions of such securities or otherwise.
"Corporation Earnings (Loss) Attributable to the Liberty Media Group,"
for any period, shall mean the net earnings or loss of the Liberty Media Group
for such period determined on a basis consistent with the determination of the
net earnings or loss of the Liberty Media Group for such period as presented in
the combined financial statements of the Liberty Media Group for such period,
including income and expenses of the Corporation attributed to the operations
of the Liberty Media Group on a substantially consistent basis, including
without limitation, corporate administrative costs, net interest and income
taxes.
"Corporation Earnings (Loss) Attributable to the TCI Group," for any
period, shall mean the net earnings or loss of the TCI Group for such period
determined on a basis consistent with the determination of the net earnings or
loss of the TCI Group for such period as presented in the combined financial
statements of the TCI Group for such period, including income and expenses of
the Corporation attributed to the operations of the TCI Group on a
substantially consistent basis, including without limitation, corporate
administrative costs, net interest and income taxes.
"Corporation Earnings (Loss) Attributable to the TCI Ventures Group,"
for any period, shall mean the net earnings or loss of the TCI Ventures Group
for such period determined on a basis consistent with the determination of the
net earnings or loss of the TCI Ventures Group for such period as presented in
the combined financial statements of the TCI Ventures Group for such period,
including income and expenses of the Corporation attributed to the operations
of the TCI Ventures Group on a substantially consistent basis, including
without limitation, corporate administrative costs, net interest and income
taxes.
"Disposition" shall mean the sale, transfer, assignment or other
disposition (whether by merger, consolidation, sale or contribution of assets
or stock or otherwise) of properties or assets.
"Exchange Offers" means those certain offers made by the Corporation to
exchange shares of Series A TCI Ventures Group Common Stock for shares of
Series A TCI Group Common Stock, and to exchange shares of Series
II-A-27
<PAGE> 150
B TCI Ventures Group Common Stock for shares of Series B TCI Group Common
Stock, on the terms and subject to the conditions set forth in the Offering
Circular, dated ________, 1997, and the related Letter of Transmittal.
"First Appraiser" means, with respect to any determination of the
Liberty Media Group Private Market Value or the TCI Ventures Group Private
Market Value, an investment banking firm of recognized national standing
selected by the Corporation to make such determination.
"Higher Appraised Amount," with respect to any determination of the
Liberty Media Group Private Market Value or the TCI Ventures Group Private
Market Value, shall mean the higher of the respective final views of the First
Appraiser and the Second Appraiser as to such private market value.
"Independent Committee" means a committee of the Board of Directors of
the Corporation formed in order to select the Second Appraiser, all of whose
members are "independent directors" as determined under Nasdaq National Market
rules.
"Liberty Media Group" shall mean, as of any date that any shares of
Series A Liberty Media Group Common Stock or Series B Liberty Media Group
Common Stock have been issued and continue to be outstanding:
(a) the interest of the Corporation or of any of its
subsidiaries in Liberty Media Corporation or any of its subsidiaries
(including any successor thereto by merger, consolidation or sale of
all or substantially all of its assets, whether or not in connection
with a Related Business Transaction) and their respective properties
and assets,
(b) all assets and liabilities of the Corporation or any
of its subsidiaries to the extent attributed to any of the properties
or assets referred to in clause (a) of this sentence, whether or not
such assets or liabilities are assets and liabilities of Liberty Media
Corporation or any of its subsidiaries (or a successor as described in
clause (a) of this sentence),
(c) all assets and properties contributed or otherwise
transferred to the Liberty Media Group from the TCI Group, and
(d) the interest of the Corporation or any of its
subsidiaries in the businesses, assets and liabilities acquired by the
Corporation or any of its subsidiaries for the Liberty Media Group, as
determined by the Board of Directors;
provided that (i) from and after any dividend or other distribution with
respect to any shares of Series A Liberty Media Group Common Stock or Series B
Liberty Media Group Common Stock (other than a dividend or other distribution
payable in shares of Series A Liberty Media Group Common Stock or Series B
Liberty Media Group Common Stock, with respect to which adjustment shall be
made as provided in clause (a) of the definition of "Number of Shares Issuable
with Respect to the Liberty Media Group Inter-Group Interest," or in other
securities of the Corporation attributed to the Liberty Media Group for which
provision shall be made as set forth in the penultimate sentence of this
definition), the Liberty Media Group shall no longer include an amount of
assets or properties equal to the aggregate amount of such kind of assets or
properties so paid in respect of shares of Series A Liberty Media Group Common
Stock or Series B Liberty Media Group Common Stock multiplied by a fraction the
numerator of which is equal to the Liberty Media Group Inter-Group Interest
Fraction in effect immediately prior to the record date for such dividend or
other distribution and the denominator of which is equal to the Liberty Media
Group Outstanding Interest Fraction in effect immediately prior to the record
date for such dividend or other distribution and (ii) from and after any
transfer of assets or properties from the Liberty Media Group to the TCI Group,
the Liberty Media Group shall no longer include the assets or properties so
transferred. If the Corporation shall pay a dividend or make any other
distribution with respect to shares of Series A Liberty Media Group Common
Stock or Series B Liberty Media Group Common Stock payable in securities of the
Corporation attributed to the Liberty Media Group other than Series A Liberty
Media Group Common Stock and Series B Liberty Media Group Common Stock, the TCI
Group shall be deemed to hold an amount of such other securities equal to the
amount so distributed multiplied by the fraction specified in clause (i) of
this definition (determined as of a time immediately prior to the record date
for such dividend or other distribution), and to the extent interest or
dividends are paid or other distributions are made on such other securities so
distributed to the holders of Series A Liberty
II-A-28
<PAGE> 151
Media Group Common Stock and Series B Liberty Media Group Common Stock, the
Liberty Media Group shall no longer include a corresponding ratable amount of
the kind of assets paid as such interest or dividends or other distributions in
respect of such securities so deemed to be held by the TCI Group. The
Corporation may also, to the extent any such other securities constitute
Convertible Securities which are at the time convertible, exercisable or
exchangeable, cause such Convertible Securities deemed to be held by the TCI
Group to be deemed to be converted, exercised or exchanged (and to the extent
the terms of such Convertible Securities require payment or delivery of
consideration in order to effect such conversion, exercise or exchange, the
Liberty Media Group shall in such case include an amount of the kind of
properties or assets required to be paid or delivered as such consideration for
the amount of the Convertible Securities deemed converted, exercised or
exchanged as if such Convertible Securities were outstanding), in which case
such Convertible Securities shall no longer be deemed to be held by the TCI
Group or attributed to the Liberty Media Group.
"Liberty Media Group Available Dividend Amount," as of any date, shall
mean the product of the Liberty Media Group Outstanding Interest Fraction and
either: (a) the excess of (i) an amount equal to the total assets of the
Liberty Media Group less the total liabilities (not including preferred stock)
of the Liberty Media Group as of such date over (ii) the aggregate par value
of, or any greater amount determined to be capital in respect of, all
outstanding shares of Series A Liberty Media Group Common Stock, Series B
Liberty Media Group Common Stock and each class or series of Preferred Stock
attributed to the Liberty Media Group or (b) in case there is no such excess,
an amount equal to the Corporation Earnings (Loss) Attributable to the Liberty
Media Group (if positive) for the fiscal year in which such date occurs and/or
the preceding fiscal year.
"Liberty Media Group Distribution" shall mean the share distribution
of shares of Series A Liberty Media Group Common Stock and Series B Liberty
Media Group Common Stock made to the holders of record of Series A TCI Group
Common Stock and Series B TCI Group Common Stock as of the close of business on
August 4, 1995.
"Liberty Media Group Inter-Group Interest Fraction," as of any date,
shall mean a fraction the numerator of which is the Number of Shares Issuable
with Respect to the Liberty Media Group Inter-Group Interest as of such date
and the denominator of which is the sum of (a) such Number of Shares Issuable
with Respect to the Liberty Media Group Inter-Group Interest as of such date
and (b) the aggregate number of shares of Series A Liberty Media Group Common
Stock and Series B Liberty Media Group Common Stock outstanding as of such
date.
"Liberty Media Group Net Proceeds" shall mean, as of any date, with
respect to any Disposition of any of the properties and assets of the Liberty
Media Group, an amount, if any, equal to the gross proceeds of such Disposition
after any payment of, or reasonable provision for, (a) any taxes payable by the
Corporation in respect of such Disposition or in respect of any resulting
dividend or redemption pursuant to clause (i) or (ii), respectively, of
paragraph 5(b) of this Section E (or which would have been payable but for the
utilization of tax benefits attributable to the TCI Group or the TCI Ventures
Group), (b) any transaction costs, including, without limitation, any legal,
investment banking and accounting fees and expenses and (c) any liabilities and
other obligations (contingent or otherwise) of, or attributed to, the Liberty
Media Group, including, without limitation, any indemnity or guarantee
obligations incurred in connection with the Disposition or any liabilities for
future purchase price adjustments and any preferential amounts plus any
accumulated and unpaid dividends and other obligations (without duplication of
amounts allocated for the satisfaction of the Corporation's obligations with
respect to Pre-Distribution Convertible Securities and Committed Acquisition
Shares issuable which are included in the determination of the Adjusted Liberty
Media Group Outstanding Interest Fraction) in respect of Preferred Stock
attributed to the Liberty Media Group. For purposes of this definition, any
properties and assets of the Liberty Media Group remaining after such
Disposition shall constitute "reasonable provision" for such amount of taxes,
costs and liabilities (contingent or otherwise) as can be supported by such
properties and assets. To the extent the proceeds of any Disposition include
any securities or other property other than cash, the Board of Directors shall
determine the value of such securities or property, including for the purpose
of determining the equivalent value thereof if the Board of Directors
determines to pay a dividend or redemption price in cash or securities or other
property as provided in clause (z) of paragraph 5(b) of this Section E.
"Liberty Media Group Outstanding Interest Fraction," as of any date,
shall mean a fraction the numerator of which is the aggregate number of shares
of Series A Liberty Media Group Common Stock and Series B Liberty Media Group
Common Stock outstanding on such date and the denominator of which is the sum
of (a) such aggregate number of shares of Series A Liberty Media Group Common
Stock and Series B Liberty Media Group
II-A-29
<PAGE> 152
Common Stock outstanding on such date and (b) the Number of Shares Issuable
with Respect to the Liberty Media Group Inter-Group Interest as of such date.
"Liberty Media Group Private Market Value" shall mean an amount equal
to the private market value of the Liberty Media Group as of the Appraisal
Date. Each of the First Appraiser, the Second Appraiser and the Mutually
Designated Appraiser, if any, shall be instructed to determine the private
market value of the Liberty Media Group as of the Appraisal Date based upon the
amount a willing purchaser would pay to a willing seller, in an arm's length
transaction, if it were acquiring the Liberty Media Group, as if the Liberty
Media Group were a publicly traded non-controlled corporation and the purchaser
was acquiring all of the capital stock of such corporation, and without
consideration of any potential regulatory constraints limiting the potential
purchasers of the Liberty Media Group other than that which would have existed
if the Liberty Media Group were a publicly traded non-controlled entity.
"Lower Appraised Amount," with respect to any determination of the
Liberty Media Group Private Market Value or the TCI Ventures Group Private
Market Value, shall mean the lower of the respective final views of the First
Appraiser and the Second Appraiser as to such private market value.
"Market Capitalization" of any class or series of capital stock of the
Corporation on any Trading Day shall mean the product of (i) the Market Value
of one share of such class or series on such Trading Day and (ii) the number of
shares of such class or series outstanding on such Trading Day.
"Market Value" of any class or series of capital stock of the
Corporation on any day shall mean the average of the high and low reported
sales prices regular way of a share of such class or series on such day (if
such day is a Trading Day, and if such day is not a Trading Day, on the Trading
Day immediately preceding such day) or in case no such reported sale takes
place on such Trading Day the average of the reported closing bid and asked
prices regular way of a share of such class or series on such Trading Day, in
either case on the Nasdaq National Market, or if the shares of such class or
series are not quoted on such Nasdaq National Market on such Trading Day, the
average of the closing bid and asked prices of a share of such class or series
in the over-the-counter market on such Trading Day as furnished by any New York
Stock Exchange member firm selected from time to time by the Corporation, or if
such closing bid and asked prices are not made available by any such New York
Stock Exchange member firm on such Trading Day, the market value of a share of
such class or series as determined by the Board of Directors; provided that for
purposes of determining the ratios set forth in paragraphs 2(d), 2(e), 5(b),
6(b) and 7 of this Section E, (a) the "Market Value" of any share of any series
of Common Stock on any day prior to the "ex" date or any similar date for any
dividend or distribution paid or to be paid with respect to such series of
Common Stock shall be reduced by the fair market value of the per share amount
of such dividend or distribution as determined by the Board of Directors and
(b) the "Market Value" of any share of any series of Common Stock on any day
prior to (i) the effective date of any subdivision (by stock split or
otherwise) or combination (by reverse stock split or otherwise) of outstanding
shares of such series of Common Stock or (ii) the "ex" date or any similar date
for any dividend or distribution with respect to any such series of Common
Stock in shares of such series of Common Stock shall be appropriately adjusted
to reflect such subdivision, combination, dividend or distribution.
"Mutually Appraised Amount," with respect to any determination of the
Liberty Media Group Private Market Value or the TCI Ventures Group Private
Market Value, shall mean the determination by the Mutually Designated Appraiser
of such private market value.
"Mutually Designated Appraiser" shall mean, if required with respect
to any determination of the Liberty Media Group Private Market Value or the TCI
Ventures Group Private Market Value, the investment banking firm of recognized
national standing jointly designated by the First Appraiser and the Second
Appraiser to make such determination.
"Number of Shares Issuable with Respect to the Liberty Media Group
Inter-Group Interest" after the Liberty Media Group Distribution shall be zero
and shall from time to time thereafter, as applicable, be
(a) adjusted as appropriate to reflect subdivisions (by
stock split or otherwise) and combinations (by reverse stock split or
otherwise) of the Series A Liberty Media Group Common Stock and
dividends or distributions of shares of Series A Liberty Media Group
Common Stock or Series B
II-A-30
<PAGE> 153
Liberty Media Group Common Stock to holders of Series A Liberty Media
Group Common Stock and other reclassifications of Series A Liberty
Media Group Common Stock,
(b) decreased (but not to less than zero) by (i) the
aggregate number of shares of Series A Liberty Media Group Common
Stock issued or sold by the Corporation after the Liberty Media Group
Distribution other than Committed Acquisition Shares, the proceeds of
which are attributed to the TCI Group, (ii) the aggregate number of
shares of Series A Liberty Media Group Common Stock issued or
delivered upon conversion, exercise or exchange of Convertible
Securities (other than Pre-Distribution Convertible Securities and
Convertible Securities which are convertible into or exercisable or
exchangeable for Committed Acquisition Shares), the proceeds of which
are attributed to the TCI Group, (iii) the aggregate number of shares
of Series A Liberty Media Group Common Stock issued or delivered by
the Corporation as a dividend or distribution to holders of Series A
TCI Group Common Stock and Series B TCI Group Common Stock, (iv) the
aggregate number of shares of Series A Liberty Media Group Common
Stock issued or delivered upon the conversion, exercise or exchange of
any Convertible Securities (other than Pre-Distribution Convertible
Securities and Convertible Securities which are convertible into or
exercisable or exchangeable for Committed Acquisition Shares) issued
or delivered by the Corporation after the Liberty Media Group
Distribution as a dividend or distribution or by reclassification or
exchange to holders of Series A TCI Group Common Stock and Series B
TCI Group Common Stock and (v) the aggregate number of shares of
Series A Liberty Media Group Common Stock (rounded, if necessary, to
the nearest whole number), equal to the aggregate fair value (as
determined by the Board of Directors) of assets or properties
attributed to the Liberty Media Group that are transferred from the
Liberty Media Group to the TCI Group in consideration of a reduction
in the Number of Shares Issuable with Respect to the Liberty Media
Group Inter-Group Interest, divided by the Market Value of one share
of Series A Liberty Media Group Common Stock as of the date of such
transfer, and
(c) increased by (i) the aggregate number of any shares
of Series A Liberty Media Group Common Stock and Series B Liberty
Media Group Common Stock which are retired or otherwise cease to be
outstanding following their purchase with funds attributed to the TCI
Group, (ii) a number (rounded, if necessary, to the nearest whole
number), equal to the fair value (as determined by the Board of
Directors) of assets or properties theretofore attributed to the TCI
Group that are contributed to the Liberty Media Group in consideration
of an increase in the Number of Shares Issuable with Respect to the
Liberty Media Group Inter-Group Interest, divided by the Market Value
of one share of Series A Liberty Media Group Common Stock as of the
date of such contribution and (iii) the aggregate number of shares of
Series A Liberty Media Group Common Stock and Series B Liberty Media
Group Common Stock into or for which Convertible Securities are deemed
to be converted, exercised or exchanged pursuant to the last sentence
of the definition of "TCI Group" in this paragraph 9. The Corporation
shall not issue or sell shares of Series B Liberty Media Group Common
Stock in respect of a reduction in the Number of Shares Issuable with
Respect to the Liberty Media Group Inter-Group Interest.
Whenever a change in the Number of Shares Issuable with Respect to the
Liberty Media Group Inter-Group Interest occurs, the Corporation shall prepare
and file a statement of such change with the Secretary of the Corporation.
"Number of Shares Issuable with Respect to the TCI Ventures Group
Inter-Group Interest" shall initially be ___________ and, immediately following
the consummation of the Exchange Offers and the attribution of the TCI Ventures
Group Preferred Interest to the TCI Group, shall be zero and thereafter shall
from time to time, as applicable, be
(a) adjusted as appropriate to reflect subdivisions (by
stock split or otherwise) and combinations (by reverse stock split or
otherwise) of the Series A TCI Ventures Group Common Stock and Series
B TCI Ventures Group Common Stock and dividends or distributions of
shares of Series A TCI Ventures Group Common Stock or Series B TCI
Ventures Group Common Stock to holders of Series A TCI Ventures Group
Common Stock and Series B TCI Ventures Group Common Stock and other
reclassifications of the Series A TCI Ventures Group Common Stock and
Series B TCI Ventures Group Common Stock,
II-A-31
<PAGE> 154
(b) decreased (but not to less than zero) by (i) the
aggregate number of shares of Series A TCI Ventures Group Common Stock
or Series B TCI Ventures Group Common Stock issued or sold by the
Corporation after the consummation of the Exchange Offers the proceeds
of which are attributed to the TCI Group, (ii) the aggregate number of
shares of Series A TCI Ventures Group Common Stock or Series B TCI
Ventures Group Common Stock issued or delivered upon conversion,
exercise or exchange of Convertible Securities (other than Pre-
Exchange Offer Securities), the proceeds of which are attributed to
the TCI Group, (iii) the aggregate number of shares of Series A TCI
Ventures Group Common Stock or Series B TCI Ventures Group Common
Stock issued or delivered by the Corporation as a dividend or
distribution to holders of Series A TCI Group Common Stock and Series
B TCI Group Common Stock, (iv) the aggregate number of shares of
Series A TCI Ventures Group Common Stock or Series B TCI Ventures
Group Common Stock issued or delivered upon the conversion, exercise
or exchange of any Convertible Securities (other than Pre-Exchange
Offer Securities) issued or delivered by the Corporation after the
consummation of the Exchange Offers as a dividend or distribution or
by reclassification or exchange to holders of Series A TCI Group
Common Stock and Series B TCI Group Common Stock and (v) the aggregate
number of shares of Series A TCI Ventures Group Common Stock and
Series B TCI Ventures Group Common Stock (rounded, if necessary, to
the nearest whole number), equal to the aggregate fair value (as
determined by the Board of Directors) of assets or properties
attributed to the TCI Ventures Group that are transferred from the TCI
Ventures Group to the TCI Group in consideration of a reduction in the
Number of Shares Issuable with Respect to the TCI Ventures Group
Inter-Group Interest, divided by the Market Value of one share of
Series A TCI Ventures Group Common Stock as of the date of such
transfer, and
(c) increased by (i) the aggregate number of any shares
of Series A TCI Ventures Group Common Stock and Series B TCI Ventures
Group Common Stock which are retired or otherwise cease to be
outstanding following their purchase with funds attributed to the TCI
Group, (ii) a number (rounded, if necessary, to the nearest whole
number), equal to the fair value (as determined by the Board of
Directors) of assets or properties theretofore attributed to the TCI
Group that are contributed to the TCI Ventures Group in consideration
of an increase in the Number of Shares Issuable with Respect to the
TCI Ventures Group Inter-Group Interest, divided by the Market Value
of one share of Series A TCI Ventures Group Common Stock as of the
date of such contribution and (iii) the aggregate number of shares of
Series A TCI Ventures Group Common Stock and Series B TCI Ventures
Group Common Stock into or for which Convertible Securities are deemed
to be converted, exercised or exchanged pursuant to the last sentence
of the definition of "TCI Group" in this paragraph 9.
Whenever a change in the Number of Shares Issuable with Respect to the
TCI Ventures Group Inter-Group Interest occurs, the Corporation shall prepare
and file a statement of such change with the Secretary of the Corporation.
"Pre-Distribution Convertible Securities" shall mean Convertible
Securities that were outstanding on the record date for the Liberty Media Group
Distribution and were, prior to such date, convertible into or exercisable or
exchangeable for shares of the Class A Common Stock, par value $1.00 per share,
of the Corporation.
"Pre-Exchange Offer Securities" shall mean those certain convertible notes due
December 12, 2021 issued by TCI UA, Inc., a Subsidiary of the Corporation,
which notes were, prior to the consummation of the Exchange Offers,
exchangeable for shares of Series A TCI Group Common Stock.
"Qualifying Subsidiary" shall mean a Subsidiary of the Corporation in
which (x) the Corporation's ownership and voting interest is sufficient to
satisfy the requirements of the Internal Revenue Service for a distribution of
the Corporation's interest in such Subsidiary to the holders of Series A TCI
Ventures Group Common Stock and Series B TCI Ventures Group Common Stock that
is tax free to such holders or (y) the Corporation owns, directly or
indirectly, all of the issued and outstanding capital stock.
[Note: If both the TCI Ventures Group Stock Proposal and the Liberty Media
Group Amendment Proposal are approved by stockholders, the definition of
"Qualifying Subsidiary" will instead be amended to read as set forth in Annex
II-B.]
II-A-32
<PAGE> 155
"Redemption Date" shall mean any date fixed for a redemption or
purchase of shares of (i) Series A Liberty Media Group Common Stock and Series
B Liberty Media Group Common Stock or (ii) Series A TCI Ventures Group Common
Stock and Series B TCI Ventures Group Common Stock, as the case may be, as set
forth in a notice to holders of such series pursuant to this Certificate.
"Related Business Transaction" shall mean any Disposition of all or
substantially all of the properties and assets of the Liberty Media Group or
the TCI Ventures Group, as the case may be, in which the Corporation receives
as proceeds of such Disposition primarily equity securities (including, without
limitation, capital stock, convertible securities, partnership or limited
partnership interests and other types of equity securities, without regard to
the voting power or contractual or other management or governance rights
related to such equity securities) of the purchaser or acquiror of such assets
and properties of the Liberty Media Group or the TCI Ventures Group, as the
case may be, any entity which succeeds (by merger, formation of a joint venture
enterprise or otherwise) to such assets and properties of the Liberty Media
Group or the TCI Ventures Group, as the case may be, or a third party issuer,
which purchaser, acquiror or other issuer is engaged or proposes to engage
primarily in one or more businesses similar or complementary to the businesses
conducted by the Liberty Media Group or the TCI Ventures Group, as the case may
be, prior to such Disposition, as determined in good faith by the Board of
Directors.
"Second Appraiser" means, with respect to any determination of the
Liberty Media Group Private Market Value or the TCI Ventures Group Private
Market Value, an investment banking firm of recognized national standing
selected by the Independent Committee to make such determination.
"Selection Date," with respect to any determination of the Liberty
Media Group Private Market Value or the TCI Ventures Group Private Market
Value, shall mean the date upon which the Second Appraiser for such
determination is selected by the Independent Committee.
"Subsidiary" shall mean, with respect to any person or entity, any
corporation or partnership 50% or more of whose outstanding voting securities
or partnership interests, as the case may be, are directly or indirectly owned
by such person or entity.
"TCI Group" shall mean, as of any date:
(a) the interest of the Corporation or any of its
subsidiaries in all of the businesses in which the Corporation or any
of its subsidiaries (or any of their predecessors or successors) is or
has been engaged, directly or indirectly, and the respective assets
and liabilities of the Corporation or any of its subsidiaries, other
than any businesses, assets or liabilities of the Liberty Media Group
or the TCI Ventures Group;
(b) a proportionate interest in the businesses, assets
and liabilities of the Liberty Media Group equal to the Liberty Media
Group Inter-Group Interest Fraction as of such date;
(c) a proportionate interest in the businesses, assets
and liabilities of the TCI Ventures Group equal to the TCI Ventures
Group Inter-Group Interest Fraction as of such date;
(d) from and after any dividend or other distribution
with respect to shares of Series A Liberty Media Group Common Stock or
Series B Liberty Media Group Common Stock (other than a dividend or
other distribution payable in shares of Series A Liberty Media Group
Common Stock or Series B Liberty Media Group Common Stock, with
respect to which adjustment shall be made as provided in clause (a) of
the definition of "Number of Shares Issuable with Respect to the
Liberty Media Group Inter-Group Interest," or in other securities of
the Corporation attributed to the Liberty Media Group, for which
provision shall be made as set forth in the penultimate sentence of
this definition), an amount of assets or properties theretofore
included in the Liberty Media Group equal to the aggregate amount of
such kind of assets or properties so paid in respect of such dividend
or other distribution with respect to shares of Series A Liberty Media
Group Common Stock or Series B Liberty Media Group Common Stock
multiplied by a fraction the numerator of which is equal to the
Liberty Media Group Inter-Group Interest Fraction in effect
immediately prior to the record date for such dividend or other
distribution and the
II-A-33
<PAGE> 156
denominator of which is equal to the Liberty Media Group Outstanding
Interest Fraction in effect immediately prior to the record date for
such dividend or other distribution; and
(e) from and after any dividend or other distribution
with respect to shares of Series A TCI Ventures Group Common Stock or
Series B TCI Ventures Group Common Stock (other than a dividend or
other distribution payable in shares of Series A TCI Ventures Group
Common Stock or Series B TCI Ventures Group Common Stock, with respect
to which adjustment shall be made as provided in clause (a) of the
definition of "Number of Shares Issuable with Respect to the TCI
Ventures Group Inter-Group Interest," or in other securities of the
Corporation attributed to the TCI Ventures Group, for which provision
shall be made as set forth in the penultimate sentence of this
definition), an amount of assets or properties theretofore included in
the TCI Ventures Group equal to the aggregate amount of such kind of
assets or properties so paid in respect of such dividend or other
distribution with respect to shares of Series A TCI Ventures Group
Common Stock or Series B TCI Ventures Group Common Stock multiplied by
a fraction the numerator of which is equal to the TCI Ventures Group
Inter-Group Interest Fraction in effect immediately prior to the
record date for such dividend or other distribution and the
denominator of which is equal to the TCI Ventures Group Outstanding
Interest Fraction in effect immediately prior to the record date for
such dividend or other distribution;
(f) any assets or properties transferred from the Liberty
Media Group or the TCI Ventures Group to the TCI Group; and
(g) the TCI Ventures Group Preferred Interest;
provided that, from and after any contribution or transfer of any assets or
properties from the TCI Group to the Liberty Media Group or the TCI Ventures
Group, the TCI Group shall no longer include such assets or properties so
contributed or transferred (other than pursuant to its interest in the
businesses, assets and liabilities of the Liberty Media Group or the TCI
Ventures Group pursuant to clauses (b) or (c), respectively, above). If (1)
the Corporation shall pay a dividend or make any other distribution with
respect to shares of Series A Liberty Media Group Common Stock or Series B
Liberty Media Group Common Stock payable in other securities of the Corporation
attributed to the Liberty Media Group, the TCI Group shall be deemed to hold an
amount of such other securities equal to the amount so distributed multiplied
by the fraction specified in clause (d) of this definition (determined as of a
time immediately prior to the record date for such dividend or other
distribution), and to the extent interest or dividends are paid or other
distributions are made on such other securities so distributed to holders of
Series A Liberty Media Group Common Stock and Series B Liberty Media Group
Common Stock, the TCI Group shall include a corresponding ratable amount of the
kind of assets paid as such interest or dividends or other distributions in
respect of such securities so deemed to be held by the TCI Group, or (2) the
Corporation shall pay a dividend or make any other distribution with respect to
shares of Series A TCI Ventures Group Common Stock or Series B TCI Ventures
Group Common Stock payable in other securities of the Corporation attributed to
the TCI Ventures Group, the TCI Group shall be deemed to hold an amount of such
other securities equal to the amount so distributed multiplied by the fraction
specified in clause (e) of this definition (determined as of a time immediately
prior to the record date for such dividend or other distribution), and to the
extent interest or dividends are paid or other distributions are made on such
other securities so distributed to holders of Series A TCI Ventures Group
Common Stock and Series B TCI Ventures Group Common Stock, the TCI Group shall
include a corresponding ratable amount of the kind of assets paid as such
interest or dividends or other distributions in respect of such securities so
deemed to be held by the TCI Group. The Corporation may also, to the extent
any such other securities constitute Convertible Securities which are at the
time convertible, exercisable or exchangeable, cause such Convertible
Securities deemed to be held by the TCI Group to be deemed to be converted,
exercised or exchanged (and to the extent the terms of such Convertible
Securities require payment or delivery of consideration in order to effect such
conversion, exercise or exchange, the TCI Group shall in such case no longer
include an amount of the kind of properties or assets required to be paid or
delivered as such consideration for the amount of the Convertible Securities
deemed converted, exercised or exchanged as if such Convertible Securities were
outstanding), in which case such Convertible Securities shall no longer be
deemed to be held by the TCI Group or attributed to the Liberty Media Group or
the TCI Ventures Group.
"TCI Group Available Dividend Amount," as of any date, shall mean
either: (a) the excess of (i) an amount equal to the total assets of the TCI
Group less the total liabilities (not including preferred stock) of the TCI
II-A-34
<PAGE> 157
Group as of such date over (ii) the aggregate par value of, or any
greater amount determined to be capital in respect of, all outstanding
shares of Series A TCI Group Common Stock, Series B TCI Group Common
Stock and each class or series of Preferred Stock attributed to the
TCI Group or (b) in case there is no such excess, an amount equal to
the Corporation Earnings (Loss) Attributable to the TCI Group (if
positive) for the fiscal year in which such date occurs and/or the
preceding fiscal year.
"TCI Ventures Group" shall mean, as of any date that any shares of
Series A TCI Ventures Group Common Stock or Series B TCI Ventures Group Common
Stock have been issued and continue to be outstanding:
(a) the interest of the Corporation or of any of its
subsidiaries in any of the following Persons or any of their
respective subsidiaries (including any successor thereto by merger,
consolidation or sale of all or substantially all of its assets,
whether or not in connection with a Related Business Transaction) and
their respective properties and assets Tele-Communications
International, Inc., TCI Telephony Services, Inc., New Jersey Fiber
Technologies, L.P., Louisville Lighthouse, Western
Tele-Communications, Inc., TCI GCI, Inc., TCI UVSG, Inc., Acclaim
Entertainment, Inc., TCI TSX, Inc., Intessera, Inc., TCI-TVGOS, Inc.,
TCI MCNS Holdings, Inc., TCI ETC Holdings, Inc., TCI Internet Holdings,
Inc., TCI Online Sports Holdings, Inc., TCI Online Village Holdings,
Inc., TCI INZ Sports Holdings, Inc., TCI Netscape Holdings, Inc., TCI
Java, Inc., National Digital Television Center, Inc., TCI Summitrak of
Texas, Inc., Call Center LLC, TCID KHC, Inc., TCID NEA, Inc., TCID VFC,
Inc., Guide Investments, Inc.,
(b) all assets and liabilities of the Corporation or any
of its subsidiaries to the extent attributed to any of the properties
or assets referred to in clause (a) of this sentence, whether or not
such assets or liabilities are assets and liabilities of any of the
Persons named in clause (a) or any of their respective subsidiaries
(or any successor as described in clause (a) of this sentence),
(c) all assets and properties contributed or otherwise
transferred to the TCI Ventures Group from the TCI Group, and
(d) the interest of the Corporation or any of its
subsidiaries in the businesses, assets and liabilities acquired by the
Corporation or any of its subsidiaries for the TCI Ventures Group, as
determined by the Board of Directors;
provided that (i) from and after any dividend or other distribution with
respect to any shares of Series A TCI Ventures Group Common Stock or Series B
TCI Ventures Group Common Stock (other than a dividend or other distribution
payable in shares of Series A TCI Ventures Group Common Stock or Series B TCI
Ventures Group Common Stock, with respect to which adjustment shall be made as
provided in clause (a) of the definition of "Number of Shares Issuable with
Respect to the TCI Ventures Group Inter-Group Interest," or in other securities
of the Corporation attributed to the TCI Ventures Group for which provision
shall be made as set forth in the penultimate sentence of this definition), the
TCI Ventures Group shall no longer include an amount of assets or properties
equal to the aggregate amount of such kind of assets or properties so paid in
respect of shares of Series A TCI Ventures Group Common Stock or Series B TCI
Ventures Group Common Stock multiplied by a fraction the numerator of which is
equal to the TCI Ventures Group Inter-Group Interest Fraction in effect
immediately prior to the record date for such dividend or other distribution
and the denominator of which is equal to the TCI Ventures Group Outstanding
Interest Fraction in effect immediately prior to the record date for such
dividend or other distribution and (ii) from and after any transfer of assets
or properties from the TCI Ventures Group to the TCI Group, the TCI Ventures
Group shall no longer include the assets or properties so transferred. If the
Corporation shall pay a dividend or make any other distribution with respect to
shares of Series A TCI Ventures Group Common Stock or Series B TCI Ventures
Group Common Stock payable in securities of the Corporation attributed to the
TCI Ventures Group other than Series A TCI Ventures Group Common Stock and
Series B TCI Ventures Group Common Stock, the TCI Group shall be deemed to hold
an amount of such other securities equal to the amount so distributed
multiplied by the fraction specified in clause (i) of this definition
(determined as of a time immediately prior to the record date for such dividend
or other distribution), and to the extent interest or dividends are paid or
other distributions are made on such other securities so distributed to the
holders of Series A TCI Ventures Group Common Stock and Series B TCI Ventures
Group Common Stock, the TCI Ventures Group shall no longer include a
corresponding ratable amount of the kind of assets paid as such interest or
dividends or other distributions in
II-A-35
<PAGE> 158
respect of such securities so deemed to be held by the TCI Group. The
Corporation may also, to the extent any such other securities constitute
Convertible Securities which are at the time convertible, exercisable or
exchangeable, cause such Convertible Securities deemed to be held by the TCI
Group to be deemed to be converted, exercised or exchanged (and to the extent
the terms of such Convertible Securities require payment or delivery of
consideration in order to effect such conversion, exercise or exchange, the TCI
Ventures Group shall in such case include an amount of the kind of properties
or assets required to be paid or delivered as such consideration for the amount
of the Convertible Securities deemed converted, exercised or exchanged as if
such Convertible Securities were outstanding), in which case such Convertible
Securities shall no longer be deemed to be held by the TCI Group or attributed
to the TCI Ventures Group.
"TCI Ventures Group Available Dividend Amount," as of any date, shall
mean the product of the TCI Ventures Group Outstanding Interest Fraction and
either: (a) the excess of (i) an amount equal to the total assets of the TCI
Ventures Group less the total liabilities (not including preferred stock) of
the TCI Ventures Group as of such date over (ii) the aggregate par value of, or
any greater amount determined to be capital in respect of, all outstanding
shares of Series A TCI Ventures Group Common Stock, Series B TCI Ventures Group
Common Stock, each class or series of Preferred Stock attributed to the TCI
Ventures Group and the TCI Ventures Group Preferred Interest or (b) in case
there is no such excess, an amount equal to the Corporation Earnings (Loss)
Attributable to the TCI Ventures Group (if positive) for the fiscal year in
which such date occurs and/or the preceding fiscal year.
"TCI Ventures Group Inter-Group Interest Fraction," as of any date,
shall mean a fraction the numerator of which is the Number of Shares Issuable
with Respect to the TCI Ventures Group Inter-Group Interest as of such date and
the denominator of which is the sum of (a) such Number of Shares Issuable with
Respect to the TCI Ventures Group Inter-Group Interest as of such date and (b)
the aggregate number of shares of Series A TCI Ventures Group Common Stock and
Series B TCI Ventures Group Common Stock outstanding as of such date.
"TCI Ventures Group Net Proceeds" shall mean, as of any date, with
respect to any Disposition of any of the properties and assets of the TCI
Ventures Group, an amount, if any, equal to the gross proceeds of such
Disposition after any payment of, or reasonable provision for, (a) any taxes
payable by the Corporation in respect of such Disposition or in respect of any
resulting dividend or redemption pursuant to clause (i) or (ii), respectively,
of paragraph 6(b) of this Section E (or which would have been payable but for
the utilization of tax benefits attributable to the TCI Group or the Liberty
Media Group), (b) any transaction costs, including, without limitation, any
legal, investment banking and accounting fees and expenses and (c) any
liabilities and other obligations (contingent or otherwise) of, or attributed
to, the TCI Ventures Group, including, without limitation, any indemnity or
guarantee obligations incurred in connection with the Disposition or any
liabilities for future purchase price adjustments and any preferential amounts
plus any accumulated and unpaid dividends and other obligations (without
duplication of amounts allocated for the satisfaction of the Corporation's
obligations with respect to Pre-Exchange Offer Securities which are included in
the determination of the Adjusted TCI Ventures Group Outstanding Interest
Fraction) in respect of Preferred Stock attributed to the TCI Ventures Group
and in respect of the TCI Ventures Group Preferred Interest. For purposes of
this definition, any properties and assets of the TCI Ventures Group remaining
after such Disposition shall constitute "reasonable provision" for such amount
of taxes, costs and liabilities (contingent or otherwise) as can be supported
by such properties and assets. To the extent the proceeds of any Disposition
include any securities or other property other than cash, the Board of
Directors shall determine the value of such securities or property, including
for the purpose of determining the equivalent value thereof if the Board of
Directors determines to pay a dividend or redemption price in cash or
securities or other property as provided in clause (z) of paragraph 6(b) of
this Section E.
"TCI Ventures Group Outstanding Interest Fraction," as of any date,
shall mean a fraction the numerator of which is the aggregate number of shares
of Series A TCI Ventures Group Common Stock and Series B TCI Ventures Group
Common Stock outstanding on such date and the denominator of which is the sum
of (a) such aggregate number of shares of Series A TCI Ventures Group Common
Stock and Series B TCI Ventures Group Common Stock outstanding on such date and
(b) the Number of Shares Issuable with Respect to the TCI Ventures Group
Inter-Group Interest as of such date.
"TCI Ventures Group Preferred Interest" means the preferred equity
interest in the TCI Ventures Group that shall be attributed to the TCI Group
following the consummation of the Exchange Offers if the number of shares of
Series A TCI Group Common Stock validly tendered pursuant to the Exchange
Offers and not withdrawn is less
II-A-36
<PAGE> 159
than _______ (the amount of such shortfall being the "Series A Number"), or if
the number of shares of Series B TCI Group Common Stock validly tendered
pursuant to the Exchange Offers and not withdrawn is less than ________ (the
amount of such shortfall being the "Series B Number"). The stated liquidation
value of the TCI Ventures Group Preferred Interest, if any, shall equal the
product of (x) the sum of the Series A Number and the Series B Number,
multiplied by (y) the Market Value of the Series A TCI Group Common Stock on
the last Trading Day preceding the consummation of the Exchange Offers. The
TCI Group will be entitled to receive cumulative cash dividends on the TCI
Ventures Group Preferred Interest, which shall accrue at the rate of 5% per
annum of the Liquidation Preference thereof, from the date the Exchange Offers
are consummated to and including the date that the TCI Ventures Group makes the
Liquidation Preference available to the TCI Group. Accrued dividends on the TCI
Venture Group Preferred Interest shall accumulate and compound annually (but
not be payable currently) until the fifth anniversary of the closing of the
Exchange Offers. On and after such fifth anniversary, accrued dividends shall
be payable annually on each anniversary of the closing of the Exchange Offers
and will accumulate and compound to the extent not paid on any such
anniversary. When dividends become payable currently thay may be paid either
through the transfer of cash or other assets from the TCI Ventures Group to the
TCI Group or through the reduction of amounts owed by the TCI Group to the TCI
Ventures Group. The Liquidation Preference of the TCI Ventures Group Preferred
Interest as of any relevant date shall be an amount equal to the sum of (a) the
stated liquidation value of the TCI Ventures Group Preferred Interest plus (b)
an amount equal to all dividends accrued thereon as of any annual dividend
payment date that have not been paid on such date (which dividends shall remain
a part of the Liquidation Preference until such accrued dividends and all
dividends accrued thereto have been paid in full), plus (c) for purposes of
determining the amounts payable with respect to the TCI Ventures Group
Preferred Interest upon redemption thereof or the liquidation, dissolution and
winding up of the TCI Ventures Group, an amount equal to all unpaid dividends
accrued during the period from the immediately preceding dividend payment date
to such date. The TCI Ventures Group Preferred Interest shall be redeemed in
full on the fifteenth (15th) anniversary of the consummation of the Exchange
Offers, and may be redeemed, in whole or in part, at the discretion of the
Board of Directors at any time prior thereto, for a redemption price, payable
in cash, equal to the Liquidation Preference thereof as of the redemption date.
"TCI Ventures Group Private Market Value" shall mean an amount equal
to the private market value of the TCI Ventures Group as of the Appraisal Date.
Each of the First Appraiser, the Second Appraiser and the Mutually Designated
Appraiser, if any, shall be instructed to determine the private market value of
the TCI Ventures Group as of the Appraisal Date based upon the amount a willing
purchaser would pay to a willing seller, in an arm's length transaction, if it
were acquiring the TCI Ventures Group, as if the TCI Ventures Group were a
publicly traded non-controlled corporation and the purchaser was acquiring all
of the capital stock of such corporation, and without consideration of any
potential regulatory constraints limiting the potential purchasers of the TCI
Ventures Group other than that which would have existed if the TCI Ventures
Group were a publicly traded non-controlled entity.
"Trading Day" shall mean each weekday other than any day on which any
relevant class or series of capital stock of the Corporation is not traded on
the Nasdaq National Market System or in the over-the-counter market.
SECTION C OF ARTICLE V OF THE RESTATED CERTIFICATE OF INCORPORATION OF THE
CORPORATION IS PROPOSED TO BE AMENDED PURSUANT TO THE TCI VENTURES GROUP STOCK
PROPOSAL TO READ IN ITS ENTIRETY AS FOLLOWS:
"SECTION C
REMOVAL OF DIRECTORS
Subject to the rights of the holders of any class or series of
Preferred Stock, directors may be removed from office only for cause (as
hereinafter defined) upon the affirmative vote of the holders of 66 2/3% of the
total voting power of the then outstanding shares of Series A TCI Group Common
Stock, Series B TCI Group Common Stock, Series A Liberty Media Group Common
Stock, Series B Liberty Media Group Common Stock, Series A TCI Ventures Group
Common Stock, Series B TCI Ventures Group Common Stock and any class or series
of Preferred Stock entitled to vote at an election of directors, voting
together as a single class. Except as may be provided by law, "cause" for
removal, for purposes of this Section C, shall exist only if: (i) the director
whose removal is proposed has been convicted of a felony, or has been granted
immunity to testify in an action where another has been convicted of a felony,
by a court of competent jurisdiction and such conviction is no longer subject
to direct appeal; (ii) such director has become mentally incompetent, whether
or not so adjudicated, which mental incompetence directly affects his ability
as a director of the Corporation, as determined by at least 66 2/3% of the
members of the Board of Directors then in office (other than such director); or
(iii) such director's actions or failure
II-A-37
<PAGE> 160
to act have been determined by at least 66 2/3% of the members of the Board of
Directors then in office (other than such director) to be in derogation of the
director's duties."
SECTION A OF ARTICLE VIII OF THE RESTATED CERTIFICATE OF INCORPORATION OF THE
CORPORATION IS PROPOSED TO BE AMENDED PURSUANT TO THE TCI VENTURES GROUP STOCK
PROPOSAL TO READ IN ITS ENTIRETY AS FOLLOWS:
"ARTICLE VIII
MEETINGS OF STOCKHOLDERS
SECTION A
ANNUAL AND SPECIAL MEETINGS
Subject to the rights of the holders of any class or series of
Preferred Stock, stockholder action may be taken only at an annual or special
meeting. Except as otherwise provided in the terms of any class or series of
Preferred Stock or unless otherwise prescribed by law or by another provision
of this Certificate, special meetings of the stockholders of the Corporation,
for any purpose or purposes, shall be called by the Secretary of the
Corporation (i) upon the written request of the holders of not less than 66
2/3% of the total voting power of the outstanding Voting Securities (as
hereinafter defined) or (ii) at the request of at least 75% of the members of
the Board of Directors then in office. The term "Voting Securities" shall
include the Series A TCI Group Common Stock, the Series B TCI Group Common
Stock, the Series A Liberty Media Group Common Stock, the Series B Liberty
Media Group Common Stock, the Series A TCI Ventures Group Common Stock, the
Series B TCI Ventures Group Common Stock and any class or series of Preferred
Stock entitled to vote with the holders of Common Stock generally upon all
matters which may be submitted to a vote of stockholders at any annual meeting
or special meeting thereof."
II-A-38
<PAGE> 161
ANNEX II-B
PROPOSED AMENDMENTS
TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF
TELE-COMMUNICATIONS, INC.
(IMPLEMENTING THE LIBERTY MEDIA GROUP AMENDMENT PROPOSAL)
PARAGRAPH 5(A) OF SECTION E OF THE RESTATED CERTIFICATE OF INCORPORATION OF THE
CORPORATION IS PROPOSED TO BE AMENDED PURSUANT TO THE LIBERTY MEDIA GROUP
AMENDMENT PROPOSAL TO READ IN ITS ENTIRETY AS FOLLOWS:
"5. Redemption and Other Provisions Relating to the Series A
Liberty Media Group Common Stock and Series B Liberty Media
Group Common Stock
(a) REDEMPTION IN EXCHANGE FOR STOCK OF LIBERTY MEDIA
GROUP SUBSIDIARIES. At any time at which all of the assets and liabilities
attributed to the Liberty Media Group have become and continue to be held
directly or indirectly by any one or more Qualifying Subsidiaries (the "Liberty
Media Group Subsidiaries"), repeat balance of 5(a) (P 11-10-II-11)
THE DEFINITION OF QUALIFYING SUBSIDIARY IN PARAGRAPH 9 OF SECTION E OF THE
RESTATED CERTIFICATE OF INCORPORATION OF THE CORPORATION IS PROPOSED TO BE
AMENDED PURSUANT TO LIBERTY MEDIA GROUP AMENDMENT PROPOSAL TO READ AS FOLLOWS:
"Qualifying Subsidiary" shall mean a Subsidiary of the Corporation in
which (i) the Corporation's ownership and voting interest is sufficient to
satisfy the requirements of the Internal Revenue Service for (x), in the case
of a Subsidiary that holds assets attributed to the Liberty Media Group, a
distribution of the Corporation's interest in such Subsidiary to the holders of
Series A Liberty Media Group Common Stock and Series B Liberty Media Group
Common Stock that is tax free to such holders or (y), in the case of a
Subsidiary that holds assets attributed to the TCI Ventures Group, a
distribution of the Corporation's interest in such Subsidiary to the holders of
Series A TCI Ventures Group Common Stock and Series B TCI Ventures Group Common
Stock that is tax free to such holders or (ii) the Corporation owns, directly
or indirectly, all of the issued and outstanding capital stock.
II-B-1
<PAGE> 162
ANNEX III
DESCRIPTION OF TCI VENTURES GROUP
GENERAL
The TCI Ventures Group would initially consist principally of the
following assets and their related liabilities: (i) TCI's 85% equity interest
(representing a 92% voting interest) in International, which is the Company's
primary vehicle for the conduct of its international cable, telephony and
programming businesses (other than those international programming businesses
attributed to the Liberty Media Group), (ii) TCI's principal interests in the
Telephony Business, consisting primarily of the Company's investment in a
series of partnerships formed to engage in the business of providing wireless
communications services, using the radio spectrum for PCS, to residential and
business customers nationwide under the Sprint(R) brand (a registered trademark
of Sprint Communications Company, L.P.), the Company's investment in TCG, a
competitive local exchange carrier, and the Company's wholly owned subsidiary
WTCI, which provides long distance transport of video, voice and data traffic
and other telecommunications services to telecommunications carriers on a
wholesale basis using primarily a digital broadband microwave network located
throughout a 12 state region, (iii) TCI's 40% equity interest (representing a
85% voting interest) in UVSG, which provides satellite-delivered video, audio,
data and program promotion services to cable television systems, satellite dish
owners, radio stations and private network users, primarily throughout North
America, (iv) TCI's 43% equity interest (representing a 75% voting interest) in
@Home, a provider of high speed multimedia Internet services, and TCI's interest
in other Internet-related assets and (v) other assets, including ETC, an 80%
owned subsidiary of the Company which is a developer and distributor of
for-profit education, training and communication services and products, NDTC, a
wholly owned subsidiary of the Company which provides digital compression and
authorization services to programming suppliers and to video distribution
outlets, and TCI Summitrak of Texas, Inc. and TCI Summitrak L.L.C., wholly owned
subsidiaries of the Company that provide an integrated network-based information
management system currently to certain of TCI's cable systems with plans to
expand its service to include third parties. (Percentage equity and voting
interests provided above and elsewhere in this Annex III have been rounded to
the nearest whole number and calculated as of the date of this Proxy Statement,
except for percentage interests in entities that are not consolidated
subsidiaries which have been calculated as of March 31, 1997.) The stocks of
International, TCG and UVSG are traded on the National Market tier of The Nasdaq
Stock Market.
The TCI Ventures Group would also include such other assets and
liabilities of the TCI Group as the Board of Directors may in the future
determine to attribute to the TCI Ventures Group and such other businesses,
assets and liabilities as TCI or any of its subsidiaries may in the future
acquire for the TCI Ventures Group, as determined by the Board of Directors.
It is currently the intention of the Company that any businesses, assets and
liabilities so attributed to the TCI Ventures Group in the future would not
include assets and liabilities of the Company's domestic programming businesses
and investments or its domestic cable operations (including its businesses
which utilize its cable plant to distribute telephony and Internet services).
The following table lists the entities the Company's interest in which
would be attributed to the TCI Ventures Group and sets forth, as of the date of
the Proxy Statement (except for unconsolidated entities which are as of March
31, 1997), the TCI Ventures Group's direct or indirect equity interest in such
entities (rounded to the nearest whole number) and the businesses currently
conducted by such entities. The table excludes certain direct and indirect
wholly owned subsidiaries of TCI, the sole assets of which consist of interests
in the listed entities. Such subsidiaries (such as TTS-Delaware) would also be
attributed to the TCI Ventures Group. The Company's interests in certain other
of the listed entities are owned through subsidiaries that also own assets
which would not be attributed to the TCI Ventures Group (such as the ownership
by TCI Wireline Holdings, Inc. of both WTCI which is in the TCI Ventures Group
and subsidiaries that are engaged in the ResTel Business which is in the TCI
Group). Such subsidiaries would not be attributed to the TCI Ventures Group.
Certain of the listed entities operate through subsidiaries and affiliates. In
such cases, the listed entity's interest in its subsidiaries and affiliates
would also be attributed to the TCI Ventures Group. With respect to listed
entities that are partnerships or the interest in which is held through a
partnership or similar structure, the Company's voting rights and rights to
participate in the earnings of affiliates may differ from the equity interests
indicated in the table below.
III-1
<PAGE> 163
INTERNATIONAL CABLE, TELEPHONY AND PROGRAMMING
<TABLE>
<CAPTION>
TCI VENTURES GROUP'S
--------------------
COMPANY DIRECT OR INDIRECT INTEREST BUSINESS
- - ------- --------------------------- --------
<S> <C> <C>
Tele-Communications International, 85% equity International cable, telephony and
Inc.(1) 92% voting programming interests and operations
</TABLE>
DOMESTIC TELEPHONY
<TABLE>
<CAPTION>
TCI VENTURES GROUP'S
--------------------
COMPANY DIRECT OR INDIRECT INTEREST BUSINESS
- - ------- ---------------------------- --------
<S> <C> <C>
Sprint PCS Partnerships 30% PCS under the "Sprint" brand name
PhillieCo, L.P. 35% PCS under the "Sprint" brand name
Teleport Communications Group, Inc. 30% equity Competitive Local Exchange Carrier
37% voting
Kansas City Fiber Network 75% CAP serving the Kansas City metropolitan area
NHT Partnership 40% CAP serving the Buffalo metropolitan area
New Jersey Fiber Technologies, L.P. 79% CAP serving the Morristown and New
Brunswick, NJ metropolitan area
Louisville Lightwave 43%(2) CAP serving the Louisville and Lexington, KY
metropolitan area
Western Tele-Communications, Inc. 100% Provider of microwave and wireline transport
of telecommunications services
General Communication, Inc. 3% Telecommunications provider
</TABLE>
DIVERSIFIED SATELLITE COMMUNICATIONS
<TABLE>
<CAPTION>
TCI VENTURES GROUP'S
--------------------
COMPANY DIRECT OR INDIRECT INTEREST BUSINESS
- - ------- ----------------------------- --------
<S> <C> <C>
United Video Satellite Group, Inc. 40% equity Satellite Distribution of video, audio, data
85% voting and program promotion services
</TABLE>
__________________________________
(1) For a description of the businesses in which International has
interests, see the chart under "International Cable, Telephony and Programming
-- International" below.
(2) TCI has agreed to acquire an indirect additional interest in
Louisville Lightwave which would increase its interest to 50%, which
transaction is expected to close in the third quarter of 1997.
III-2
<PAGE> 164
INTERNET SERVICES
<TABLE>
<CAPTION>
TCI VENTURES GROUP'S
--------------------
COMPANY DIRECT OR INDIRECT INTEREST BUSINESS
- - ------- --------------------------- --------
<S> <C> <C>
At Home Corporation 43% equity High-speed multimedia Internet services
75% voting
Sportsline USA, Inc. 7% Internet provider of branded interactive
sports information, programming and
merchandise
iVillage, Inc. 12% Developer of and Internet and on-line
provider of branded communities and
information services pertaining to parenting,
careers and personal health
Interzine Productions, Inc. 15% Internet provider of interactive sports
communities and information services
Netscape Communications Corporation less than 1% Internet and intranet software developer
Java Fund 7% Investor in Java application development
</TABLE>
OTHER
<TABLE>
<CAPTION>
TCI VENTURES GROUP'S
--------------------
COMPANY DIRECT OR INDIRECT INTEREST BUSINESS
- - ------- --------------------------- --------
<S> <C> <C>
ETC w/tci 80% Developer and distributor of for-profit
education, training and communication
services and products
CareerTrack, Inc.(3) 76% Provider of business and educational seminars
and related publications
National School Conference Institute, 64% Provider of conference and satellite-
Inc.(3) delivered staff development programming for
educators
Ingenius(3)(4) 40% Developer of education software products
designed to facilitate classroom learning
The Lightspan Partnership, Inc. (3) 9% Developer of educational programming
Academic Systems Corporation3 8% Provider of higher education multimedia
instruction materials
</TABLE>
__________________________________
(3) Held through ETC w/tci.
(4) ETC has agreed to acquire the remaining 50% of Ingenius which
it does not already own, which transaction is expected to close in the second
quarter of 1997, although there can be no assurance that such transaction will
be consummated.
III-3
<PAGE> 165
<TABLE>
<S> <C> <C>
National Digital Television Center, Inc. 100% Digital compression and authorization
services to programming suppliers, cable
systems and other video distribution outlets
Summitrak 100% Integrated information management system
DigiVentures, LLC 99% Leases digital set-top box equipment
Acclaim Entertainment, Inc. 9% Publisher of entertainment software
Antec Corporation(5) 16% Manufacturer of products for hybrid
fiber/coax broadband networks.
Intessera, Inc. 100% Provider of database management software
TCI TVGOS, Inc. 100% Holds an undivided interest to certain
intellectual property rights of TV Guide on
Screen, a joint venture which has been
dissolved
MCNS Holdings, L.P. 25% Developer of multimedia communications
network and associated technologies.
Kitty Hawk Capital Limited 3% Venture capital provider
Partnership, II
New Enterprise Associates IV, L.P. 1% Venture capital provider
Venture First II, L.P. 1% Venture capital provider
TVSM., Inc. 10% Publishing company of various cable
television programming guides
</TABLE>
The principal assets attributed to the TCI Ventures Group are described in
greater detail below.
INTERNATIONAL CABLE, TELEPHONY AND PROGRAMMING -- INTERNATIONAL
OVERVIEW
International, through its subsidiaries and affiliates, operates
multi-channel video and telecommunications distribution networks in, and
provides diversified programming services to, selected markets outside the
United States ("U.S."). International's activities are concentrated in Europe,
Latin America and The Caribbean, and Asia, Australia and New Zealand, with
particular focus at present on the United Kingdom ("U.K."), Argentina and
Japan. International has ownership interests in companies operating broadband
networks that, at December 31, 1996, provided cable television service to an
aggregate of approximately 2.9 million basic subscribers and, in the U.K.,
provided telephone service over approximately 947,000 telephone lines (a
customer may have multiple telephone lines). As of December
__________________________________
(5) This interest was previously represented by TCI's interest in
TSX Corporation which merged with Antec Corporation in February 1997.
III-4
<PAGE> 166
31, 1996, International also had ownership interests in or managed 39 cable and
satellite programming services which were received by subscribers in various
countries outside the U.S.
The TCI Ventures Group would be attributed TCI's interest in
International. As of April 30, 1997, TCI owned 86.25 million shares of TINTA
Series A Stock and all of the outstanding shares of TINTA Series B Stock
(collectively, the "TINTA Common Stock"). Such shares represented
approximately 85% of the outstanding shares of TINTA Common Stock and, due to
TCI's ownership of all of the TINTA Series B Common Stock (which has greater
per share voting rights), approximately 92% of the combined voting power of the
outstanding shares of TINTA Common Stock.
The following table sets forth as of March 31, 1997, the name of each
of the operating companies in which International has a direct or indirect
equity interest, the amount of such interest (based generally on the ownership
interest in capital stock and rounded to the nearest whole number) in each such
operating company, and the businesses currently conducted by such operating
company. International's interests in such companies are often held through
holding companies and its voting rights and rights to participate in the
earnings of affiliates may differ from the equity interests indicated in the
table below.
<TABLE>
<CAPTION>
International's
Direct or Indirect
------------------
Country Operating Company Interest(1) Business
------- ----------------- -------- --------
<S> <C> <C> <C>
EUROPE
-------
United Kingdom Telewest Communications plc 27%(2) Cable/Telephony
Flextech p.l.c. 46%(3) Programming
DMX Inc. 18% Music Programming(4)
Israel Tevel Israel International 23% Cable/Programming
Communications Ltd. ("Tevel")
Ireland Princes Holdings Ltd. ("Princes") 25% Cable/MMDS
Malta Melita Cable TV Ltd. ("Melita") 33% Cable
</TABLE>
__________________________________
(1) For indirect equity interests, the percentage in the table is
calculated by multiplying International's percentage interest in the holding
company by the holding company s percentage interest in the operating company.
(2) International's interest in Telewest is held through its 50%
interest in TW Holdings, L.L.C. ("TW Holdings") which has a majority interest
in Telewest.
(3) In April 1997, Flextech p.l.c. ("Flextech"), formed two
separate joint ventures with BBC Worldwide Limited ( BBC Worldwide ) and
entered into certain related transactions that resulted in, among other things,
International having ownership and voting interests in Flextech of 36% and 50%,
respectively. See "--United Kingdom Cable and Satellite Programming Services."
(4) DMX Inc. operates both in the U.S. and the U.K.
III-5
<PAGE> 167
<TABLE>
<S> <C> <C> <C>
Poland Aster City Cable Sp. Zo.o. 22%(5) Cable
Regionale Telewizja Kablowa 44% Cable
Autocom Sp. Zo.o.
Katowicka Telewizja Kablowa 34% Cable
S.A.
Przedsiebiorstwo Rozwoju 44% Cable
Handlui TeleKomunikacji
Sp. Zo.o.
Telefonia Polska Zachod Sp. 29% Telephony
Zo.o.
France Multi Thematiques, S.A. 33% Programming
Videopole S.A. 7% Cable
LATIN AMERICA AND
-----------------
THE CARIBBEAN
-------------
Argentina Cablevision S.A. 51%(6) Cable
Chile Metropolis-Intercom S.A. 24% Cable
Dominican Republic TeleCable Nacional, CXA 49% Cable
Puerto Rico TCI Cablevision of Puerto Rico, 100% Cable
Inc.
Caguas/Humacao Cable 50%(7) Cable
Systems
</TABLE>
__________________________________
(5) International's interest in Aster City Cable Sp. Zo.o. ("Aster
City") is held through its 44% interest in Bresnan International Partners
(Poland), L.P. ("BIP Poland"), which owns a 49% interest in Aster City. In May
1997, BIP Poland executed agreements to acquire the remaining 51% interest in
Aster City not already owned by it. This transaction is expected to close in
the third quarter of 1997, although no assurance can be given that such
transaction will be consummated.
(6) International has an option to purchase an additional 29-39%
equity interest in Cablevision, exercisable at any time on or before October
30, 1997. See "--Latin America and The Caribbean-Argentina."
(7) On May 1, 1997, International acquired the remaining 50%
ownership interest in Caguas/Humacao Cable Systems which it did not already own
and merged it into TCI Cablevision of Puerto Rico, Inc. See "--Latin America
and The Caribbean-The Caribbean."
III-6
<PAGE> 168
<TABLE>
<S> <C> <C> <C>
Various The Sports Venture(8) 25% Programming
DTH Ventures(9) 10% DTH Satellite
ASIA, AUSTRALIA AND
---------------------
NEW ZEALAND
------------
Japan Jupiter Telecommunications, 40% Cable
Co., Ltd.
Jupiter Programming Co., Ltd. 50% Programming
Singapore Asia Business News 49%(10) Programming
(Singapore) Private
Australia Australis Media Ltd. 1% MMDS/DTH Satellite
The Premium Movie Partnership 17% Programming
New Zealand Sky Network Television 13% UHF Subscription/
Limited Programming
</TABLE>
Merely for convenience, the following discussion in some instances contains
translations of the local functional currency of International's subsidiaries
and equity affiliates into U.S. currency at the applicable rate (as published
in The Wall Street Journal) in effect on March 31, 1997, unless otherwise
specified. No representation is made that any of such local functional
currencies have been, could have been or could be converted into U.S. dollars
at such rates. With respect to translations of sums which have already been
paid, such translations indicate the actual U.S. dollar amount contributed.
The applicable rates at March 31, 1997 for the U.K. pound sterling ("L." or
"pounds") and the Japanese yen ("Yen") were $1.6395 per L.1.00 and Yen123.75
per $1.00, respectively. At June 2, 1997, such applicable rates were $1.6357
per L.1.00 and Yen116.59 per $1.00, respectively.
UNITED KINGDOM
International's United Kingdom operations are the most developed
example of International's integrated distribution and programming strategy.
International's U.K. operating companies (i) own broadband fiber optic/coaxial
networks that provide combined cable television and cable telephony services
and (ii) own and manage cable and satellite programming services.
__________________________________
(8) Represents a joint venture, including a number of partnerships
or other entities under common ownership, formed by International, Liberty and
News Corporation Limited ("News Corp."), which venture currently operates
sports services in Latin America and Australia and intends to operate new
sports services throughout the world (excluding the U.S., Canada and certain
other geographic areas). See "-- Latin America and The Caribbean-Strategic
Ventures."
(9) Represents various joint ventures for the development and
operation of direct-to-home satellite ("DTH Satellite") service in Brazil,
Mexico and various Central and South American countries. See "--Latin America
and The Caribbean-Strategic Ventures."
(10) International has exercised an option which entitles it to
acquire an additional interest in Asia Business News (Singapore) Private ("ABN")
which would increase its interest in ABN to 50%. See "--Asia-Other Asian
Programming."
III-7
<PAGE> 169
Cable Television and Telephony. International owns, through a joint
venture with US WEST, Inc. ("US WEST"), an indirect 27% interest in Telewest
Communications plc ("Telewest"), a leading provider of cable television and
cable telephony services in the United Kingdom. Telewest's ordinary shares
trade on the London Stock Exchange and are represented by American Depositary
Receipts in the United States, where they trade on the National Market tier of
The Nasdaq Stock Market. Telewest provides cable television and cable
telephony services over a broadband (i.e., high capacity) network which enables
Telewest to deliver a variety of both television and telephony services to its
customers. The network also will enable Telewest to provide customers with a
range of interactive and integrated entertainment, telecommunications and
information services as they become available in the future. In 1996, Telewest
began offering home access to the Internet to a majority of its franchise
areas. Telewest currently provides digital technology for its telephony
services.
Telewest provided, as of December 31, 1996, cable and telephony
service to 26 owned and operated franchises (containing a total of
approximately 4.1 million homes and businesses) and within such franchises
provided cable television service to 528,000 basic subscribers and telephony
service to 641,000 residential and business customers at that date. (An
additional franchise covering 30,000 homes was awarded to Telewest on March 20,
1997.) Telewest also had, as of December 31, 1996, minority interests in three
U.K. cable operators owning a total of seven additional cable franchises (the
"Affiliated Franchises"), which included approximately 1.2 million homes and
approximately 84,000 businesses. Through the Affiliated Franchises, Telewest
served at December 31, 1996, on an equity basis, approximately 72,000 basic
cable subscribers and 68,000 telephony customers. "On an equity basis" means
the total number of subscribers or customers served multiplied by Telewest's
indirect percentage equity interest in the franchise. At December 31, 1996,
Telewest's franchises (including the Affiliated Franchises) included more than
24% of the U.K. homes in areas covered by cable licenses. More than 49% of
Telewest's customers subscribe for both cable television and cable telephony
services.
As of December 31, 1996, construction of broadband cable networks
passing approximately 65% of the homes in Telewest's owned and operated
franchises and 80% of the homes in the Affiliated Franchises had been completed
and approximately L.1.6 billion had been invested in the construction of the
network of its owned and operated franchises and approximately L.665 million
had been invested in the construction of the networks of the Affiliated
Franchises. Telewest expects that the remaining construction of the networks
in all of its franchises will be substantially completed by the end of the year
2000. In addition to the construction of a hybrid fiber-coaxial network in
each of its franchises, Telewest is developing a broadband inter-franchise
network to carry voice, data and video traffic between its franchises
(including the Affiliated Franchises), which is expected to reduce
interfranchise connection charges. The inter-franchise network is scheduled to
be 75% complete by the end of 1997, with full completion planned for the middle
of 1998.
Telewest is required to have certain licenses to operate its cable
television and telephony business. The current regulatory policy of the U.K.'s
Independent Television Commission (the "ITC"), the agency which awards U.K.
cable television licenses, is to grant only one broadband cable license within
a franchise area. Accordingly, Telewest does not compete for subscribers with
other cable operators within its franchises. This exclusivity is not written
into the license itself and the ITC may change its policy at any time, although
it has indicated that it does not intend to do so for the foreseeable future.
Cable television licenses are subject to ownership and transfer restrictions.
A telecommunications license, which allows the holder to construct and operate
the physical network necessary to provide cable television and telephony
services, and accordingly gives Telewest the right to offer telephony services
in its franchise areas, is not exclusive and therefore cable operators are
subject to competition with respect to telephony in their franchise areas.
Telecommunications licenses are subject to restrictions on transfer and to
build obligations that require the licensee to construct its network according
to a set timetable. Telewest failed to meet certain of its 1996 build
obligations ("milestones"), but has initiated discussions with the agency which
regulates milestone compliance regarding the modification of Telewest's past
and future milestone obligations. Telewest believes that it will be able to
obtain the necessary modifications to its obligations, although there can be no
assurance it will be successful in so doing. Telewest's cable licenses have
remaining terms of approximately 3 to 16 years years and its telecommunications
licenses have remaining terms of approximately 11 to 20 years. Cable operators
providing telephony are also subject to certain regulations regarding
interconnection with public telephone operators and may in the future be
subject to equal access
III-8
<PAGE> 170
requirements. Cable television and cable telephony services are not currently
subject to specific government price control in the United Kingdom.
International's interest in Telewest is held through TW Holdings, a
limited liability company in which International and US WEST, through their
respective subsidiaries, each holds an indirect 50% interest. TW Holdings
holds a majority interest in Telewest. The operating agreement which governs
the operations of TW Holdings, as well as certain other agreements to which
International and US WEST are subject, contain restrictions regarding, among
other things, the voting and disposition of the Telewest shares and the
acquisition by TCI, US WEST or their respective controlled affiliates
(including International) of cable television or cable telephony systems in the
U.K. other than through Telewest. The Telewest charter provides that so long
as both International and US WEST each beneficially own at least 25% of the
outstanding Telewest ordinary shares, each will be entitled to appoint two of
the 12-member Telewest board of directors. International and US WEST have
agreed that, subject to fiduciary duties, on any matter requiring shareholder
or board of directors approval they will cause TW Holdings or their directors,
as applicable, to vote in such manner as may be agreed by them or, in the
absence of such agreement, in such manner as would be most likely to continue
the status quo. As a result of the foregoing arrangements, International and
US WEST will generally be able to determine the outcome of any matter requiring
approval of Telewest's shareholders (other than matters which require approval
by 75% of the stockholders), including the election or removal of directors and
the creation and issuance of shares. International and US WEST have agreed
with Telewest that, so long as they collectively beneficially own more than 50%
or individually own more than 30% of the outstanding Telewest ordinary shares,
they will use their respective best efforts to ensure that a majority of the
directors of Telewest are "independent" (within the meaning of the Listing
Rules of the London Stock Exchange) of International and US WEST. The Listing
Rules of the London Stock Exchange require that a majority of the directors of
listed companies be independent.
Cable and Satellite Programming Services. International and its
predecessors have been actively involved in the development of cable and
satellite programming in the U.K. since 1988, and International has created an
integrated programming enterprise through the operations of Flextech, a
36%-owned subsidiary at April 30, 1997 (such interest representing 50.0% of the
voting power of Flextech at that date). Flextech's ordinary shares trade on
the London Stock Exchange. Through its subsidiaries and affiliates, Flextech
creates, packages and markets entertainment and information programming for
distribution on cable television and DTH Satellite systems throughout the U.K.
and, to a lesser extent, parts of Continental Europe. Flextech also owns
interests in a terrestrial broadcast network, a production company and a
distribution company. By acquiring interests in and establishing alliances
among providers of a variety of entertainment programming, Flextech has been
able to achieve significant economies of scale and establish itself as a major
low-cost provider of television programming. At March 31, 1997, Flextech's
ownership of programming services included interests in the entities which
operate the following programming services (with its percentage interest set
forth in parenthesis): Bravo (100%); TCC (formerly The Children's Channel)
(100%); Challenge TV (100%); HSN Direct International (63%); Playboy TV (51%);
Sell-A-Vision (50%); KinderNet Channel (31%); UK Living (31%); European
Business News (30%); and UK Gold (25%). Upon the consummation of certain
transactions described below, Flextech increased its interest in UK Living and
UK Gold to 100% and 65%, respectively. At March 20, 1997, Flextech had
interests in 14 cable and satellite channels of which 13 are distributed in the
U.K. market.
In addition to providing management services to its four wholly owned
programming services and the two joint ventures referred to in the next
paragraph, Flextech provides management services to Discovery Channel Europe,
Discovery Home & Leisure (formerly The Learning Channel), The Parliamentary
Channel, Playboy TV and Home Shopping Networks Direct. (Liberty has an indirect
49% interest in The Discovery Channel Europe and Discovery Home & Leisure.)
Flextech receives for such services a management fee and, in some cases, a
percentage of the programming company's gross revenue. Flextech received a
total of L.3.8 million in management fees from unaffiliated third parties in
1996.
In April 1997, Flextech (i) formed two separate joint ventures (the
"BBC Joint Ventures") with BBC Worldwide and (ii) acquired all of the share
capital in U.K. Living Limited ("UKLL") and U.K. Gold Television Limited
("UKGL") (the producers of UK Living and UK Gold, respectively) not already
owned by Flextech. One of the joint
III-9
<PAGE> 171
ventures with BBC Worldwide (the "Principal Joint Venture") will operate and
launch a number of new subscription television channels for distribution in the
U.K. and Ireland. Flextech and BBC Worldwide each have a 50% interest in this
venture. The Principal Joint Venture has committed to the launch of at least 4
new theme channels by September 30, 1998. The other joint venture (the "Second
Joint Venture") acquired 65% of the share capital of UKGL (following Flextech's
acquisition of all of the UKGL share capital), with put and call arrangements
over the remaining 35% of such share capital. The Second Joint Venture will
operate and develop UKGL, and both Flextech and BBC Worldwide have a 50%
interest in that venture. An affiliate of the British Broadcasting
Corporation ("BBC") will be responsible for the scheduling, programming and
presentation of the channels to be operated by the BBC Joint Ventures, while
Flextech will be responsible for providing distribution, air-time sales,
off-air marketing and management services to the two joint ventures.
Flextech acquired the share capital of UKGL and UKLL through the
issuance of Flextech stock. As a result of these issuances and the conversion
of certain Flextech convertible preference shares to ordinary shares upon
consummation of the BBC Joint Ventures, International's equity interest in
Flextech declined to 36%. International's voting power would have fallen below
50% as a result of these transactions; however, upon consummation of the BBC
Joint Ventures, Flextech issued to International a "special voting share" which
increased International's voting power to 50%. The special voting share when
combined with International's other share capital in Flextech, will generally
permit International to cast a number of votes equal to 50% of all votes
attributable to the outstanding share capital of Flextech at any meeting of
Flextech's stockholders. The special voting share will terminate upon the
occurrence of the earliest of (i) the third anniversary of issuance, (ii) any
transfer of Flextech shares by International outside a specified affiliated
group or (iii) International's interest in Flextech falling below 30%.
Flextech has undertaken to finance the working capital requirements of
the Principal Joint Venture which financing comprises L.22 million ($36
million) of equity financing, a primary credit facility of up to L.88 million
($144 million) and, subject to certain restrictions, a standby credit facility
of up to L.30 million ($49 million). To support its funding obligations,
Flextech has obtained a revolving credit facility with current borrowing
availability of up to L.85 million ($139 million), with a term of up to 5
years. International has undertaken to fulfill Flextech's financial
obligations to the Principal Joint Venture in the event of Flextech's default,
and both International and TCI have agreed not to compete with the channels of
the BBC Joint Ventures. If International is required to fulfill such financial
obligations of Flextech, it is entitled to acquire Flextech's interest in the
Principal Joint Venture, subject to certain "claw back" rights of Flextech.
Flextech holds a 20% interest in Scottish Television plc ("STV"), a
public company that is the Channel 3 terrestrial broadcast licensee for central
Scotland. STV's broadcast signal reaches approximately 1.5 million U.K. homes
and its subsidiary, Scottish Television Enterprises, is a U.K. production
company. In addition to increasing International's interest in terrestrial
broadcasting, Flextech's investment in STV also provides access to STV's
extensive library of drama and documentary features. Flextech also owns a 100%
interest in Mardstone Studios, a production company which creates and produces
Challenge TV, among other programming. Flextech owns 23% of HIT Entertainment,
plc, an independent distributor and packager of television programming to over
120 countries with a library containing over 1,000 hours of programming at
December 31, 1996. HIT Entertainment, plc specializes in animation, family
drama and natural history programming.
The ITC regulates programming in the U.K. through imposing obligations
on licensees with respect to the programming broadcast or otherwise provided by
them. Licensees are required to abide by certain codes and directions issued
by the ITC from time to time. These codes include the Programme Code, the Code
of Advertising Standards and Practice, Rules on Advertising Breaks and the Code
of Programme Sponsorship. The Broadcasting Act of 1996 also restricts the
extent to which certain sporting events of national interest (designated by the
Secretary of State for National Heritage as "listed events") may be broadcast
live on television on an exclusive basis within the United Kingdom.
International currently has three appointees on Flextech's 13-member
board of directors. Flextech's Articles of Association provide that for so
long as International owns in excess of 50% of the voting power of Flextech or
owns the special voting share, (i) International will be entitled to appoint up
to three directors, and one of such directors must
III-10
<PAGE> 172
sit on each committee of the board and (ii) International will have veto rights
over the appointment of certain officers of Flextech. If the voting power of
International and its subsidiaries in Flextech declines to between 25% and 50%
of its outstanding share capital, then International will be entitled to
appoint up to two directors and if it declines to between 5% and 25%,
International will be entitled to appoint only one director. The disposal by
International of its interest in Flextech is subject to certain tag-along
rights and in the event that either (i) Flextech shares cease to be traded on
the London Stock Exchange as a result of International's exercise of any rights
as a shareholder of Flextech or (ii) the aggregate amount of International and
certain other entities' holdings in Flextech exceed 75% of Flextech's
outstanding stock, such entities can require International to purchase their
interest in Flextech at the higher of market value or the price paid to any
third party by International for Flextech shares in the preceding twelve
months.
CONTINENTAL EUROPE
Cable Television and Telephony. Through United International
Investments ("UII"), a partnership between International and United and
Phillips Communications B.V. ("UPC"), International owns interests in Tevel,
Princes and Melita, operating companies that own cable systems in Israel,
Ireland and Malta, respectively. At March 31, 1997, International had a 50%
interest in UII with respect to UII's 47% ownership interest in Tevel, a 56%
interest in UII with respect to UII's 45% ownership interest in Princes and a
44% interest in UII with respect to UII's 76% ownership interest in Melita. As
of December 31, 1996, these operating companies provided multi-channel service
to a total of approximately 405,000 basic subscribers in service areas
consisting of an aggregate of approximately 820,000 homes passed in their
countries. Under the partnership agreement of UII, each of International and
UPC has agreed that, subject to certain exceptions, for so long as it remains a
partner in the partnership and for a period of three years thereafter, it will
not participate in any business that distributes television broadcast signals
through cable or other means, that provides certain programming services, or
that otherwise competes with an operating company of UII, in each case, in any
country where an operating company of UII does business without first offering
the opportunity to UII. International is also subject to certain transfer
restrictions with respect to its investment in UII.
International also has a 44% interest in BIP Poland which has either a
majority interest or is the controlling shareholder in four Polish cable
television operators serving an aggregate of approximately 283,000 basic
subscribers in Poland as of December 31, 1996, in service areas consisting of
an aggregate of 532,000 homes passed. BIP Poland also owns a 65% interest in
Telefonia Polska Zachod Sp. Zo.o. ("TPZS"), which has been granted two
licenses to provide commercial telephony services to two provinces in Poland
with an aggregate population of approximately 1,120,000. TPZS expects to begin
providing telephony services in such provinces in 1997. The BIP Poland
partnership agreement provides that most significant transactions require the
approval of each partner that has at least a 20% ownership interest. The term
of the partnership expires in 2020.
Programming. In late 1995, International and two of France's leading
media companies, Canal + S.A. ("Canal +") and Generale d'Images S.A. ("GDI"),
formed Multi Thematiques, S.A. ("Multi Thematiques"), a Paris-based cable and
satellite programming company. Each company owns a one-third interest in Multi
Thematiques. Multi Thematiques develops thematic programming for distribution
on cable television and DTH Satellite systems throughout Continental Europe,
and programming developed by Multi Thematiques may be used to support
International's distribution interests in other regions, particularly Japan and
Latin America. As of March 31, 1997, Multi Thematiques offered 6 programming
services which are distributed throughout France by cable television operators
and DTH Satellite providers. Multi Thematiques has also secured carriage on
DTH Satellite platforms in Spain, Italy and Scandinavia, as well as on a German
digital DTH Satellite service beginning in 1997. In February 1997, Multi
Thematiques announced that it had signed an agreement with International's
Japanese programming company, Jupiter Programming Co., Ltd. ("JPC") to create
two thematic channels for cable and satellite distribution in Japan. To date,
International has contributed FF 328.1 million (approximately $64.6 million) to
Multi Thematiques and has agreed to contribute an additional FF164.0 million
(approximately $29.1 million) by no later than December 31, 1997. Canal + and
GDI contributed to Multi Thematiques their respective equity interests in an
aggregate of five programming services. Each of International, Canal+ and GDI
have equal representation on Multi Thematiques' board of directors.
International's interest in Multi Thematiques is subject to certain
restrictions on dispositions. Multi Thematiques represents
III-11
<PAGE> 173
International's most significant effort to date to create programming designed
specifically for television audiences in Continental Europe.
LATIN AMERICA AND THE CARIBBEAN
Argentina. International's most significant operation in Latin America
consists of its 51%-owned Cablevision S.A. (collectively with certain
affiliated companies, "Cablevision"), which it acquired in April 1995 for an
adjusted purchase price of approximately $282 million. It is one of the three
largest cable television operators in Argentina, based on the number of basic
subscribers it served at December 31, 1996, with operations concentrated in the
Federal District of Buenos Aires and the greater Buenos Aires metropolitan
area. As of December 31, 1996, Cablevision's approximately 4,500 miles of
cable plant passed approximately 1,534,000 homes and provided cable television
service to approximately 578,000 basic subscribers.
International currently has the right to appoint a majority of
Cablevision's eight directors. All matters brought to the Cablevision board
are decided by the vote of a simple majority. International has an option to
acquire an additional 29-39% interest in Cablevision, exerciseable at any time
on or before October 30, 1997. The purchase price contemplated by such option
is significant and International would need to arrange financing before this
transaction could be consummated.
Cable television and broadcast companies in Argentina are required to
obtain a non-exclusive broadcast license from the Comite Federal de
Radiodifusion ("COMFER"). Since the Argentine government does not grant
exclusive broadcast licenses to cable operators, Cablevision competes, in
certain areas of Buenos Aires, with other cable operators. A license is
granted for a 15-year term and the licensee has the right to a 10-year
extension at the end of the initial term. Cablevision's broadcast licenses
have remaining terms of 11 to 22 years (inclusive of the 10-year extension
period). Licenses may be revoked for breach of regulations pertaining to
broadcast licenses, or if such revocation would be in the "public interest."
There is no regulation of cable subscription rates in Argentina. Although
Argentine regulations do not currently permit cable operators to offer voice
telephony services, the exclusive licenses granted to two Argentine public
telephone companies to provide telephony service in Argentina are scheduled to
expire in 1997, but may be extended for an additional three-year period if the
licensees have met certain requirements. No assurance can be given, however,
that cable operators in Argentina will be permitted to offer telephony services
in 1997, in 2000 or at any other time in the future. Delivery of telephony
services would require upgrading portions of Cablevision's cable system. New
construction by Cablevision, however, is expected to consist of the
installation of a fiber backbone and high capacity coaxial cable which will
permit the delivery of voice telephony services in the future.
Two broadband wireless personal communications systems licenses for
the Buenos Aires market will be put for bid in the second quarter of 1997.
Cablevision is currently exploring ways in which it might participate in the
PCS line of business.
Chile. International has an indirect 40% interest in Cordillera
Communicaciones, Limitada ("Cordillera"). Cordillera was Chile's largest cable
television company, based on its number of basic subscribers, at the time
International acquired its indirect interest therein. On February 7, 1996,
Cordillera and Compania de Telecomunicaciones de Chile S.A. ("CTC") (a
subsidiary of the Spanish telephone company Telefonica de Espana S.A.) entered
into agreements (the "Chile Restructuring Agreements") that resulted in, among
other things, the contribution of substantially all of the cable distribution
assets and the associated cable subscribers within each party's cable systems
(the "Contributed Systems") to Metropolis-Intercom S.A.
("Metropolis-Intercom"), a recently formed Chilean corporation. Cordillera
owns 60% of the voting securities of Metropolis-Intercom while CTC and two
other corporations own, in the aggregate, the remaining 40% of the voting
securities of Metropolis-Intercom. Under the Chile Restructuring Agreements,
the cable distribution assets (excluding headends) contributed by Cordillera
were sold to CTC, and CTC services Metropolis-Intercom's analog channels (or
their equivalent) and provides technical support to Metropolis- Intercom.
International has agreed not to compete in the territory of Cordillera;
Cordillera has agreed not
III-12
<PAGE> 174
to pursue telephony opportunities in Chile; and CTC has agreed to refrain from
pursuing cable-related opportunities in Chile (other than through
Metropolis-Intercom).
Metropolis-Intercom operates the Contributed Systems and is one of
Chile's largest cable operators based on its 217,000 basic subscribers at
December 31, 1996, operating cable systems in six of the most densely populated
cities within Chile. Metropolis-Intercom has a long-term lease agreement with
CTC (expiring in 2026) for use of CTC's cable plant. At December 31, 1996, the
leased network covered approximately 5,000 miles and passed an aggregate of
approximately 900,000 homes. The present cable plant is composed of fiber and
coaxial cable.
Cable television companies in Chile are required to obtain a broadcast
license to provide cable service. Only non-exclusive franchises are granted
in Chile. Consequently, competition in the more populated regions of Chile is
intense. Telephone companies in Chile are permitted to offer cable television
services over their own networks or the networks of cable operators that they
acquire.
The Caribbean. In Puerto Rico, as of March 31, 1997, a wholly owned
subsidiary of International owned 100% of and operated three cable franchises,
and on May 1, 1997, International acquired the remaining 50% interest which it
did not already own in Caguas/Humacao Cable Systems ("Caguas/Humacao"), which
holds several additional cable franchises. Such interest was acquired for
approximately $12.2 million in cash and the assumption of approximately $32.3
million in debt. International merged all of its Puerto Rico cable systems
into TCI Cablevision of Puerto Rico, a wholly owned subsidiary of
International. As of December 31, 1996, International's cable network in its
then three wholly-owned franchises in Puerto Rico passed approximately 159,000
homes and served approximately 72,000 basic subscribers. The Caguas/Humacao
franchises at the same date passed approximately 96,000 homes in its franchise
areas and served approximately 29,000 basic subscribers.
In the Dominican Republic, International owns a 49% interest in
TeleCable Nacional, CXA ("TeleCable Nacional"), that country's largest cable
operator based on the number of its subscribers at December 31, 1996. On that
date, TeleCable Nacional passed approximately 65,000 homes and served
approximately 32,000 basic subscribers. TeleCable Nacional has received a
license to provide telephony services over its cable network in the Dominican
Republic. The delivery of such services would require certain upgrades to
TeleCable Nacional's cable network, and TeleCable Nacional has not yet
determined whether it will seek to offer such services. International has the
right to appoint half of the directors and officers of TeleCable Nacional.
Strategic Ventures. International, along with News Corp. and two of
Latin America's leading media companies, Globo Comunicacoes e Participacoes
Ltda. and Grupo Televisa, S.A., intend to form strategic partnerships for the
development and operation of a DTH Satellite service for Brazil, Mexico, and
various Central and South American countries (collectively, the "DTH
Ventures"). International anticipates that it will own a 10% interest in the
DTH Ventures. The DTH Ventures launched (i) a Brazilian platform, NetSat, in
October 1996 providing 40 digital satellite channels throughout Brazil and (ii)
a Mexican platform, Innova, in December 1996 providing 64 digital satellite
channels throughout Mexico. The final platform, Multi-Country, will be
launched in 1997 and will provide DTH Satellite services to various other
Central and South American countries. Through March 31, 1997, International
had contributed $18.0 million to the DTH Ventures. It is anticipated that
International could be required to make cash contributions totaling $45.7
million over the next three years in connection with the DTH Ventures.
International, Liberty and News Corp. have formed a joint venture,
which includes a number of partnerships and other entities under common
ownership (the "Sports Venture"), to operate currently existing sports services
in Latin America and Australia and a variety of new sports services throughout
the world, excluding the United States, Canada and certain other defined
geographic areas (collectively, the "International Sports Territory"). News
Corp. owns a 50% interest in the Sports Venture with the remaining 50% owned
by Liberty/TINTA LLC, a limited liability company owned in equal parts by
subsidiaries of International and Liberty (the "LLC"). (As described in
"Management and Allocation Policies," an International Programming Opportunity
in respect of foreign sports programming may be pursued by TCI through either
International or the Liberty Media Group. See "Management and Allocation
Policies.")
III-13
<PAGE> 175
News Corp. is entitled to nominate the principal officers of the Sports
Venture, who are subject to approval by the LLC. All matters not in the
ordinary course of the business of the Sports Venture are to be determined by
the unanimous vote of the partners. Prior to November 1, 2000, News Corp. and
the LLC cannot transfer their interests in the Sports Venture other than to
certain of their respective affiliates. Thereafter, any transfer to a
non-affiliate is subject to a right of first refusal in favor of the
non-transferring partner. In addition, each of News Corp., Liberty and
International has agreed that the Sports Venture will be the exclusive vehicle
through which they will engage in international sports programming businesses
in the International Sports Territory, subject to certain exceptions. As of
May 25, 1997, International had contributed to the LLC $56.3 million in cash
and its 35% equity interest in Torneos y Competencias S.A. ("Torneos"), an
Argentinean sports programming production company, and Liberty had contributed
to the LLC its interests in Latin American and Australian sports programming
services and its rights under various television sports programming agreements.
The LLC contributed the non-cash assets contributed to it by International and
Liberty to the Sports Venture. News Corp. contributed various international
sports rights and certain trademark rights in exchange for its 50% interest in
the Sports Venture. International may make additional cash contributions
totaling $21.7 million to the LLC to fund the operations of the Sports Venture.
In April 1996, International, Torneos and certain stockholders of
Torneos entered into an agreement whereby International agreed to make minimum
periodic payments from 1996 through 2004 aggregating $235.2 million to acquire
certain rights and considerations, including the exploitation rights to all
sports rights owned by Torneos with the exception of any rights which at that
time had been contractually committed to any third party. In particular,
International acquired worldwide distribution rights outside of Argentina for
Clasico del Domingo and worldwide distribution rights (excluding Buenos Aires)
for Futbol de Primera and Torneos de Verano (Summer Games). The rights and
obligations under this agreement were assumed by the Sports Venture.
ASIA
International's presence in Asia currently consists of its interests
in cable and programming companies in Japan and Singapore. International and
its predecessors have been exploring opportunities in Japan since 1992.
Management of International believes that the Japanese market offers
opportunities to adapt elements of the strategy, which has been implemented by
International through its subsidiaries and affiliates in the U.K., of building
an integrated group of (i) broadband cable networks capable of delivering both
cable television services and cable telephony and (ii) thematic cable and
satellite channels, specifically targeted at Japanese cable subscribers,
supported by a multi-channel programming management company.
Cable and Telephony Distribution in Japan. At the beginning of 1995,
International and Sumitomo Corporation ("Sumitomo") formed Jupiter
Telecommunications Co., Ltd. ("Jupiter"). At the time of its formation,
Jupiter was the first MSO in Japan. International owns 40% and Sumitomo owns
the remaining 60% of Jupiter. As of December 31, 1996, Jupiter had ownership
interests in 20 companies that own franchises clustered in three main areas:
Tokyo, Osaka and Kyushu, and Jupiter operated and managed 18 of the 20
companies. At December 31, 1996, Jupiter's franchises covered approximately
3,103,000 franchise homes, its cable plant passed approximately 1,309,000 homes,
and it served approximately 134,000 basic cable subscribers.
Personnel seconded by International to Jupiter are working with
Sumitomo's secondees and Jupiter's staff to: (i) train them in MSO management
and operational practices, (ii) continue to develop a business plan to, among
other things, determine the likely costs and revenue associated with the
provision of cable telephony and determine targeted cable penetration levels
and (iii) continue to plan and implement a strategy to increase the number of
Jupiter's operating systems through acquisitions and the development of new
systems in areas for which franchises are granted to Jupiter.
As of March 31, 1997, International had contributed Yen7.4 billion
($71.3 million) and Sumitomo had contributed Yen11.1 billion ($106.9 million)
to Jupiter. In addition, on March 31, 1997, International paid Yen200 million
($1.6 million) to Sumitomo as part payment for Sumitomo transferring its
systems interests to Jupiter. As a result of a number of developments which
management of International believes are favorable to Jupiter, International
and Sumitomo are in
III-14
<PAGE> 176
the process of revising its original business plan to increase the rate at
which Jupiter would acquire additional franchises and develop its network. In
addition, Jupiter's Suginami franchise has been granted a license to provide
telephony services and is in the process of conducting telephony trials in
Suginami. International anticipates expanding the trials to offer telephony
services on a commercial basis in that franchise in mid-1997. Management of
International estimates that if Jupiter's business plan is accelerated in the
manner currently under discussion, Jupiter will require additional funding over
the commitments of International and Sumitomo provided for in Jupiter's
original business plan, which additional funding may be significant. No
assurance can be given that Jupiter's business plan will be revised as
currently proposed, or at all.
The cable plant of each of Jupiter's cable systems, other than the
Suginami system, consists primarily of coaxial cable. The architecture of the
Suginami system has been designed to be state-of-the-art, with the specific
goal of being telephone capable. To the extent economically feasible, Jupiter
intends to expand its cable networks, and rebuild its existing cable systems,
with the same network architecture as that which currently exists in its
Suginami system.
Sumitomo appoints a majority of the members of Jupiter's board of
directors; all important decisions, however, require the consent of
International's directors. Pursuant to a shareholders agreement, subject to
certain exceptions, neither Sumitomo nor International may transfer its
interest in Jupiter prior to March 2000, at which time either party may
transfer shares to a publicly-quoted third party, subject to a right of first
offer to the other party. In addition, before either of Sumitomo or
International may make material investments or otherwise participate in any
cable television or telephony business in Japan, it must first offer such
opportunity to Jupiter.
Programming in Japan. In February 1996, International and Sumitomo
formed JPC, Japan's first multi-channel programming company. JPC is owned
equally (50/50) by International and Sumitomo. At March 31, 1997, each of
International and Sumitomo had made aggregate contributions to JPC of Yen1.4
billion ($13.4 million). Additionally, International and Sumitomo contributed
their respective 18% and 82% ownership interests in Cable Soft Network to JPC.
International made an equalizing payment of Yen444 million ($4.0 million) in
connection with such contribution. As of December 31, 1996, JPC had ownership
interests in and management control of three other channels in addition to
Cable Soft Network. In addition to the above channels, JPC expects to launch
at least four new channels in 1997 and on February 18, 1997, JPC announced its
acquisition of the distribution rights for all of Japan's premier soccer league
matches.
Government Regulation in Japan. Cable television franchise licenses
are granted by the Ministry of Post and Telecommunications (the "MPT"). The
MPT generally only grants one franchise license per franchise area; however, it
has the authority to issue multiple franchise licenses in a franchise area.
Franchise licenses are generally indefinite in duration, and no royalties are
payable to the Japanese government. Cable companies may apply to the MPT for a
"Type 1 Carrier" License, which permits carriage of telephony services on a
commercial basis over their cable networks.
The Japanese government does not generally regulate the amount of
foreign programming that may be shown on Japanese television. Foreign
ownership of broadcast and DBS program services is restricted, while ownership
of cable-exclusive program services is not.
Japan currently allows foreign ownership of up to a maximum 33-1/3% of
a Japanese company that provides direct cable television or telephony services.
(International can own a 40% interest in Jupiter due to the presence of
minority third party investors in many of Jupiter's cable systems.) In 1996,
the Japanese government announced its intention of more fully deregulating
foreign ownership restrictions over time.
Other Asian Programming. International has a 49% interest in ABN, a
joint venture of which Dow Jones Broadcasting (Asia), Inc. ("Dow Jones") is the
other major shareholder (49%). The first dedicated financial business news
channel to launch in Asia, ABN is targeted at affluent business people across
the Asian region, many of whom use English as a common language in business.
ABN, whose presenters are all from the Asian region, broadcasts primarily in
English but also features a daily half-hour of original Mandarin-language
programming. As of December
III-15
<PAGE> 177
31, 1996, ABN's programming was available to approximately 53 million homes
across South East Asia, China and parts of India. International and Dow Jones
have exercised an option to purchase an equal part of the remaining interest
from the ABN minority shareholders which would give each of International and
Dow Jones a 50% interest in ABN. This transaction is expected to close in
1997, but the parties are currently in negotiations over the purchase price for
the remaining interest and thus there is no assurance that such acquisition
will be consummated.
AUSTRALIA AND NEW ZEALAND
International owns a 17% interest in Premium Movie Partnership
("PMP"), a partnership formed to provide two movie channels, Showtime and
Encore, for the Australian market. Although these services carry the same name
as the services in the U.S., their programming is unique. Each of the partners
in PMP holds an approximate 17% interest in the partnership and each have
mandatory capital commitments to PMP of approximately $3.3 million. As of
March 31, 1997, International had funded approximately $2.1 million of its
capital commitment. PMP's movie channels were launched on March 3, 1995 and
served approximately 365,000 subscribers as of March 31, 1997. No partner may
transfer an interest in PMP prior to July 1, 2000, other than to an affiliate
of such partner, without the unanimous consent of the partners committee which
exercises general management control of PMP.
In New Zealand, International indirectly owns a 13% interest in Sky
Network Television New Zealand Ltd., which owns an encrypted UHF pay television
service that, as of December 31, 1996, offered five programming services to
approximately 260,000 subscribers in New Zealand. International's interest is
subject to certain transfer restrictions and restrictions on its ability to
make investments in other pay television services in New Zealand.
COMPETITION
Cable and other Multi-Channel Television. The various cable operators
in which International has interests directly compete for customers and
advertisers in local markets with other providers of entertainment, news and
information. Their competitors include broadcast television and radio,
newspapers, magazines and other printed material, motion picture theaters,
video cassette rental stores and other sources of entertainment and
information. Such cable operators also compete with companies who use
alternative methods of distributing the same or similar video programming
offered by cable television systems such as terrestrial (over the air)
broadcast stations, multi-channel multi-point distribution systems ("MMDS"),
DTH Satellite services, satellite master antenna television systems ("SMATV")
and in some instances, digital terrestrial services and certain narrowband
providers. The most significant competition for cable operators, including
Telewest, in the U.K. multi-channel television market currently comes from
providers of DTH Satellite television services and, in particular, British Sky
Broadcast Group plc ("BSkyB"). DTH Satellite services are widely available in
the U.K. and are increasing in popularity there. In those countries where, by
regulation or policy, cable operators do not have an exclusive franchise,
International's cable operators compete with other cable operators, and if
permitted by regulation or policy, with telephone companies providing video
services in their franchises. Management of International believes that the
extent of competition with the services provided by International's cable
subsidiaries or affiliates in any particular market depends, among other
factors, on price (including up-front and service costs), the amount and
quality of the programming offered, customer satisfaction and quality of the
system network. Management of International believes that the cable operators
in which it has interests are, for the most part, competitive in each of these
areas. 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. International also competes with
similar operators of broadband distribution networks for franchises, the
acquisition of existing cable operators and financing.
Cable Telephony. International believes that it is preferable for its
cable subsidiaries and affiliates to offer a wide range of cable services,
including telephony services where permitted under the applicable statutory and
regulatory framework and where business conditions permit. Currently, the U.
K. is the only country in which International is providing both television and
telephony services to subscribers, which it is providing over the broadband
distribution
III-16
<PAGE> 178
networks of Telewest. In addition, Jupiter has been granted a license to
provide telephony services and is in the process of conducting telephony trials
in its Suginami franchise in Japan and expects to begin commercial operations
there in 1997. Although no assurances can be given, International anticipates
that legal restrictions on the provision of telephony services by its cable
subsidiaries and affiliates in certain other countries will be relaxed or
eliminated over the next few years. In markets in which International is
allowed to offer cable telephony services, the primary competitor will most
likely be one or more national public telephone companies. International
believes that the established public telephone operators generally benefit from
their long-standing relationships with customers, substantial technical and
financial resources and established ubiquitous networks. The success of the
telephony operations of a cable operator is dependent upon its ability to
convince long-time customers of the national public telephone providers to
switch to its telephony network. Telewest is a relatively new entrant to the
telephony business, and has sought to compete with the more well established
telephone operators by initially pricing cable telephony call charges below
those of the established telephone operators. In the U.K., the ability of the
established public telephone operators to respond to such price competition has
been restricted by their license obligation not to show undue preference to or
unduly discriminate against different classes of customers and to offer uniform
rates nationally. There can be no assurance that Telewest will be able to
continue to price its telephony services below those charged by its telephony
competitors, or that future price reductions will not adversely impact the
profitability of its telephony operations.
Programming. The business of distributing programming for cable
television is highly competitive. International's programming subsidiaries and
affiliates (the "Programming Companies") directly compete with other
programming services for distribution on a limited number of cable television
channels and, when distribution is obtained, the programming offered by the
Programming Companies competes, in varying degrees, for viewers and advertisers
with other cable programming services and off-air broadcast television
programming services, as well as with other entertainment media described above
under "Cable and other Multi-Channel Television." International believes that
important competitive factors include the prices charged for programing, the
quantity, quality and variety of the programming offered and effectiveness of
marketing efforts. With the advent of new compression technologies, which are
intended to increase channel capacity, competition for channel capacity may
substantially decrease, although additional competitors may have the
opportunity to enter the marketplace. No predictions can be made with respect
to the viability of these technologies or the extent to which they will
ultimately impact the availability of new channels. In addition to competition
for cable distributors, viewers and advertisers, the Programming Companies also
compete, to varying degrees, for product with other programming companies that
distribute similar types of programs, many of which have greater financial
resources than International and its Programming Companies.
ADDITIONAL INFORMATION
Each of International and Telewest is subject to the information
requirements of the Exchange Act, and, in accordance therewith, files reports
and other information with the SEC (under SEC file numbers 0-26264 and 0-26840,
respectively), all of which are available from the SEC in the manner described
above under "Available Information." The TINTA Series A Stock is traded in the
National Market tier of the Nasdaq Stock Market under the symbol "TINTA".
Information contained herein regarding Telewest is based upon, and is qualified
in its entirety by reference to, information contained in such filings and
other publicly available information. Although believed by TCI to be reliable,
there can be no assurance as to the accuracy of such information.
DOMESTIC TELEPHONY
OVERVIEW
The TCI Ventures Group's telephony assets consist primarily of (a)
TCI's investments, held through TCI Telephony, in the PCS Ventures, a series of
partnerships formed to engage in the business of providing wireless
communications services, using the radio spectrum for broadband PCS, to
residential and business customers nationwide under the Sprint brand, and in
Teleport, which is a competitive local exchange carrier ("CLEC") and (b) WTCI,
an indirect wholly owned subsidiary of the Company that provides long distance
transport of video, voice and data traffic
III-17
<PAGE> 179
and other telecommunications services on a wholesale basis in a 12 state
region. The PCS Ventures include the Sprint PCS Partnerships and PhillieCo.
The partners (collectively, the "Sprint PCS Partners") of each of the Sprint
PCS Partnerships are subsidiaries of Sprint, Comcast, Cox and the Company
(collectively, the "Sprint PCS Parents"). The partners of PhillieCo are
subsidiaries of Sprint, Cox and the Company. Through TCI Telephony, the
Company has a 30% interest as a partner in each of the Sprint PCS Partnerships
and a 35% interest as a partner in PhillieCo. As of March 31, 1997, the
Company, through TCI Telephony, had a 30% equity interest (representing a 37%
voting interest) in the outstanding common stock of TCG.
In addition, the TCI Ventures Group would be attributed a 75%
partnership interest in Kansas City Fiber Network, L.P. and a 40% partnership
interest in NHT Partnership, each owned through TCI Telephony, and a 79%
interest in New Jersey Fiber Technologies, L.P., and a 43% interest in
Louisville Lightwave, each owned through members of the TCI Group. The
foregoing companies are competitive access providers ("CAPs") serving the
metropolitan areas of Kansas City, Buffalo, Morristown and New Brunswick, New
Jersey, and Louisville and Lexington, Kentucky, respectively. The TCI Ventures
Group would also include TCI's 3% interest in General Communication, Inc.
("GCI"), a diversified telecommunications provider with a leading position in
facilities based long-distance service in the state of Alaska using fiber
optic, digital microwave, PCS and satellite transmission. GCI's stock is
traded on the National Market tier of the Nasdaq Stock Market under the symbol
"GNCMA."
SPRINT PCS
General. Sprint PCS has announced its intention to become a leading
provider of wireless communications products and services in the United States.
Sprint PCS believes that it is the largest broadband wireless PCS company in
the United States in terms of total license coverage of "Pops," with licenses
(including those owned by licensees that have affiliated or intend to affiliate
with Sprint PCS, including PhillieCo) to provide service in 33 Major Trading
Areas ("MTAs") ( including eight of the nation's ten largest MTAs) covering
over 190 million Pops at December 31, 1996. The term "Pops" refers to the
population of a geographic area covered by a license or group of licenses and,
as used in this Proxy Statement, is based on the Donnelley Marketing Service
estimate of the December 31, 1995 population of a geographic area.
Broadband PCS systems differ from traditional analog cellular
telephone service principally in that PCS systems operate at a higher frequency
band (1850-1900 MHz radio spectrum), have more spectrum allotted and have
different license areas. Sprint PCS was the successful bidder for 29 PCS
licenses in the A Block and B Block PCS auction conducted by the Federal
Communications Commission ("FCC") which concluded in March 1995. Additionally,
on February 6, 1997, Cox contributed to Sprint PCS, a PCS license for the Omaha
MTA that Cox separately purchased in the same PCS auction. Sprint PCS's 30
wholly owned markets include, among others, the New York City, San Francisco,
Detroit, Dallas/Fort Worth and Boston/Providence MTAs, and cover 152 million
Pops. In order to increase its Pop coverage, Sprint PCS has affiliated and
expects to continue to affiliate with other PCS providers, including those in
which Sprint PCS or affiliates of the Sprint PCS Partners have an interest.
Each affiliated PCS service provider will be included in Sprint PCS's national
network and will use the Sprint brand name pursuant to affiliation agreements.
Any reference herein to an "affiliation" with, or "affiliate" of, Sprint PCS
does not necessarily imply that Sprint PCS exercises or has the power to
exercise control over the management and policies of such entity.
III-18
<PAGE> 180
The table below presents the owned and affiliated Pops of Sprint PCS
as of December 31, 1996:
<TABLE>
<CAPTION>
Direct or Indirect Net Pops
1995 Ownership Attributed to
Population Interest Attributed TCI Ventures
# of in MTA(s) to TCI Ventures Group(2)
OWNED/AFFILIATED (1) MTAs (millions) Group (millions)
-------------------- ---- ----------- ----- ----------
<S> <C> <C> <C> <C> <C>
Owned by Sprint PCS . . . . . . . . 29 150.3 30% 45.1
Omaha (contributed to
Sprint PCS by Cox in
February 1997)(3) . . . . . . . 1 1.7 30% .5
Affiliated:
APC (Baltimore/
Washington)(4) . . . . . . 1 8.3 15% 1.2
Cox PCS (Los
Angeles/San Diego)(5) . . 1 21.5 15% 3.2
PhillieCo (Philadelphia)(6) . 1 9.1 35% 3.2
- ----- ----
Total . . . . . . . . . 33 190.9 53.2
== ===== ====
</TABLE>
_______________________________________
(1) Does not give effect to the purchase of any 10 MHz BTA PCS licenses by an
affiliate of Sprint in the D and E Block auctions which were granted to
such affiliate in April 1997. Sprint PCS has not yet entered into an
affiliation agreement with such affiliate, and no assurance can be given
that such an agreement will be entered into.
(2) Represents aggregate Pops covered by the PCS licenses held by the
applicable PCS licensee multiplied by the direct or indirect percentage
equity interest in such licensee attributed to the TCI Ventures Group.
Such number is not necessarily indicative of the number of Pops that are
or will be served by the applicable licensee's PCS network in such license
area or the actual or expected number of customers using such PCS network.
In addition, the number of Pops attributed to the TCI Ventures Group is
not intended to imply that TCI has any actual ownership interest in or
right to acquire such an interest in, or other rights with respect to,
such Pops or the applicable PCS license(s), including upon liquidation or
dissolution of the applicable PCS licensee.
(3) Contribution was credited towards capital contributions required of Cox
under the Agreement of Limited Partnership of Sprint Spectrum Holding
Company, L.P. (the "Sprint PCS Partnership Agreement") to the same extent
as if Cox had made a cash contribution of approximately $6.2 million.
(4) Sprint PCS owns a 49% limited partnership interest in American PCS, L.P.
("APC"), which indirectly owns a PCS license for and operates a broadband
PCS system in the Baltimore/Washington D.C. MTA and has entered into an
affiliation agreement with Sprint PCS.
(5) Sprint PCS owns a 49% limited partnership interest in Cox Communications
PCS, L.P. ("Cox PCS") which was formed to hold a PCS license for and
operates a broadband PCS system in the Los Angeles/San Diego MTA and has
entered into an affiliation agreement with Sprint PCS.
(6) Owned by subsidiaries of Sprint, TCI and Cox. Sprint PCS expects to sign
a services and affiliation agreement with PhillieCo.
Pursuant to an agreement among the Sprint PCS Partners, SprintCom,
Inc., an affiliate of Sprint, participated in the D and E Block PCS auctions
conducted by the FCC for additional 10 MHz Basic Trading Area ("BTA") PCS
licenses, which auctions concluded in January 1997. On April 28, 1997, the FCC
granted SprintCom, Inc. D and E block licenses for 139 BTAs covering an
aggregate of approximately 70 million additional Pops, none of which BTAs are
within any of the MTAs represented by the PCS licenses held by Sprint PCS, Cox
PCS, APC or PhillieCo. In accordance with such agreement and the Sprint PCS
Partnership Agreement, Sprint is required to offer to enter into an affiliation
agreement with Sprint PCS with respect to such BTA licenses pursuant to which
Sprint's PCS systems in such areas would be included in Sprint PCS's national
PCS network. If such an affiliation agreement were entered into, Sprint PCS,
together with SprintCom, Inc. and the other PCS licensees that have affiliated
(or are expected to affiliate) with Sprint PCS, would have licenses to provide
service to nearly 260 million Pops in all 50 states, Puerto Rico and the
III-19
<PAGE> 181
U.S. Virgin Islands. No assurance can be given, however, that Sprint and
Sprint PCS will be able to reach a mutually acceptable agreement as to the
terms of any such affiliation agreement. TCI is also currently negotiating to
acquire a minority equity interest in a limited partnership that would operate
a PCS system utilizing C Block PCS licenses for eight BTAs covering an
aggregate of approximately 2.2 million Pops as an affiliate of the Sprint PCS
network, although no assurance can be given that TCI will acquire such interest
or that such partnership will enter into an affiliation agreement with Sprint
PCS.
APC launched its PCS service in November 1995 in the
Baltimore/Washington MTA and was the nation's first commercially operational
PCS system. Cox PCS initiated the commercial launch of its PCS service in San
Diego in December 1996. PhillieCo launched PCS service in Philadelphia, PA in
April 1997. Sprint PCS commenced initial commercial PCS operations late in the
fourth quarter of 1996. As of May 28, 1997, Sprint PCS had launched service in
over 40 cities in the U.S., including Dallas/Fort Worth and San Antonio, TX;
Oklahoma City and Tulsa, OK; New Orleans, LA; Toledo, OH; Little Rock, AR; San
Diego, Fresno and Orange County, CA; Milwaukee, WI; Portland, OR; New York
City, Albany, Rochester and Syracuse, NY; Pittsburgh, PA; Spokane, WA; Salt
Lake City, UT; Des Moines, IA; Wichita, KS; Louisville, KY; Denver and Boulder,
CO; Lincoln and Omaha, NE; Nashville, TN; Indianapolis, IN; Tucson, AZ and
Kansas City, MO. Additional markets, including San Francisco, Boston, Miami,
Minneapolis/ St. Paul, and Seattle, will be launched on a market-by-market
basis during the remainder of 1997 and thereafter. Upon completion of the
first phase of its PCS launch, which management of Sprint PCS expects to be
completed by the end of 1997, Sprint PCS service will be available in 65 cities
in the U.S., including 35 of the top 50 U.S. markets. The timing of launch in
individual markets will be determined by various factors, principally zoning
and microwave relocation, equipment delivery schedules, completion of network
testing and optimization and local market and competitive considerations.
Sprint PCS is in the development stage and has minimal revenue from operations.
Sprint PCS will require significant funds for development,
construction, testing and deployment of its PCS network. To date, total
financing commitments made to Sprint PCS are approximately $10 billion. The
Sprint PCS Partners have agreed to contribute up to an aggregate of $4.2
billion of equity to Sprint PCS from inception through fiscal 1999 (of which
TCI Telephony's share is approximately $1.3 billion) if and to the extent
required by the annual budgets of Sprint PCS for fiscal years in such period
approved by the Sprint PCS Partners or requested during such period by the
affirmative vote of general partners with percentage interests in Sprint PCS of
75% or more in the aggregate. As of March 31, 1997, approximately $3.0 billion
had been contributed to Sprint PCS, of which amount TCI Telephony had
contributed approximately $900 million. TCI currently expects that the
remaining approximately $1.2 billion of equity contributions by the Sprint PCS
Partners (of which amount TCI's share is approximately $360 million) will be
made by the end of the second quarter of 1998 (although there can be no
assurance that any additional capital will be contributed by the Sprint PCS
Partners). Sprint PCS's subsidiary, Sprint Spectrum L.P. ("Sprint Spectrum"),
has obtained approximately $3.1 billion in secured vendor financing in the
aggregate from certain equipment vendors, entered into a $2.0 billion secured
credit facility with a group of banks and received net proceeds of
approximately $520 million from a public offering of senior notes and senior
discount notes (the "Sprint Spectrum Notes") with a principal amount at
maturity of $750 million. Assuming all of such debt and equity financing
amounts are made available to Sprint PCS, Sprint PCS currently believes that
such amounts would be sufficient to meet its currently anticipated capital
requirements (other than obligations in respect of Sprint PCS's interest in APC
and Cox PCS) through mid 1998 (based on Sprint PCS's current plans for its
network buildout in its current license areas).
In connection with such debt financings by Sprint Spectrum, the Sprint
PCS Parents entered into a capital contribution agreement with Sprint Spectrum
(the "Capital Contribution Agreement"), of which the secured creditors in such
debt financings are beneficiaries, pursuant to which each Sprint PCS Parent
agreed to make certain contributions, or cause contributions to be made, to
Sprint Spectrum from time to time upon the occurrence of certain events
(including a payment default under or acceleration of Sprint Spectrum's
obligation pursuant to the debt financing agreements) up to a maximum aggregate
amount determined in accordance with a formula. As of March 31, 1997,
approximately $500 million in cash of such agreed contributions under the
Capital Contribution Agreement had been contributed directly or indirectly to
Sprint Spectrum (of which TCI Telephony had contributed approximately $150
million), thereby reducing the Sprint PCS Parents' respective obligations under
the Capital Contribution Agreement by such amount and
III-20
<PAGE> 182
reducing TCI's obligation to approximately $150 million. Based on the
currently expected timing of additional contributions to Sprint PCS (including
the currently expected timing of Sprint PCS's expected capital contributions to
APC and Cox PCS and to its subsidiaries other than Sprint Spectrum and its
subsidiaries), TCI does not expect that its obligations under the Capital
Contribution Agreement will result in the obligation to make any incremental
capital contributions to Sprint PCS in addition to those described in the
previous paragraph. The liabilities of TCI under the Capital Contribution
Agreement would be attributed to the TCI Ventures Group.
PCS is the first all-digital wireless telecommunications service and
will be able to provide enhanced integrated services not currently offered by
traditional analog cellular providers. Sprint PCS has stated its belief that
the enhanced features and services, in conjunction with increased competition
within the industry, will contribute to the acceleration of growth in the
wireless telecommunications market.
Sprint PCS is implementing what it believes to be a state-of-the-art
PCS network using a frequency management technology or "protocol" called CDMA
(or Code Division Multiple Access). The FCC has not mandated a universal
digital protocol for PCS systems. Currently, various vendors have proposed
three principal competing, incompatible protocols for use in PCS systems,
including CDMA. CDMA is a first-generation technology that is just beginning
to be commercially deployed in the United States. Sprint PCS believes the CDMA
technology provides advantages relative to current analog cellular systems,
including increased subscriber capacity, higher quality of transmission and
lower infrastructure and ongoing support costs. Sprint PCS believes that CDMA
provides the following benefits: performance, cost effectiveness,
functionality, security and capacity. Sprint PCS believes that the CDMA
protocol will be the most widely adopted PCS protocol in the United States.
Competition. The wireless telecommunications industry is experiencing
significant technological change, as evidenced by the increasing pace of
improvements in the capacity and quality of digital technology, shorter cycles
for new products and enhancements and changes in consumer preferences and
expectations. Accordingly, Sprint PCS expects competition in the wireless
telecommunications business to be dynamic and intense as a result of the
entrance of new competitors and the development of new technologies, products
and services. Sprint PCS anticipates that market prices for two-way wireless
services generally will decline in the future based upon increased competition.
Each of the markets in which Sprint PCS competes will be served by
other two-way wireless service providers, including cellular and PCS operators
and resellers. Many of these competitors have been operating for a number of
years, currently serve a substantial subscriber base and have significantly
greater financial and technical resources than those available to Sprint PCS.
Certain of Sprint PCS's competitors are operating, or planning to operate,
through joint ventures and affiliation arrangements, wireless
telecommunications systems that encompass most of the United States. In
addition, several entities have received and several others are seeking FCC
authorization to construct and operate global satellite networks to provide
domestic and international mobile communications services from geostationary
and low earth orbit satellites.
Continuing technological advances in telecommunications and FCC
policies that encourage the development of new spectrum-based technologies make
it impossible to predict the extent of future competition. The FCC has adopted
rules that provide preferences, including discounted licenses, to companies
that develop new spectrum-based communications technologies without bidding in
FCC-sanctioned auctions. Such a preference may encourage the development of
new technologies that compete with cellular and PCS service. In addition, the
Omnibus Budget Reconciliation Act of 1993 requires, among other things, the
allocation to commercial use of a portion of an additional 200 MHz of the
spectrum currently reserved for government use. It is possible that some
portion of the spectrum that is reallocated will be used to create new
land-mobile services or to expand existing land-mobile services.
Sprint PCS will directly compete with several other PCS providers in
each of its PCS markets, including AT&T Wireless Services, Inc., BellSouth
Telecommunications, Inc., Omnipoint Corporation, Pacific Bell Mobile Services,
Inc., PCS PrimeCo L.P. ("PrimeCo") and Western Wireless Corporation. Sprint
PCS also expects that existing analog wireless service providers in the PCS
markets, all of which have been operational for a number of years and many of
III-21
<PAGE> 183
which have significantly greater financial and technical resources than those
available to Sprint PCS, will upgrade their systems to provide comparable
services in competition with its PCS system. These cellular competitors
include AirTouch Communications, Inc., AT&T Wireless Services, Inc., BellSouth
Mobility, Inc., Ameritech Mobile Communications, Inc., Bell Atlantic NYNEX
Mobile, Southwestern Bell Mobile Systems, GTE Mobilnet, Inc. and U.S. Cellular
Corp.
Because Sprint PCS's network operates at a different frequency and
uses a different technology than analog cellular systems, Sprint PCS's network
will not be compatible with existing analog cellular networks. In order for
Sprint PCS's subscribers to use their handsets in areas outside Sprint PCS's
network, another CDMA-based PCS provider must operate in such area or the
subscriber must have a dual-mode, dual-band handset which would allow access to
analog cellular or other digital cellular or PCS systems and, in either case,
Sprint PCS or its subscribers, on an individual basis, must have arrangements
with such other cellular or PCS providers permitting Sprint PCS's subscribers
to access their respective services. Although Sprint PCS expects to enter into
affiliation agreements with Sprint and PhillieCo which would give Sprint PCS
nationwide coverage, Sprint PCS currently does not have a license or any
affiliation agreement enabling it to provide coverage for 27% of the Pops in
the United States, including those in several major cities and surrounding
regions. While several major PCS providers have publicly announced that they
intend to deploy CDMA-based PCS systems, there can be no assurance that such
providers will do so. As of April 30, 1997, PrimeCo and GTE Wireless Inc. were
the only PCS providers other than Sprint PCS that have commercially deployed a
1900 MHz CDMA system in the United States. Further, dual-mode, dual-band
handsets are not currently available. Sprint PCS currently expects dual-mode,
dual-band telephones to be commercially available in mid-1997 (although
sufficient quantities may not be commercially available until the fourth
quarter of 1997). There can be no assurance that such dual-mode, dual-band
handsets will be available or that, should Sprint PCS determine that it desires
roaming agreements with other providers, such agreements can be obtained on
terms acceptable to Sprint PCS. Until then, this lack of interoperability may
impede Sprint PCS's ability to attract current cellular subscribers or
potential new wireless communications subscribers that desire the ability to
access different service providers in the same market.
Management. Pursuant to the Sprint PCS Partnership Agreement, the
general partners of Sprint PCS conduct the business and affairs of Sprint PCS
through their representatives (the "Representatives") on the Sprint PCS
partnership board (the "Partnership Board"). The Partnership Board currently
has six voting Representatives, three of whom are currently designated by
Sprint and one of whom is currently designated by each of Comcast, Cox and TCI
Telephony. The Representative(s) designated by each Sprint PCS Partner have an
aggregate voting power equal to the percentage interest in Sprint PCS (as to
each Sprint PCS Partner, its "Percentage Interest") of the Sprint PCS Partner
appointing him or them. As of March 31, 1997, the aggregate voting power of
the Representative(s) of each of Sprint, TCI Telephony, Cox and Comcast were
40%, 30%, 15% and 15%, respectively.
Except for certain actions requiring a unanimous vote of the
Partnership Board or of all general partners, all actions required or permitted
to be taken by the Partnership Board must be approved by the affirmative vote
of Representatives having voting power of 75% or more of the Percentage
Interests of the Sprint PCS Partners whose Representatives are entitled to vote
on such action (other than those required to abstain pursuant to the terms of
the Sprint PCS Partnership Agreement). As a result, subject to certain
exceptions and based on TCI Telephony's 30% voting Percentage Interest at this
time, no action may be taken by the Partnership Board without the consent of
TCI Telephony's Representative (other than any action with respect to which
such Representative is required to abstain).
Competitive Activities. Subject to certain exceptions, the Sprint PCS
Partnership Agreement restricts any Sprint PCS Partner and its controlled
affiliates from bidding on, acquiring or, directly or indirectly, owning,
managing, operating, joining, controlling or financing, or participating in the
management, operation, control or financing of, or being connected as a
principal, agent, representative, consultant, beneficial owner of an interest
in any person or entity, or otherwise with, or using or permitting its name to
be used in connection with, any business that engages in the bidding for or
acquisition of any Wireless Business license or engages in any Wireless
Business or provides, offers, promotes or brands wireless communications
services that use radio spectrum for cellular, PCS, paging or other voice or
data wireless services. A "Wireless Business" includes, subject to certain
exceptions, all wireless communications services
III-22
<PAGE> 184
conducted in the U.S. that use radio spectrum for cellular, PCS, enhanced
specialized mobile radio (ESMR), paging, mobile telecommunications and any
other voice or data wireless services, whether fixed or mobile. In addition,
pursuant to an agreement with Sprint, the ability of TCI and its controlled
affiliates to offer or promote, act as a sales agent for, or package certain of
its cable television services with, certain local or long distance telephony
services offered under the brand of certain incumbent local exchange carriers
("ILECs") and interexchange carriers ("IXCs") (such as AT&T Corporation and MCI
Communications Corporation) other than Sprint is restricted. Such agreement
also limits the ability of TCI and its controlled affiliates to make its cable
plant available to such ILECs and IXCs for the provision of local telephony
services on an exclusive basis without making such facilities similarly
available to Sprint on comparable terms. Such agreement has a five-year term
that commenced January 31, 1996; however, under certain circumstances such
agreement may terminate on January 31, 1999.
Additional Information. Sprint Spectrum, a subsidiary of Sprint PCS
through which Sprint PCS conducts substantially all of its operations other
than the ownership of its 49% partnership interest in APC and its 49%
partnership interest in Cox PCS, filed with the SEC a registration statement
pursuant to which it completed an underwritten public offering of the Sprint
Spectrum Notes in August 1996 (the "Sprint Spectrum Registration Statement").
Since such offering Sprint Spectrum has been subject to the information
requirements of Section 15(d) of the Exchange Act, pursuant to which it files
reports and other information with the SEC (under SEC file number
333-06609-01). The Sprint Spectrum Registration Statement and such reports are
available from the SEC in the manner described above under "Available
Information." Information contained herein regarding Sprint PCS is based upon,
and is qualified in its entirety by reference to, information contained in such
filings and other publicly available information. Although believed by the
Company to be reliable, there can be no assurance as to the accuracy of such
information.
TELEPORT AND OTHER WIRELINE INVESTMENTS
General. Teleport, the largest CLEC (or competitive local exchange
carrier) in the United States as measured by route miles, offers a wide range
of local telecommunications services in major metropolitan markets nationwide.
Teleport competes with ILECs as "The Other Local Phone Company"(SM) by
providing high quality, integrated local telecommunications services, primarily
over fiber optic digital networks, to meet the voice, data, and video
transmission needs of its customers. TCG's customers are principally
telecommunications-intensive businesses, hospitals and educational
institutions, governmental agencies, long distance carriers and resellers,
Internet service providers, disaster recovery service providers and wireless
communications companies. While Teleport's carrier business has continued to
grow, in 1996 all other customers (including resellers) accounted for
approximately 62% of Teleport's pro forma revenue (after giving effect to the
restructuring of Teleport's operations in connection with its initial public
offering in June 1996 (the "TCG Reorganization") as if such restructuring had
occurred at the beginning of 1996).
For over 10 years, TCG has developed, operated and expanded its local
telecommunications networks. As of March 1997, Teleport operated high-capacity
state-of-the-art digital networks in 53 metropolitan markets, including 17 of
the 20 largest metropolitan areas. Teleport operates networks in metropolitan
New York City/New Jersey, Los Angeles, Chicago, San Francisco, Boston, Detroit,
Baltimore/Washington, D.C., Dallas, Houston, Miami/Ft. Lauderdale, Seattle, San
Diego, St. Louis, Pittsburgh, Phoenix, Denver, Milwaukee, Indianapolis,
Hartford, Omaha, Providence, Cleveland, Portland (Oregon), Salt Lake City,
Philadelphia and Wilmington (Delaware). As of such date, Teleport is also
developing networks in Atlanta, Birmingham, Charlotte, Chattanooga, Cincinnati,
Columbus (Ohio), Knoxville, Minneapolis/St. Paul, Nashville, Orlando,
Sacramento and Tampa. As of December 31, 1996, Teleport's networks spanned
over 6,700 route miles, contained over 345,000 fiber miles and served
approximately 7,765 buildings.
In addition, in February 1996 Teleport acquired a minority investment
in BizTel Communications, Inc. ("BizTel"), which, as of March 31, 1997, held
FCC licenses to provide telecommunications services utilizing 38 GHz digital
milliwave transmission in 160 geographic areas in the United States with a
population of approximately 184 million people, including more than 90 of the
100 largest metropolitan areas and all of the markets where TCG currently
operates. BizTel also has applications for 44 additional licenses pending FCC
approval in geographic areas which have a population of an additional 31
million people. The 38 GHz milliwave facilities can be used by TCG to
economically
III-23
<PAGE> 185
connect customers to its networks, to provide network redundancy, diverse
routing or quick temporary installations and to provide stand-alone facilities
where Teleport does not have networks. TCG holds an option, effective July 15,
1997, to acquire the remaining equity interest in BizTel in exchange for
approximately 1.7 million shares of Class A Common Stock of Teleport ("Teleport
Class A Stock"). TCG granted the majority stockholders of BizTel a reciprocal
option to put such remaining equity interest in BizTel to TCG in exchange for
such shares. The closing of any such purchase would be subject to regulatory
approvals, including approval of the FCC.
In February 1997, TCG acquired CERFnet Services Inc. ("CERFnet"), a
leading regional provider of Internet-related services to business and
corporate clients (including dial-up and dedicated Internet access, Web hosting
and co-location services, and Internet training), in exchange for
approximately 2.1 million shares of Teleport Class A Stock. CERFnet operates
an advanced nationwide backbone network, maintains state-of-the-art Internet
server facilities, has established and maintains direct peering relationships
with other Internet service providers, and currently serves over 6,000
customers located primarily in California and Arizona. TCG has indicated that
it expects to upgrade CERFnet's backbone, to accelerate the expansion of
CERFnet's services on a nationwide basis and to achieve marketing synergies by
packaging CERFnet's Internet services with TCG's complementary
telecommunications services.
TCG has grown rapidly over the last several years, expanding its
existing networks, developing new networks and increasing its service
offerings. On a pro forma basis, after giving effect to the TCG
Reorganization, Teleport's revenue grew from approximately $184.9 million for
1995 to approximately $283.4 million for 1996, substantially all of which were
derived from the provision of local telecommunications services.
TCG estimates that total revenue from the local telecommunications
market in the United States were approximately $100 billion in 1996, based on
published FCC data for 1995. In the past, competitive access providers,
including Teleport, were limited to serving only the dedicated services portion
of this market, which TCG estimates (based on such FCC data) was approximately
$5.5 billion in 1996, whereas TCG estimates (on such basis) that the local
switched services portion of this market for business customers was
approximately $60 billion. Teleport has expanded into the switched services
market in a number of states over the last five years by constructing switched
networks and obtaining the necessary regulatory authorizations and
interconnection arrangements to become a CLEC. With the passage of the
Telecommunications Act of 1996 (the "1996 Act"), Teleport has stated its belief
that it is well positioned to address a significantly larger portion of the
local telecommunications market and to improve its operating margins in the
switched and dedicated services markets by expanding its networks, installing
additional high capacity digital switches and offering new products and
services.
Teleport provides its customers with a wide array of local
telecommunications services, including basic local exchange telephone services,
enhanced switched services, Internet services, dedicated services, high-speed
switched data services, disaster avoidance services and video channel
transmission services. Switched voice services offered by Teleport primarily
use high-capacity digital switches to route voice transmissions anywhere on the
public switched telephone network. Teleport's Internet services are primarily
provided through CERFnet described above. TCG's dedicated services, which
include private line and special access services, use high-capacity digital
circuits to carry voice, data and video transmissions from point-to-point in
multiple configurations. Teleport provides its media industry customers with
point-to-point, broadcast-quality video channels for video transmissions
between two or more locations, including video link services to all the major
television networks as well as to other programmers. Teleport also provides
private network management and systems integration services for businesses that
require combinations of various dedicated and switched telecommunications
services.
Teleport believes that it uses the latest technologies and network
architectures to develop a highly reliable infrastructure for delivering
high-speed, quality digital transmission of voice, data and video
telecommunications. The basic transmission platform consists primarily of
optical fiber equipped with high-capacity synchronous optical network ("SONET")
equipment deployed in self-healing rings. These SONET rings give TCG the
capability of routing customer traffic simultaneously in both directions around
the ring thereby eliminating loss of service in the event of a cable cut.
Teleport extends SONET rings or point-to-point links from rings to each
customer's premises over its own fiber optic
III-24
<PAGE> 186
cable, unbundled facilities obtained from ILECs, microwave (including 38 GHz
milliwave) transmission facilities (primarily provided by BizTel) and other
technologies. TCG also installs diverse building entry points where a
customer's network security needs require such redundancy. TCG then places
necessary customer-dedicated or shared electronic equipment at a location near
or in the customer's premises to terminate the link.
Teleport has substantial business relationships with a few large
customers, including the major long distance carriers. During 1996, TCG's top
10 customers accounted for approximately 52% of TCG's total revenue on a pro
forma basis after giving effect to the TCG Reorganization. Sprint accounted
for more than 10% of such revenue; no customer accounted for 15% or more of
such revenue. A significant reduction in the level of services TCG performs
for any of these customers could have a material adverse effect on Teleport's
results of operations or financial condition. Most of Teleport's customer
arrangements are subject to termination on short notice and do not provide TCG
with guarantees that service quantities will be maintained at current levels,
and there can be no assurance that such arrangements will be continued at the
same service quantity levels. TCG believes that certain of the major long
distance carriers are pursuing alternatives to their current practices with
regard to obtaining local telecommunications services, including construction
of their own facilities and/or acquisitions of CLECs. This type of activity
could accelerate as a result of the 1996 Act, which limits the authority of
states to impose legal restrictions that have the effect of prohibiting a
company, including an IXC, from providing any telecommunications service.
As of March 31, 1997, TCI Telephony owned 48,779,388 shares of Class B
Common Stock of Teleport ("Teleport Class B Stock"), each of which is entitled
to ten votes per share on each matter to be voted on by the holders of the
common stock of Teleport and each of which is convertible into one share of
Teleport Class A Stock. TCI Telephony also owns an additional 1,011,528 shares
of Teleport Class A Stock. At March 31, 1997, such shares of Teleport Class B
Stock and Teleport Class A Stock in the aggregate represented approximately 30%
of the outstanding common stock of Teleport and approximately 37% of the
aggregate voting power of such securities. In addition, as of March 31, 1997,
subsidiaries of Cox, Comcast and Continental Cablevision, Inc. ("Continental"
or, together with TCI, Cox and Comcast, the "Teleport Cable Stockholders")
owned shares of Teleport Class B Stock and Teleport Class A Stock representing
approximately 24%, 17% and 8%, respectively, of the outstanding common stock of
Teleport (representing approximately 30%, 20% and 11%, respectively, of the
aggregate voting power of such securities). Because certain provisions in the
Sprint PCS Partnership Agreement restrict TCI and its controlled affiliates
from engaging in any Wireless Business, TCI may determine not to acquire
additional interests in Teleport that would result in Teleport becoming a
controlled affiliate of TCI to avoid a potential breach of such agreement if
Teleport determines to engage in a Wireless Business. However, subject to
certain exceptions, Teleport currently may not engage in the business of
providing certain wireless communications services without the affirmative vote
of holders of a majority of the Teleport Class B Stock until the earlier of
June 2001 and the date on which the Teleport Class B Stock ceases to represent
at least 50% of the voting power of the outstanding common stock of Teleport.
TCG has benefited substantially from its relationships with the
Teleport Cable Stockholders, which are among the largest cable television
companies in the United States. Through such relationships, Teleport has been
able to utilize rights-of-way, obtain fiber optic facilities and share the cost
of building new fiber optic networks, thereby allowing Teleport to achieve
significant economies of scale and scope through capital efficiencies in
extending its networks in a rapid, efficient and cost-effective manner.
Teleport has the indefeasible right to use certain fiber optic and
cable transmission facilities of the Company for compensation based on the cost
of construction of such facilities. In general, such arrangements were entered
into with Teleport by the Company and other MSOs that are stockholders of
Teleport prior to Teleport's initial public offering in June 1996.
Competition. Teleport faces substantial competition in each of the
metropolitan areas it serves or plans to serve from entities that offer
services similar to those offered by TCG, including ILECs such as Ameritech
Corporation, Bell Atlantic Corporation, BellSouth Corp., NYNEX Corporation, SBC
Communications Inc., US WEST and GTE Corporation. Teleport believes that ILECs
generally benefit from their long-standing relationships with customers,
III-25
<PAGE> 187
substantial technical and financial resources, established ubiquitous networks
and federal and state regulations that are likely to provide them with
increased pricing flexibility as competition increases. In most of the
metropolitan areas in which Teleport currently operates, at least one, and
sometimes several, other CLECs also offer substantially similar services at
substantially similar prices to those of Teleport. In addition to CLECs and
ILECs (including ILECs entering new geographic markets), cable television
companies, electric utilities, long distance carriers, microwave carriers,
wireless telephone system operators and private networks built by large end
users may offer services similar to those offered by Teleport. The current
trend of actual and proposed business combinations and alliances in the
telecommunications industry, which include mergers between ILECs, between IXCs
and international carriers and between IXCs and CLECs, may create significant
new competitors or strengthen existing competitors to Teleport.
Teleport has stated that it believes that the 1996 Act will provide
increased business opportunities and potentially better margins by opening
local markets to competition and requiring ILECs to provide improved direct
interconnection between the facilities of CLECs and the publicly switched
telephone network at lower cost. However, under the 1996 Act, the FCC and some
state regulatory authorities may provide ILECs with increased flexibility to
reprice their services as competition develops and as ILECs allow competitors
to interconnect to their networks. In addition, some new entrants in the local
market may price certain services to particular customers or for particular
routes below the prices charged by Teleport for services to those customers or
for those routes, just as Teleport may itself underprice those new entrants.
If the ILECs and other competitors lower their rates and can sustain
significantly lower prices over time, this may adversely affect revenue and
operating results of TCG. If regulatory decisions permit the ILECs to charge
CLECs substantial fees for interconnection to the ILECs' networks or afford
ILECs other regulatory relief, such decisions could also have a material
adverse effect on Teleport. However, Teleport has stated that it believes that
the following factors may offset the negative effects of the 1996 Act: (i) the
increased revenue available as a result of being able to address a
significantly larger portion of the local telecommunications market; (ii)
mutual reciprocal compensation with the ILEC that results in TCG terminating
its local exchange traffic on the ILEC's network at little or no net cost to
TCG; (iii) obtaining access to off-network customers through more reasonably
priced expanded interconnection with ILEC networks; and (iv) a shift by IXCs to
purchase access services from CLECs instead of ILECs. There can be no
assurance, however, that these anticipated results will offset completely the
effects of increased competition as a result of the 1996 Act.
Management. Subsidiaries of the Teleport Cable Stockholders and
Teleport are parties to a stockholders agreement ("Teleport Stockholders
Agreement") which provides for, among other things, the corporate governance of
Teleport, certain registration rights and certain transfer restrictions, rights
of first refusal and rights of first offer relating to sales and conversions
of shares of Teleport Class B Stock. Under the Teleport Stockholders
Agreement, (i) ten of the thirteen members of the Teleport board of directors
are designated by the holders of the Teleport Class B Stock and (ii) a holder
of Teleport Class B Stock generally is entitled to designate one director
nominee for each 9% of the outstanding shares of Teleport Class B Stock held by
it and its affiliates. As a result of its merger with US WEST, Continental
currently does not have the right to designate any of such directors under the
terms of the Teleport Stockholders Agreement. At March 31, 1997, TCI
Telephony, Cox, Comcast and Continental owned 38%, 31%, 20% and 11%,
respectively, of the outstanding Teleport Class B Stock. As a result, TCI is
currently entitled to designate four directors for election to the board of
directors of Teleport. In addition, the Teleport Stockholders Agreement
provides that the chief executive officer and two independent directors will
continue to be designated for election to Teleport's board of directors. The
Teleport Stockholders Agreement will terminate when the aggregate voting power
of the Teleport Class B Stock represents less than 30% of the aggregate voting
power of all outstanding common stock of Teleport.
Additional Information. Teleport is subject to the information
requirements of the Exchange Act and, in accordance therewith, files reports,
proxy and information statements and other information with the SEC (under SEC
file number 0-20913), all of which are available from the SEC in the manner
described above under "Available Information." In addition, the Teleport Class
A Stock is quoted on the National Market tier of the Nasdaq Stock Market under
the symbol "TCGI." Information contained herein regarding Teleport is based
upon, and is qualified in its entirety
III-26
<PAGE> 188
by reference to, information contained in such filings and other publicly
available information. Although believed by the Company to be reliable, there
can be no assurance as to the accuracy of such information.
Other Investments. In addition to its interest in Teleport, the TCI
Ventures Group's wireline telephony investments also include a 75% partnership
interest in Kansas City Fiber Network, L.P., 40% partnership interest in NHT
Partnership, a 79% interest in New Jersey Fiber Technologies, L.P., and a 43%
interest in Louisville Lightwave, which are CAPs serving the metropolitan areas
of Kansas City, Buffalo, Morristown and New Brunswick, New Jersey, and
Louisville and Lexington, Kentucky, respectively. TCI has agreed to acquire an
indirect additional interest in Louisville Lightwave which would increase its
interest to 50%, which transaction is expected to close in the third quarter of
1997.
WTCI
General. WTCI is a regional carrier of long distance telephony
services providing on a wholesale basis high- speed point-to-point private
line communications services capable of offering audio, video and data
transmission to customers in a 12 state area in the northwestern region of the
United States. WTCI has the capability to expand its service to include 2
additional states with minimal capital expenditures should its customer base
dictate the need. WTCI provides its voice messaging services primarily over
its digital microwave network covering over 16,000 route miles. WTCI's
customers are principally long distance carriers and other telecommunications
companies for whom WTCI primarily supplies digital point-to-point private line,
frame relay and switched voice and data transport services. WTCI's customers
also include over 56 cable companies (including TCI) for whom WTCI provides
primarily video analog transmission services. WTCI had aggregate revenue of
approximately $32 million in 1996. Of this amount, approximately 85% came from
WTCI's voice and data carrier customers; video transmission customers
accounted for approximately 8% of such revenue. The remaining revenue
principally came from video conferencing, data, and Internet services.
WTCI uses a diversified high-speed telecommunications network
infrastructure, consisting primarily of its 16,000 route mile owned and
operated digital microwave network, together with fiber transmission capacity
leased by WTCI from other carriers. WTCI's network enables WTCI to provide its
customers with a wide array of telecommunications services, including carrier
services, enhanced switched services, data services, video channel transmission
services (including video conferencing) and Internet services.
Carrier Services. WTCI provides broadband radio frequency channels
for the use of its customers, primarily for transmission of long distance
telephone service ("Carrier Services"). WTCI's Carrier Services are
responsible for the majority of its revenue. WTCI's Carrier Services consist
primarily of supplying long distance microwave transmission to IXCs for the
transport of long distance telecommunications traffic.
WTCI has master service contracts with approximately 80 customers to
provide Carrier Services. These agreements provide for transmission services,
including varying levels of digital service, pursuant to individual service
orders. The initial terms of service orders generally range from 1 to 3 years.
After an initial term, service orders generally continue on a month to month
basis and may be canceled by the customer upon 30 days prior written notice.
The master service contracts expire when the last service order in effect
thereunder has terminated. WTCI's six largest customers' master service
contracts all contain many service orders (in some cases, in excess of 100
service orders) with remaining terms varying from 1 month to approximately 15
months.
In particular, WTCI's largest carrier customer has the right to
terminate its contract for use of the entire capacity of a core backbone of
WTCI's network between the Seattle and Denver areas in October 1997, subject to
certain conditions. Although this area has been overbuilt with fiber,
management of WTCI does not believe such termination would have a material
adverse effect on WTCI because it believes that it is likely that it would be
able to re-lease all of such capacity based on current demand in the area for
Carrier Services.
III-27
<PAGE> 189
WTCI's customers historically have been primarily IXCs, as well as
major ILECs and other telecommunications companies. For the year ended
December 31, 1996, WTCI's six largest customers were all Carrier Services
customers, accounting in the aggregate for approximately 70% of consolidated
gross revenue. A significant reduction in the level of services WTCI provides
for any of these customers could have a material adverse effect on WTCI's
results of operations or financial condition, unless WTCI located replacement
customers willing to lease the vacated channels on similar terms.
Video Services. WTCI's services to cable television system operators
consist of transmitting broadcast television signals to the cable operator
headends for further distribution to their subscribers ("Video Services"). At
December 31, 1996, WTCI provided Video Services to 56 cable television systems
which, based on information available to WTCI from standard industry sources,
had approximately 432,252 subscribers. Forty-seven of these systems, having
approximately 285,203 subscribers, are owned or operated by TCI and its
affiliates. Video Services rendered to TCI and its affiliates accounted for
approximately 5% of WTCI's revenue in 1996. Video Services rendered to cable
television systems have declined as system operators have increasingly relied
on satellite systems, rather than terrestrial microwave systems, for the
delivery of broadcast signals from independent network television stations.
This trend is expected to continue.
The vast majority of WTCI's Video Services, including the services
provided to the TCI Group, are rendered in accordance with tariffs filed with
the FCC. Under WTCI's tariffs, Video Services generally are provided for
initial terms of five years, and thereafter may be terminated by the customer
upon 90 days notice.
Other Services. WTCI's wholly owned, direct subsidiary, "WTCI
Retail Sales Group" is a start-up business, developing and offering "one-stop
shopping", state-of-the-art broadband telecommunications services to end- user
customers in the previously underserved, more remote, second and third tier
communities in its service region. Its suite of services includes video
conferencing, server-based information depositories, data networking, and
on-line broadband facilities and services for internal communications
requirements as well as long distance traffic to its customers, including state
governments and educational institutions.
Competition. WTCI faces growing competition from long distance
carriers using fiber optic cable. Traditionally, the area served by WTCI was
remote and sparsely populated and consequently fiber optic cables have only
recently been laid in the region. However, during the last few years, the
network has been largely overbuilt with fiber by MCI Communications
Corporation. A second overbuild by various IXCs is currently underway or
planned. According to current plans, such second overbuild of the network will
likely be completed by the end of the second quarter of 1998. Such fiber optic
networks are expected to compete directly with WTCI's network for many of the
same customers along a significant portion of the same routes. The recurring
operating costs associated with maintaining WTCI's microwave network facilities
are greater than those associated with a fiber optic network. In response to
the competitive pressures from long distance carriers using fiber optic
networks to transmit their customers' services, WTCI has begun developing (i)
more cost effective methods of conducting its business, (ii) new uses for its
microwave facilities and (iii) lines of business outside of its traditional
base long distance operations such as those described above under "--Other
Services." Additionally, WTCI's microwave facilities can be redeployed into
even more remote, sparsely populated communities, either ahead or in lieu of
the expanding fiber networks. However, there can be no assurance that these
efforts will be successful or that the increased competition from other long
distance carriers overbuilding the region with fiber will not have a material
adverse effect on the business and financial operations of WTCI.
GOVERNMENT REGULATION
Regulation of PCS and Other Wireless Activities. PCS licensees are
subject to regulation at the federal and, in certain respects, at the state and
local level. The FCC regulates the licensing, construction, operation,
acquisition and interconnection arrangements of wireless telecommunications
systems in the United States under the Communications Act of 1934, as amended
(including as amended by the 1996 Act) (the "Communications Act"). Pursuant to
the
III-28
<PAGE> 190
Communications Act, the FCC has promulgated a series of rules, regulations and
policies to (i) grant or deny licenses for PCS frequencies, (ii) grant or deny
PCS license renewals, (iii) rule on assignments and/or transfers of control of
PCS licenses, (iv) govern the interconnection of PCS networks with other
wireless and wireline carriers, (v) establish access and universal funding
provisions, (vi) impose fines and forfeitures for violations of any of the
FCC's rules and (vii) regulate the technical standards of PCS networks.
The FCC has established service areas for PCS throughout the United
States and its possessions and territories based upon the Rand McNally market
definition of 51 MTAs and 493 smaller BTAs. At least two BTAs are contained
within each MTA. The FCC has allocated 120 MHz of radio spectrum in the 1850
to 1990 MHz band, divided into six separate spectrum blocks, for licensed
broadband PCS services. The A and B Blocks are 30 MHz each and are allocated
to the 51 MTAs. The FCC sponsored auctions for the A and B Blocks that ended
in March 1995, and the FCC granted the A and B Block licenses in June 1995.
The remaining blocks, C (30 MHz), D (10 MHz), E (10 MHz), and F (10 MHz), are
allocated to the 493 BTAs. The C Block auctions ended on May 6, 1996. The D,
E, and F Block auctions concluded on January 14, 1997. Sprint PCS did not
participate in the C Block or F Block auctions, as these licenses were
available only to small businesses and other designated entities. An affiliate
of Sprint participated in the FCC's D and E Block auctions which concluded in
January 1997 and was granted licenses in 139 BTAs where Sprint PCS does not
currently have license coverage.
On April 25, 1997, the FCC completed the auction of licenses in the
2 GHz band for a new wireless communication service ("WCS"). While WCS
licensees will determine for themselves which services they will offer, the FCC
has stated that it believes that wide area, full mobility systems and services
of the sort provided by cellular and PCS licensees likely will be infeasible
for the foreseeable future, due to technological limitations adopted by the FCC
to protect other FCC licensees from harmful interference.
The FCC currently has two ongoing rulemaking proceedings addressing
issues relating to the allocation and use of spectrum in the 38 GHz band which
is utilized by BizTel in which Teleport holds a minority interest. The first
involves the establishment of licensing and technical rules for spectrum in the
37.0 - 40.0 GHz band allocated to fixed, terrestrial wireless services. While
the rules to be adopted in this proceeding primarily address the assignment and
use of currently unassigned frequencies, certain proposals advanced by the FCC
and commenting parties could affect the operations of existing 38 GHz
licensees, including BizTel. The second proceeding involves the allocation of
spectrum between terrestrial wireless and satellite services. In its Notice of
Proposed Rulemaking, the FCC has proposed deletion of satellite allocations in
the 38 GHz band. However, the FCC's proposal has been contested by several
parties, some of whom seek to eliminate the terrestrial wireless allocation in
the 39.5 - 40.0 GHz band. Action taken by the FCC in this proceeding could
have an impact on the availability of spectrum for use by BizTel, which could
affect its provision of facilities and services to TCG and other customers.
The Communications Act restricts foreign investment in and ownership
of certain FCC radio licensees, including PCS licensees. Non-United States
citizens or their representatives, foreign governments or their
representatives, or corporations organized under the laws of a foreign country
may not own more than 20% of a common carrier PCS licensee directly or more
than 25% of the parent of a common carrier PCS licensee. If it would serve the
public interest, the FCC has the authority to permit the parent of a licensee
to exceed the 25% limit. However, the FCC lacks the authority to permit a
licensee itself to exceed the 20% limit on direct foreign ownership. If an
entity fails to comply with the foreign ownership requirements, the FCC may
order the entity to divest alien ownership to bring the entity into compliance
with the Communications Act. Other potential sanctions include fines, a denial
of renewal, or revocation of the license. Pursuant to a multi-lateral
agreement negotiated under the auspices of the World Trade Organization, the
United States government has agreed that it will allow up to 100% indirect
foreign ownership of common carrier radio licenses. Such agreement takes
effect on January 1, 1998. On March 13, 1997, the Sprint PCS Partners filed a
petition with the FCC seeking clarification regarding the application of the
foreign ownership restrictions to Sprint PCS and PhillieCo.
III-29
<PAGE> 191
All PCS licenses are granted for 10-year terms conditioned upon timely
compliance with the FCC's buildout requirements. Pursuant to the FCC's
buildout requirements, all 30 MHz broadband PCS licensees must construct
facilities that offer coverage to one-third of the population of their service
area(s) within five years of their initial license grant(s) and to two-thirds
of the population within 10 years. Holders of 10 MHz PCS licenses in the D, E,
and F Blocks must provide coverage to one-quarter of the population in their
licensed area (or make a showing of "substantial service" in their licensed
area) within five years of their initial license grant. Licensees that fail to
meet the buildout requirements may be subject to license forfeiture. Rule
violations could result in license revocations, forfeitures or fines.
PCS systems must comply with FCC regulations, including, among others,
regulations with respect to PCS license renewal, relocation of incumbent
microwave facilities operating at the same frequency as the PCS, and
interconnection with local exchange carriers' networks. Under the 1996 Act,
both the FCC and state Public Utility Commissions ("PUCs") regulate the terms
of interconnection between broadband PCS networks and the networks of local
exchange carriers. PCS systems also must comply with certain FCC and Federal
Aviation Administration regulations regarding the siting, lighting and
construction of transmitter towers and antennas. In addition, certain FCC
environmental regulations may cause PCS networks to become subject to
regulation under the National Environmental Policy Act.
Pursuant to the 1996 Act, all telecommunications carriers that
provide interstate telecommunications services, including PCS, are required to
make an "equitable and non-discriminatory contribution" to the support of
federal universal service programs. Contributions will be calculated on the
basis of each carrier's interstate and, for certain programs, intrastate
end-user telecommunications revenue. In addition, any telecommunications
carrier, including a cellular or PCS provider, that meets the criteria for
eligibility established in the 1996 Act, is eligible to receive universal
service support. The 1996 Act also requires all telecommunications carriers,
including PCS licensees, to ensure that their services are accessible to and
useable by persons with disabilities, if readily achievable. These regulations
are also applicable to Teleport and TCI's other wireline telephony activities.
The FCC has adopted rules prohibiting broadband PCS providers from
unreasonably restricting or disallowing resale of their services or
unreasonably discriminating against resellers, and currently is considering
whether wireless providers should be required to offer unbundled communications
capacity to resellers who intend to operate their own switching facilities.
The FCC also requires broadband PCS and other commercial mobile radio service
("CMRS") providers to provide "manual" roaming service that allows customers of
one wireless provider to obtain service while roaming in another wireless
provider's service area, and is considering whether broadband PCS and other
CMRS providers should be required to offer "automatic" roaming agreements on a
non-discriminatory basis that would allow customers to roam by simply turning
on their handsets in a host market. Other FCC rules require all broadband PCS
and other CMRS providers to implement enhanced emergency 911 capabilities on a
phased basis over a five-year period beginning October 1996.
On May 22, 1997, the Personal Communications Industry Association
("PCIA") filed a petition requesting that the FCC exercise authority granted
under the 1996 Act and forbear from imposing non-discrimination requirements,
mandatory resale obligations, and certain other regulatory requirements on
broadband PCS licensees. PCIA's petition is currently awaiting action by the
FCC.
In addition, the Communications Assistance for Law Enforcement Act
of 1994 ("CALEA") requires all telecommunications carriers, including wireless
carriers, as of October 1998, to ensure that their equipment is capable of
permitting the government, pursuant to a court order or other lawful
authorization, to intercept any wire and electronic communications carried by
the carrier to or from its subscribers and to access certain call-identifying
information that is reasonably available to the carriers. These regulations
are also applicable to Teleport and TCI's other wireline telephony activities.
Certain interest groups have requested that the FCC investigate
claims that wireless communications technology poses health concerns and causes
interference with hearing aids and other medical devices. In addition, media
reports have suggested that certain radio frequency ("RF") emissions from
portable cellular telephones might
III-30
<PAGE> 192
be linked to cancer. Concerns over the potential health effects of RF
emissions may have the effect of discouraging the use of cellular telephone and
other wireless communications services, including PCS, which could have an
adverse effect upon Sprint PCS and on the value of the TCI Ventures Group's
investment therein. In August 1996, the FCC adopted revised guidelines and
methods for evaluating the environmental effects of RF transmitters, including
cellular and PCS antennas and telephones, based on recommendations by several
federal agencies, including the Environmental Protection Agency and the Federal
Drug Administration. The new rules generally are more stringent than the
requirements in effect prior to the FCC's action.
PCS licensees may use common carrier point-to-point microwave and
traditional landline facilities to connect cell sites and to link them to their
respective main switching offices. The FCC separately licenses these microwave
facilities, as well as the microwave transmission facilities of WTCI, and
regulates the technical parameters and service requirements of these
facilities. In providing interstate transmission services to its non-carrier
customers, WTCI also is subject to the streamlined tariffing and other
requirements applicable to "nondominant carriers" under the current federal
regulatory regime, as described below. See "--Regulation of Wireline Telephony
Activities." WTCI's provision of intrastate transmission services may also be
subject to regulatory requirements at the state level, similar to those
described in the discussion of "--Regulation of Wireline Telephony Activities"
below. In addition, WTCI's placement of facilities is subject to applicable
state and local laws and regulations.
Pursuant to Section 332(c) (3) of the 1996 Act, state and local
governments generally are not permitted to regulate the entry of or rates
charged by any commercial mobile service, including PCS. States may petition
the FCC for authority to regulate commercial mobile service rates, which
authority is to be granted only in circumstances where the state demonstrates
that market conditions fail to protect subscribers adequately from unjust and
unreasonable rates or rates that are unjustly or unreasonably discriminatory.
States are not prohibited from regulating other terms and conditions for PCS
and other commercial mobile services, so long as such regulations are
consistent with the provisions of the Communications Act. In particular, state
and local governments can manage public rights of way and require compensation
for the use of such rights of way by telecommunications carriers, including PCS
providers, so long as the compensation is fair and reasonable, imposed on a
competitively neutral and non-discriminatory basis, and publicly- disclosed by
the governmental entity. The FCC currently is considering a number of requests
for federal preemption of various state and local requirements which allegedly
constitute unlawful barriers to entry, discrimination, or other violations of
the Communications Act.
Under the 1996 Act, states and localities cannot regulate the
placement of certain types of wireless facilities, including facilities used to
provide PCS, cellular, and common carrier wireless exchange access services, so
as to prohibit the provision of such services or to discriminate among
providers of such services. In addition, so long as such a wireless system
complies with the FCC's rules, the 1996 Act prohibits states and localities
from using environmental effects as a basis to regulate the placement,
construction or operation of wireless facilities. Since the enactment of the
1996 Act, Sprint PCS has been involved in a number of legal proceedings
concerning tower sites, including various disputes concerning the imposition of
moratoria on the processing or approval of permits for wireless
telecommunications towers or denial of applications for permits. There can be
no assurance that such litigation will not, in the aggregate, have a material
adverse effect on Sprint PCS and the TCI Ventures Group's interest therein.
The FCC is currently considering a Petition for Declaratory Ruling filed by the
CTIA seeking federal preemption of moratoria regulation imposed by state and
local governments with regard to the siting of telecommunications facilities.
Regulation of Wireline Telephony Activities. The wireline telephony
activities of Teleport and the CAPs in which TCI has an interest are subject to
regulation at the federal, state, and local level. Nationally, the recent
trend has been for federal and state legislators and regulators to permit and
promote additional competition in the local telecommunications industry.
However, because these developments require numerous implementation actions by
the FCC, individual state regulatory commissions, and federal and state courts,
and are subject to particular legal, political and economic conditions, it is
not possible to predict the extent to which or the pace at which such
liberalization will occur.
III-31
<PAGE> 193
The 1996 Act prohibits state and local governments from enforcing any
law, rule or legal requirement that prohibits or has the effect of prohibiting
any person from providing any interstate or intrastate telecommunications
service. However, states retain jurisdiction under the 1996 Act to adopt
regulations necessary to preserve universal service, protect public safety and
welfare, ensure the continued quality of telecommunications services, and
safeguard the rights of consumers. States also are responsible for mediating
and arbitrating interconnection arrangements between new entrants (CLECs) and
established telephone companies (ILECs) if voluntary arrangements are not
reached. The precise jurisdictional responsibilities of the FCC and the states
under the Communications Act are currently being litigated.
At the federal level, the FCC has established different levels of
regulation for "dominant carriers" and "nondominant carriers." For domestic
interstate telecommunications purposes, only the ILECs are classified as
dominant carriers, and all other carriers are classified as nondominant
carriers. On April 18, 1997, the FCC released an order which provides that
ILEC long distance affiliates will be regulated as nondominant carriers in the
provision of interstate, domestic, long distance services. The FCC's order
does not alter the FCC's classification of ILECs as dominant carriers in the
provision of interstate access services. Nondominant carriers, such as TCG,
are required to file tariffs for interstate services with the FCC, although
such tariff requirements are generally less restrictive than those imposed on
ILECs which offer similar services. An October 1996 FCC ruling required
federal tariffs for domestic interstate, interexchange services to be canceled
by September 22, 1997. The FCC's order has been temporarily stayed pending
judicial review and a number of parties have filed petitions with the FCC
seeking reconsideration of the FCC's decision. As a result, the tariff
obligation remains applicable to any TCG interstate access or long distance
services. TCG must offer its interstate services on a nondiscriminatory basis,
at just and reasonable rates and subject to the complaint provisions of the
Communications Act. TCG is not subject to rate of return or price cap
regulation by the FCC and may install and operate digital facilities for the
transmission of interstate communications without prior FCC authorization.
The 1996 Act imposes a number of access and interconnection
requirements on all local exchange carriers, including CLECs, with additional
requirements imposed on ILECs. The 1996 Act requires CLECs and ILECs to first
attempt to resolve interconnection issues through negotiation for at least 135
days. During these negotiations, the parties may submit disputes to state
regulators for mediation and, after the negotiation period has expired, the
parties may submit outstanding disputes to state regulators for arbitration.
Under the 1996 Act, all local exchange carriers (including TCG), must
interconnect with other carriers, make their services available for resale by
other carriers, provide non-discriminatory access to rights of way, offer
reciprocal compensation for termination of traffic, and provide dialing parity
and telephone number portability. ILECs have certain additional duties,
including the duty to (i) interconnect at any technically feasible point and
provide service equal in quality to that provided to their customers or the
ILEC itself, (ii) provide unbundled access to network elements at any
technically feasible point, and (iii) offer retail services at wholesale prices
for the use of competitors. The 1996 Act includes various provisions
addressing the pricing of certain of these services.
On August 8, 1996, the FCC released several orders (collectively the
"Interconnection Orders") establishing new policies and rules implementing the
local interconnection and access provisions of the 1996 Act. The FCC's orders
are the subject of appeals currently pending before the U.S. Court of Appeals
for the Eighth Circuit. On October 15, 1996, the Court of Appeals issued a
stay suspending application of the pricing rules and "pick and choose" rule
established in one of the FCC's orders, which allows CLECs to receive the
benefit of the most favorable provisions contained in an ILEC's agreements with
other carriers, until the Court of Appeals rules on the pending appeals. In
addition, a number of parties have filed petitions with the FCC asking it to
reconsider and revise portions of its Interconnection Orders.
The FCC's Interconnection Orders represent the first part of a trilogy
of actions that the FCC contends will promote competition in the local
telecommunications market. The second part involves reform of the system for
funding and providing universal service support, as described above in
"--Regulation of PCS and other Wireless Activities." The third part of the
FCC's trilogy of actions involves the reform of the FCC's rules for
establishing interstate interexchange access charges. In December 1996, the
FCC made several changes to the interstate access charge system, removed
certain restrictions on ILECs' ability to lower access prices, and relaxed the
regulation of new switched access services in those
III-32
<PAGE> 194
markets where there are other providers of access services. In May 1997, the
FCC issued an order adopting additional changes to its existing rules that are
designed to move ILEC interstate access charges, over time, to more
economically efficient levels and rate structures. The FCC has stated that it
will rely on marketplace forces in the first instance to drive ILEC interstate
access prices to competitive levels, and will in a subsequent order provide
detailed rules for implementing the FCC's market-based approach, which will
give ILECs progressively greater flexibility in setting rates as competition
develops. The FCC also plans to establish a "backstop" mechanism for mandating
lower prices in instances where a market-based approach proves to be
inadequate. In a separate order, the FCC has adopted changes to its price cap
rules that are expected to result in significant reductions in ILEC access
charge levels.
Under the 1996 Act, ILECs have a statutory duty to negotiate
interconnection and access arrangements with CLECs in good faith. The regional
Bell operating companies ("RBOCs"), in particular, must satisfy certain
"checklist" requirements, designed to facilitate the development of
facilities-based competition for business and residential users, in order to
enter the long distance markets within their regions. TCG has been able to
reach negotiated agreements with certain of the ILECs, and has had to resort to
state mediation and arbitration in order to obtain interconnection agreements
with other ILECs. During the pendency of the negotiation and contract approval
process, TCG is able to operate under either interim interconnection agreements
or interim state regulatory policies and rules.
The 1996 Act establishes procedures under which a RBOC can provide
interLATA services within its telephone service area under certain
circumstances, with the FCC's approval. "InterLATA services" are
telecommunications services which originate in one and terminate in another
local access and transport area. Under the 1996 Act, the FCC is required to
approve or deny the requested authorization within 90 days following its
receipt of such an application. Authorization to provide in-region interLATA
services will enable the RBOCs to provide customers with a full range of local
and long distance telecommunications services. The provision of interLATA
services by RBOCs may reduce the market share of the major long distance
carriers, which are among TCG's largest customers, but TCG believes it will
also encourage IXCs to use TCG's and other CLECs' services instead of RBOC
services wherever possible. On April 11, 1997, SBC Communications Inc.
("SBC") filed an application requesting authority to provide in-region,
interLATA service in the State of Oklahoma. On May 21, 1997, Ameritech
Michigan ("Ameritech") filed an application to provide in-region interLATA
service in the State of Michigan. The SBC and Ameritech applications are
currently pending before the FCC.
The 1996 Act contains other provisions that potentially could affect
TCG's business, which may be subject to FCC rulemaking and judicial
interpretation, including a provision that limits the ability of a cable
television operator and its affiliates to acquire more than a 10% financial
interest or any management interest in a local exchange carrier which provides
local exchange service in such cable operator's franchise area. The 1996 Act
also requires all telecommunications carriers, including CLECs and CAPs, to
ensure that their services are accessible to and useable by persons with
disabilities, if readily achievable.
In addition, Teleport and TCI's other wireline activities will be
subject to certain requirements of CALEA described above under "--Regulation of
PCS and other Wireless Activities."
Most state PUCs require TCG and other carriers that wish to provide
local and other jurisdictionally intrastate common carrier services to be
authorized to provide such services. TCG's operating subsidiaries and
affiliates are authorized as common carriers in a number of states. The
authority held by TCG's subsidiaries and affiliates varies in the scope of the
intrastate services permitted. TCG has filed or expects to file applications
for authority to provide local exchange service in all of its markets in which
it does not have such authority. TCG typically is not subject to price
regulation or to rate of return regulation for its intrastate services. In
most states, TCG is required to file tariffs setting forth the terms,
conditions and prices for its intrastate services. In some jurisdictions, the
tariff can list a rate range for intrastate services. TCG may be subject to
additional regulatory burdens in some states, such as quality of service
requirements and universal service contributions. State PUCs also are actively
involved in the mediation and arbitration of disputes between ILECs and TCG and
other CLECs concerning local interconnection and access arrangements.
III-33
<PAGE> 195
TCG may be required to obtain from municipal authorities street
opening and construction permits and other rights of way to install and expand
its digital networks in certain cities. In some cities, TCG's affiliates or
subcontractors may already possess the requisite authorizations to construct or
expand TCG's networks. In certain of the metropolitan areas where TCG provides
network services, TCG pays license or franchise fees based on a percent of
gross revenue. There can be no assurance that municipalities that do not
currently impose fees will not seek to impose fees in the future, nor is there
any assurance that, following the expiration of existing franchises, fees will
remain at their current levels. Under the 1996 Act, such fees must be "fair
and reasonable," applied on a "competitively neutral and non-discriminatory
basis," and be "publicly disclosed" by the relevant governmental entity. There
can be no assurance, however, that municipalities that currently favor the
ILECs will conform their practices in a timely manner or without legal
challenges by TCG, or another CAP or CLEC. If any of TCG's existing franchise
or license agreements for a particular metropolitan area were terminated prior
to its expiration date and TCG were forced to remove its fiber optic cables
from the streets or abandon its network in place, even with compensation, such
termination could have a material adverse effect on TCG's operations in that
metropolitan area and on TCI Telephony's investment in TCG.
DIVERSIFIED SATELLITE COMMUNICATIONS
UNITED VIDEO SATELLITE GROUP, INC.
General. UVSG provides satellite-delivered video, audio, data and
program promotion services to cable television systems, DTH Satellite dish
users, radio stations and private network users primarily throughout North
America and software development and systems integration services to commercial
entities, the federal government and defense related agencies in locations
throughout the United States.
UVSG operates the following related satellite transmission businesses:
(i) Prevue Networks, a developer and distributor of on-screen television
program promotion and guide services, including Prevue Channel, the leading
electronic programming guide in the North American market, (ii) Superstar
Satellite Entertainment, a marketer and distributor of programming to C-band
DTH Satellite dish owners in North America; (iii) UVTV, which distributes three
superstations, including WGN, primarily to cable operators and (iv) SpaceCom
Systems, a provider of audio and data satellite transmission services to the
paging industry and others. UVSG also has a 70% interest in SSDS, Inc.
("SSDS"), which provides information technology consulting and software
development services to large organizations with complex computer needs.
In January 1996, UVSG became a majority controlled subsidiary of the
Company through the merger of a subsidiary of the Company into UVSG. As of May
31, 1997, the Company owned approximately 40% of the shares of outstanding
common stock of UVSG, representing approximately 85% of the voting power of
UVSG. Six of UVSG's eleven directors are also employees, officers and/or
directors of the Company or its affiliates.
UVSG's Satellite Transmission Infrastructure. UVSG owns and operates
the Chicago International Teleport (the "CIT"), an uplink transmitter facility
near Chicago with seven transmit/receive antennas by which most of its services
are transmitted to satellites. The CIT also has 26 receive-only antennas.
UVSG believes the CIT is one of the largest such facilities in the United
States. UVSG also operates an uplink in Tulsa for its Prevue Channel which
allows real-time promotional inserts into the video portion of its service.
In addition, UVSG leases uplink station facilities in other cities as needed.
UVSG leases a total of ten transponders on several different
satellites owned and operated by various satellite companies. Lease payments
for a single transponder range from $33,000 to $200,000 per month, depending
upon the location of the satellite, the satellite's footprint, the date of the
lease and the power of the satellite. Certain of the transponder leases are
for fixed terms while others have terms through the operational life of the
respective satellite. The transponder leases are expected to expire between
2000 and 2005. UVSG has contracted for backup transponder space for two of its
primary transponders, should they fail. These primary transponders are also
contractually protected from pre-emption. The remainder of UVSG's transponder
space is subject to pre-emption, although no pre-emption has occurred
III-34
<PAGE> 196
to date. UVSG believes there is a reasonably sufficient quantity of
appropriate transponder space available to satisfy its needs for the
foreseeable future.
Program Promotion and Guide Services. UVSG has developed and markets
on-screen program promotion and guide services to cable television systems and
other multi-channel video programming distributors such as DBS and telephone
companies ("Programming Distributors"). Such services include the Prevue
Channel, offered through UVSG's Prevue Networks subsidiary ("Prevue Networks"),
and Sneak Prevue, offered through Sneak Prevue LLC, a joint venture owned 72%
by Prevue Networks. These services provide continuously updated on-screen
video and text information customized for each Programming Distributor, to
promote the Programming Distributor's programs and provide program schedule
information to its subscribers. As of December 31, 1996, the Prevue Channel
was carried by approximately 2,000 systems with subscribers totaling 44.4
million, and Sneak Prevue was carried by over 900 systems with an aggregate of
approximately 34.4 million subscribers in the United States.
Prevue Networks has been expanding sales of the Prevue Channel and
Sneak Prevue services in the international marketplace. As of December 31,
1996, Prevue Networks operated in 22 countries spanning three continents,
including 350 systems and approximately 1.7 million subscribers in Canada and,
through its Prevue Channel product branded Prevue Latino, 75 systems and
approximately 1.2 million subscribers in Central America. As of December 31,
1996, Prevue Networks reached over 48 million homes with satellite-delivered
services globally.
UVSG generates both license fees and advertising revenue from the
Prevue Channel, while Sneak Prevue and other products currently generate only
license fees. During 1996, approximately 48% of Prevue Networks' $49.4 million
revenue were attributable to the Prevue Channel and Sneak Prevue fees paid by
U.S. systems, and approximately 46% came from advertising sales in the United
States.
UVSG believes that, as a result of the maturing U.S. cable television
industry's slowing subscriber growth and competition from DBS, there is a
strong demand by cable operators for services such as the Prevue Channel and
Sneak Prevue to promote subscriber purchases of higher-margin program packages
and pay-per-view services. In addition, UVSG believes that as cable television
channel capacity increases and the number of channels offered by other
Programming Distributors increases, the demand for program promotion and guide
services will also increase.
Through its Prevue Interactive subsidiary, UVSG also develops and
markets interactive program guide services and software applications for use by
cable television system operators and other Programming Distributors that
enable customers to review program schedules and retrieve selected programing
information on demand. These services provide continuously updated, on-screen
text and graphic information, customized to deliver system-specific schedule
and program promotion information to subscribers. UVSG believes that, as third
party manufacturers complete the design and begin the manufacture of a
significant number of set-top converter boxes capable of delivering interactive
programming services, the demand for interactive program guide services will
increase significantly. Prevue Interactive's ongoing operations, excluding the
cost of patent litigation described below, consists primarily of software
development to achieve compatibility with new advanced analog and digital
set-top converter platforms. Prevue Interactive generated no significant
revenue in 1996 ($218,000) and incurred operating expenses (excluding
depreciation and amortization) of $5.7 million ($1.3 million of which is
attributable to the StarSight patent litigation referred to below).
UVSG believes that the interactive program guide and services market
has the potential to yield significant revenue in the future. However, at this
time, the development and deployment by third parties of the hardware which
will be required to operate Prevue Interactive's interactive technology, cannot
be predicted. In addition, the response of Programming Distributors and their
subscribers to Prevue Interactive's interactive technology, and the likelihood
of competitors succeeding with the same general concept, but differing
technology, is difficult to predict at this time. UVSG is currently engaged in
litigation with StarSight Telecast, Inc. ("StarSight") with respect to certain
patents held by StarSight relating to certain functions performed by
interactive program guide services. If this litigation is resolved in
StarSight's favor, it could have a material adverse effect on UVSG's
interactive operations.
III-35
<PAGE> 197
Prevue Networks' Prevue Channel and Sneak Prevue services compete with
other programmers for limited cable television system channel slots. Prevue
Networks believes that its Prevue services currently are the leading satellite-
delivered cable television promotion and program guide products in the North
American market. Prevue Networks continues to face competition from
Programming Distributors that have and are operating single-system program
guides or pay-per- view promotional channels similar to the Prevue services.
To some extent, Prevue Networks also indirectly competes with printed program
guides. While Prevue Networks believes that Prevue Interactive's interactive
products will serve as a complement to its Prevue services, such products,
along with new interactive program guides being developed by UVSG and its
competitors may also create competition for Prevue Networks. Although UVSG
believes that it is currently the market leader in providing interactive
program guide, sports and weather information, UVSG anticipates that the market
for such interactive services will be characterized by intense competition in
the next few years.
Home Satellite Dish Services. UVSG's Superstar Satellite
Entertainment division ("Superstar") markets and distributes programming to the
C-band DTH satellite dish subscriber market through Superstar/Netlink Group LLC
("SNG"), a joint venture formed effective April 1, 1996 to combine the retail
C-band DTH satellite businesses of UVSG's Superstar division and Liberty's
Netlink division. Each of Liberty and Superstar own 50% of SNG. Liberty,
whose assets are not part of the TCI Ventures Group, is a wholly owned
subsidiary of the Company.
As of December 31, 1996, approximately 1.0 million C-band DTH
satellite dish owners, or 42% of the estimated authorized C-band home satellite
dish subscriber market, subscribed to programming directly through SNG. UVSG
believes SNG is the largest marketer of satellite entertainment programming in
the C-band DTH satellite dish industry. It currently markets several different
packages featuring more than 100 channels of programming as well as
pay-per-view movies and events to the C-band DTH satellite dish market.
Superstar also markets UVTV's satellite-transmitted WGN, WPIX and KTLA
superstations to other packagers and marketers of programs to the home
satellite dish industry through its wholesale division. As of December 31,
1996, approximately 1.8 million home satellite dish households subscribed to
one or more of UVSG's three superstations through home satellite dish packages
offered by SNG and other home satellite dish packaging and marketing companies.
Through its business services division, Superstar provides software and
subscriber management system services, functions as a service agent in the DBS
market and markets ESPN to commercial establishments, such as bars and
restaurants.
Superstar's revenue in 1996 were $189.2 million and its operating
income was $26.8 million (in each case, excluding Liberty's minority interest
in SNG).
SNG competes with several other large C-band DTH satellite dish
program packagers, some of which are affiliated with well-known, large
programmers and cable television system operators. Because a significant
portion of SNG's sales are generated through home satellite dish dealers, SNG
also competes for dealer relationships on the basis of commission rates and
quality of service offered to the dealer and its customers. In addition, the
C-band DTH satellite dish market faces competition from cable television as
well as technologies such as DBS services, which were launched in 1994. With
the continued expansion of cable systems and the emergence of DBS systems, the
C-band DTH industry is no longer growing. During the year ended December 31,
1996, UVSG reported that the industry decreased 4% to 2.3 million subscribers.
DBS uses Ku-band frequencies that can be received by significantly smaller and
less expensive receive terminals than those home satellite dishes that receive
C-band frequencies. Because of the smaller dish size, DBS may be more widely
accepted than C-band DTH satellite dish systems, particularly in urban markets.
In addition, the FCC recently preempted most zoning and other restrictions by
state and local governments, as well as by certain private associations,
regarding the placement of DBS video reception equipment. This preemption does
not extend, however, to the larger C-band dishes. UVSG believes that the entry
of DBS will serve to decrease the size of the C-band market in the short and
long-term. UVSG also believes that for the near future more programming will
be available for the C-band DTH satellite dish market than the DBS market
because the majority of programming for cable television systems is transmitted
on C-band frequencies. Given the initial investment costs and life of a C-band
DTH satellite dish system, UVSG believes that a significant portion of current
C-band DTH satellite dish owners will continue to use home satellite dish
services rather than invest in a DBS system.
III-36
<PAGE> 198
Satellite Distribution of Video Entertainment Services. UVSG's UVTV
division ("UVTV") markets and distributes to Programming Distributors video and
audio services such as superstations WGN (Chicago), WPIX (New York) and KTLA
(Los Angeles), three of the five independent satellite-delivered television
superstations in the United States. As of December 31, 1996, television
channels transmitted by UVTV served an aggregate of approximately 42 million
subscribers, approximately 94% of which were attributable to WGN, the country's
second largest superstation in terms of subscribers. UVTV's revenue for 1996
were $26 million.
UVTV faces competition from over 100 cable network suppliers,
including other superstations, for limited channel capacity on cable television
systems. Cable television systems must pay copyright payments to the Copyright
Arbitration Royalty Panel when they receive and distribute
satellite-transmitted television broadcasts, such as WGN and other
superstations, which is a separate, less controllable cost than the bundled fee
incurred and paid directly to the copyright holder when distributing a cable
television network. These and other factors can influence a cable television
system's decision as to whether to select UVTV's superstations for
distribution. Since no exclusive rights are granted for the transmission of
superstations, UVTV also faces potential direct competition from other
operators who may decide to transmit stations currently being marketed by UVTV.
Because UVTV's customers have entered into service agreements generally with a
three-year initial term, UVTV believes its customers would not be able to
change immediately to another company transmitting those superstations. In
addition, while the Cable Television Consumer Protection and Competition Act of
1992 (the "1992 Cable Act") generally requires all Programming Distributors to
obtain the prior consent of broadcast stations, including superstations, before
retransmitting their signals, this requirement does not apply to those
superstation signals that were on satellite prior to May 1, 1991. All of
UVTV's superstations were being retransmitted prior to that time, and thus UVTV
is exempt from retransmission consent requirements. UVTV believes that these
provisions of the 1992 Cable Act may create a barrier to the emergence of new
superstations because it may be difficult to obtain retransmission consent from
the stations at an economically feasible price.
Satellite Transmission Services for Private Networks. UVSG's
SpaceCom subsidiary ("SpaceCom") provides point-to-multipoint audio and data
satellite transmission services for various customers throughout North America,
primarily to paging network operators, radio programmers and financial
information providers. SpaceCom leases two C-band and two Ku-band satellite
transponders, subdivides the capacity of these transponders into a number of
smaller channel units and resells these units using its value-added
transmission methods and proprietary technology.
As of December 31, 1996, SpaceCom's two C-band transponders were
occupied to approximately 70% of capacity; one of its Ku-band transponders was
filled to approximately 68% of capacity and the other, which uses a newer,
superior (in terms of reliability, flexibility and security) proprietary
transmission technology (the "FM Cubed" technology), was operating at
approximately 100% of capacity. SpaceCom believes these transponders will
satisfy its capacity requirements through 1997 and is focusing on selling and
implementing a new proprietary technology which has the same characteristics as
the FM Cubed technology, but at half its price with higher priced receivers.
SpaceCom generated $15.6 million in revenue in 1996. Approximately
52% of SpaceCom's 1996 revenue were attributable to paging customers; SpaceCom
serves 8 of the 10 largest paging companies in the United States.
SpaceCom competes with a number of other companies in the one-way
point-to-multipoint satellite distribution business. Many of these competitors
have duplicated and use SpaceCom's original proprietary technology. SpaceCom's
newer FM Cubed technology is difficult and expensive to reverse engineer. In
addition, SpaceCom has two patents covering certain aspects of its FM Cubed
technology, although there can be no assurances that these patents will afford
SpaceCom significant protection against competitors with similar products or
technology. SpaceCom also competes with two-way satellite communication
network service providers as well as telephone companies, although it believes
its point-to-multipoint technology is less expensive for customers with a large
number of sites that do not require two-way communication capabilities.
SpaceCom's customers typically sign contracts for initial terms of five years
or greater, often through the end of the life of the satellite. Historically,
SpaceCom has retained the majority of its significant customers at the time a
contract is renewed.
III-37
<PAGE> 199
Software Development and Systems Integration Services. UVSG owns a
70% interest in SSDS, which provides information technology consulting,
integration and software development services to organizations that are using
or migrating to distributed, open computing environments. Open systems
computing environments are created from various components, which may include
networks of personal computers, file servers, information storage and retrieval
devices, communications and video equipment and the software necessary to
perform desired functions and to link the various components of the systems.
SSDS provides technology consulting and software development to its customers
to design, integrate and manage open systems components within an
enterprise-wide environment.
SSDS currently markets its services to three primary market segments:
(a) commercial, (b) public sector (consisting of federal, state and local
government agencies, other than defense-related agencies), and (c) defense-
related agencies. During the twelve months ended December 31, 1996, the
commercial, public sector and defense market segments represented 37%, 19% and
44%, respectively, of SSDS's total revenue. SSDS's revenue for 1996 were $36.2
million.
The information technology and systems integration field is highly
fragmented and competitive and is comprised of a substantial number of
participants, many of which are much larger than SSDS. In addition, the
competitive market includes many large consulting and computer equipment
companies that offer professional services. For its higher-end services, such
as business process analysis or strategic system architecture, SSDS competes
primarily on its technical capabilities and timeliness. For its other
services, such as complex system design, implementation, integration and
migration, SSDS competes primarily on superior experience and quality.
Agreements with TCI. The TCI Group has agreements with UVSG for the
carriage of UVSG's Prevue Networks and superstation programming on certain of
the cable systems attributed to the TCI Group and for UVSG's subscriber
management services, and UVSG purchases programming from companies attributed
to the Liberty Media Group. Many of these contracts were entered into prior to
the Company's acquisition of an equity interest in UVSG.
Regulation. The satellite transmission, cable and telecommunications
industries are subject to federal regulatory conditions, including FCC
licensing and tariff requirements. The cable and telecommunications industries
are also subject to extensive regulation by local and state authorities. While
most cable and telecommunications industry regulations do not apply directly to
UVSG, they affect Programming Distributors, the primary customers for UVSG's
products and services. In the past, uncertainty about proposed or even rumored
regulations has occasionally caused UVSG's programming distributor customers to
postpone purchasing decisions and actions.
Under the "cable compulsory license" provisions of the Copyright Act
of 1976 (the "Copyright Act"), Programming Distributors are required to pay
copyright fees that arise from their reception and distribution of satellite-
transmitted television broadcasts such as WGN and other superstations. These
compulsory copyright fees are in lieu of separately negotiated copyright
payments between the programmers and the Programming Distributors. These
provisions also grant an exemption which allows UVTV to transmit and market its
superstations without agreements with, or copyright payments to, the broadcast
station transmitted.
The Copyright Act and U.S. Copyright Office regulations generally
impose a significantly higher copyright fee on cable television systems in
certain markets for carrying more than two distant independent television
stations. This copyright fee structure limits the extent to which cable
television systems are able to carry superstations. A reduction in competitive
superstations within the industry could increase distribution for UVSG's
superstations, as a replacement product, without increasing a cable operator's
overall copyright payments.
The Satellite Home Viewer Act of 1988 (the "SHVA") provides for a
"home satellite dish compulsory copyright license" for the retransmission of
network and superstation signals and programming to the home satellite dish
market. Under the terms of the SHVA, satellite carriers, such as Superstar,
are responsible for paying compulsory copyright fees to a federal copyright fee
collection agency for the sale of superstation signals. Negotiations of the
current copyright fees are in progress, with any change in rates effective no
later than July 1, 1997. The Satellite Home Viewer Act of 1994 extended the
home satellite dish compulsory license through the end of 1999.
III-38
<PAGE> 200
Legislation has been introduced from time to time to repeal the cable
compulsory license provision, although no such legislation has been passed by
Congress. Similar legislation will likely be introduced in the near future to
consider "reform" of both the cable and satellite compulsory license. At
Congress' request, the Copyright Office is currently conducting a review of
compulsory licensing for both the cable and satellite industries and will
develop legislative recommendations. The Copyright Report is expected to cover
many issues, including: (1) possible extension of the satellite compulsory
license under SHVA beyond December 31, 1999; (2) potential harmonization of the
cable and satellite compulsory licenses; and (3) extension of compulsory
licenses to new technologies, such as satellite carriers retransmitting local
signals, open video systems and the Internet. The Copyright Office conducted
hearings on these issues on May 6-9, 1997 and is expected to issue its report
and legislative proposals to Congress sometime in the summer of 1997. If
reform legislation is adopted, it could hinder or prevent UVTV from marketing
superstation services such as WGN.
The 1992 Cable Act, which provided substantial rate regulation for
certain services and equipment provided by most cable television systems in the
United States, may impair UVSG's ability to offer competitive rates and volume
discounts on certain of its products and services and may affect the rates
charged by Superstar to home satellite dish programming packagers. For
example, the FCC's "program access" rules prohibit certain satellite
programmers which are "affiliated" with certain types of Programming
Distributors (such as cable operators) from, among other things: (1)
discriminating in prices, terms, or conditions between various Programming
Distributors; and (2) entering into agreements with certain Programming
Distributors which provide for exclusivity, except in limited circumstances.
To the extent UVSG's programming is affiliated with Programming Distributors
covered by these rules, such programming is also subject to these rules.
Currently pending and upcoming FCC proceedings under the 1992 Cable
Act could further restrict channel capacity on DBS and cable systems.
Currently pending before the FCC is a rulemaking to implement provisions of the
1992 Cable Act that require DBS providers to devote 4-7% of their channel
capacity to informational and educational programming. In addition, the FCC
has indicated that it plans to initiate a proceeding to determine whether cable
operators are required to carry any or all of the digital signals delivered by
local broadcasters using the additional 6 MHz of spectrum recently awarded to
broadcasters by the FCC. To the extent the FCC's decisions in either or both
of these proceedings reduce the number of available channels for which cable or
DBS operators can select programming, the ability of UVSG programming to gain
or maintain carriage on such systems could be affected.
The 1996 Act requires the closed captioning of all video programming
other than programming which has received an exemption from the FCC. A
proceeding is currently underway at the FCC to establish closed captioning
rules and to determine which classes of program services will receive
exemptions. Prevue Networks requested such an exemption for the Prevue Channel
and Sneak Prevue, based on the primarily textual and promotional nature of the
programming. While the FCC's initial Notice tentatively concluded that
primarily textual and promotional advertising programming should be exempt, if
the FCC nonetheless denies Prevue Networks' exemption request, implementation
of closed captioning could add significant annual costs to Prevue Network's
business. The FCC is required to issue its closed captioning rules by August
8, 1997.
The 1996 Act will also affect UVSG indirectly by creating more
competition and less regulation within the video services marketplace. For
example, the 1996 Act authorized local exchange carriers to own and program
video distribution systems in their telephone service areas. At the same time,
the 1996 Act provides cable operators with greater pricing flexibility,
deregulates cable rates more quickly than under prior law, and adds a mechanism
for aggregating the costs for customer equipment in order to facilitate
deployment of digital technology. These legislative developments, in turn,
could increase the number of homes capable of receiving video services which
would result in an increase in the potential market for UVSG services.
Additional Information. UVSG is subject to the information
requirements of the Exchange Act and, in accordance therewith, files reports,
proxy and information statements and other information with the SEC (under SEC
file number 0-22662), all of which are available from the SEC in the manner
described above under "Available Information." In addition,
III-39
<PAGE> 201
the UVSG Class A Common Stock is quoted on the National Market tier of the
Nasdaq Stock Market under the symbol "UVSGA."
INTERNET SERVICES
@HOME
General. @Home is a leading provider of Internet services over the
cable television infrastructure to consumers and businesses. @Home was founded
by the Company and Kleiner, Perkins, Caufield & Byers ("KPCB"), a venture
capital firm, in March 1995. In August 1996, Comcast and Cox became investors
in @Home, and in April 1997, Rogers Cablesystems Limited ("Rogers") and Shaw
Cablesystems Ltd. ("Shaw") became investors in @Home. As of May 16, 1997, the
Company had approximately a 43% equity interest in @Home, which equity
represented a 75% voting interest. On May 16, 1997, @Home filed a registration
statement with the SEC with respect to a proposed initial public offering of
@Home Series A Common Stock (the "@Home IPO"). Such registration statement
contemplates the issuance and sale to the public of approximately 7% of @Home's
common equity. If the @Home IPO, as currently proposed, is consummated, the
Company's equity interest and voting power in @Home would be reduced to
approximately 39% and 72%, respectively.
@Home began commercial operation of the @Home service in September
1996 and currently offers two Internet services, @Home for residential
consumers and @Work for businesses. @Home's primary offering, the @Home
service, allows subscribers to connect their personal computers to the Internet
via the cable television infrastructure and a new high- speed "parallel
Internet" developed and managed by @Home. This service enables subscribers to
receive the "@Home Experience," which includes Internet service at peak data
transmission speeds 300 times faster than typical dial-up connections, "always
on" availability and rich multimedia programming through an intuitive graphical
user interface. The technology foundation of the @Home Experience is @Home's
scalable, distributed, intelligent network architecture (the "@Network"), which
optimizes traffic routing, improves security and consistency of service, and
facilitates end-to-end network management, enhancing @Home's ability to address
performance bottlenecks before they affect the user experience. The content
foundation of the @Home Experience is provided by @Home's @Media division,
which aggregates content, sells advertising to businesses and will provide
premium services to @Home subscribers. For businesses, @Home's @Work services
provides a platform for Internet, intranet and extranet connectivity solutions
and networked business applications over both cable infrastructure and leased
digital telecommunications lines. By combining @Network's distributed
architecture with cable, telephone and technology relationships, the @Work
services provide a compelling platform for nationwide delivery of network-based
business applications.
@Home was founded on the premise that the cable infrastructure could
provide the fastest, most cost-effective delivery mechanism for residential
Internet services but that the actual speed of these services would ultimately
be limited by the fundamental architecture of the Internet. As a result, @Home
assembled a team of industry experts to develop an advanced network
architecture and the custom hardware and software products that would address
these limitations. As of May 15, 1997, @Home had expended more than $57.7
million on capital expenditures and operating costs and expenses (including
deferred compensation) to design and build the @Network and the corporate
infrastructure necessary to support the rollout of the @Home and @Work
services. As of March 31, 1997, @Home had developed a nationwide backbone,
designed and implemented a Network Operations Center with end-to-end management
capabilities, deployed regional data centers in 12 geographic areas,
implemented an integrated customer management system including billing and
support, implemented a customized browser and aggregated the initial multimedia
content required to deliver the @Home service to subscribers.
The @Network is a scalable, distributed, intelligent network
architecture that combines a private high-speed nationwide backbone with
distributed caching. Caching moves frequently accessed information close to the
user to avoid multiple transmissions of the same data over the backbone. The
@Network is an end-to-end network solution, enabling @Home to manage the
network 24 hours a day from a central Network Operations Center and enhancing
its ability to
III-40
<PAGE> 202
address performance bottlenecks before they affect the user experience. All
elements of the @Network are readily scalable, enabling it to provide
sustainable high performance as usage increases.
@Home Service. @Home's primary offering, the @Home service, allows
subscribers to connect their personal computers to the Internet via the cable
television infrastructure and a new high-speed "parallel Internet" developed
and managed by @Home. The @Home service is a comprehensive Internet solution
that leverages the two-way hybrid fiber coaxial ("HFC") cable television
infrastructure and @Home's technological and programming capabilities to
provide the @Home Experience, which @Home believes is the most compelling
consumer Internet experience currently available. By connecting via a cable
modem to the @Network through the local cable infrastructure, @Home
subscribers' personal computers can achieve peak data transmission speeds over
two-way HFC cable of 10 Mbps, over 300 times faster than typical dial up
connections. This high bandwidth is critical for enabling sophisticated
multimedia applications, advertising, online commerce and online interactive
games. In addition, the cable infrastructure is "always on," providing
instantaneous access to the Internet and eliminating the need for a tedious
dial-up procedure using the telephone network.
@Home's programming services, provided by the @Media division, enhance
the @Home Experience by aggregating high-quality and compelling multimedia
content available on the Internet and delivering this content through an
intuitive graphical user interface. The cornerstone of this programming is the
@Home Guide, the user's guide to the high-quality multimedia content on the
Web. The @Home Guide is organized around a series of "channels," which are
defined by both topical subjects (such as news, technology, sports or popular
culture) and audiences (such as children, game players or shoppers). @Home
believes the @Home Guide broadens the appeal of online services beyond
technology enthusiasts to the mass market by simplifying navigation, increasing
the subscriber's knowledge of Internet resources, presenting compelling
high-bandwidth content with animated graphics, near-CD-quality audio and video
clips, and stimulating persistent usage by promoting current events and
interesting new services.
@Home has entered into distribution arrangements for the @Home service
with seven leading cable companies in North America: TCI, Comcast, Cox, Rogers,
Shaw, Marcus Cable Operating Company, L.P. and InterMedia Partners IV L.P.
These seven cable companies (collectively, the "@Home Cable Partners") operate
cable systems which pass approximately 44 million homes in North America.
@Home believes that approximately two million of these homes are currently
passed by upgraded two-way HFC cable. Subject to certain exceptions, TCI,
Comcast and Cox (the "@Home Principal Cable Stockholders") have granted @Home
the exclusive right to be the provider of high-bandwidth residential consumer
Internet services over their cable systems for an agreed period. (The TCI
entity which will be the distributor of the @Home services will continue to be
a member of the TCI Group, and the assets and business of such entity will not
be including in the TCI Ventures Group). In March 1997, @Home entered into
exclusive arrangements for the distribution of its @Home service under the name
"Wave@Home" in Canada through Rogers and Shaw, two of the leading cable system
operators in Canada. Through Rogers and Shaw, which have the right to
redistribute the Wave@Home service to other cable system operators in Canada,
@Home expects to expand the distribution of its service in Canada.
Transmission of the @Home service over cable is dependent on the
availability of two-way HFC cable infrastructure. The @Home Cable Partners
have announced plans to complete the upgrade to two-way HFC of a majority of
the homes passed in their cable systems within five years. However, cable
system operators have limited experience with these upgrades, and these
investments have placed a significant strain on the financial, managerial,
operating and other resources of the @Home Cable Partners and other cable
system operators, most of which are already highly leveraged, and thus have
been, and @Home expects will continue to be, subject to change, delay or
cancellation. Although @Home's commercial success depends on the successful and
timely completion of these infrastructure upgrades, the @Home Cable Partners
are under no obligation to @Home to upgrade systems or to roll out, market or
promote @Home's services. In addition, none of the @Home Cable Partners has
agreed to any specific schedule for rolling out two-way HFC cable
infrastructure improvements, and the @Home Cable Partners are not contractually
required to achieve any specific rollout schedule. Although there are no
contractual obligations relating to the upgrade of their cable systems, TCI,
Comcast and Cox have agreed, subject to certain exceptions, that @Home will be
their exclusive provider of high speed residential Internet access services
during the period ending June 4, 2002.
III-41
<PAGE> 203
Specifically, each @Home Principal Cable Stockholder has agreed not to
conduct, participate in or have a material beneficial ownership in any business
within the United States (a "Restricted Business") that involves (a) the
provision of a residential Internet service over the cable television plant of
the @Home Principal Cable Stockholder at data transmission speeds greater than
128 kilobits per second ("Kbps") and whose primary purpose is the provision to
consumers of entertainment, information content, transactional services or
electronic mail, chat and news groups (a "Consumer Purpose"), (b) the
connection by the @Home Principal Cable Stockholder of its cable television
plant directly or indirectly to any Internet backbone for a Consumer Purpose at
data transmission speeds greater than 128 Kbps or (c) the provision of an
Internet backbone service. These exclusivity provisions do not apply to (i) the
creation or aggregation of content, (ii) the provision of telephony services,
(iii) the provision of services that are primarily work-related such as the
@Work services, (iv) the provision of Internet services that do not use the
@Home Principal Cable Stockholders' cable television plant, (v) the provision
of any local Internet service that does not require use of an Internet backbone
except within a single metropolitan area, (vi) the provision of services that
are utilized primarily to connect students to schools, colleges or
universities, (vii) the provision of Internet telephony, Internet video
telephony or Internet video conferencing, (viii) the provision of certain
limited Internet services for display on a television, (ix) the provision of
certain Internet services that are primarily downstream services where the user
cannot send upstream commands in "real-time," (x) the provision of streaming
video transmissions that include video segments longer than ten minutes in
duration or (xi) limited testing, trials and similar activities. These
exclusivity provisions may be terminated under certain circumstances, including
a change of control of TCI or the failure of TCI to achieve certain subscriber
penetration levels for the @Home services by June 4, 1999 or any anniversary
thereof. Until the later of (i) such time as the applicable @Home Principal
Cable Stockholder ceases to be obligated under the exclusivity provisions set
forth above or (ii) if the exclusivity provisions are terminated by reason of
TCI's failure to meet specified subscriber penetration requirements, June 4,
2002, @Home has agreed not to offer or provide Internet services at data
transmission speeds greater than 128 Kbps to residences in the geographic area
served by the cable systems of such @Home Principal Cable Stockholder that
remains in compliance with the exclusivity provisions, subject to certain
conditions. These exclusivity provisions bind TCI and its controlled
affiliates, which will include the TCI Group entity which will be the
distributor of the @Home service.
As of May 15, 1997, @Home had launched the @Home service through TCI,
Comcast and Cox in portions of 12 cities and communities (of which 10 have
revenue-paying subscribers) in the United States and had approximately 5,000
subscribers. In the second half of 1997, @Home plans to integrate its @Home
service with the "Wave" interactive service currently provided by Rogers and
Shaw to approximately 5,000 subscribers in Canada. Subscribers of @Home
subscribe to its services through local cable operators affiliated with the
@Home Cable Partners (the "Affiliated LCOs") and thus the Affiliated LCOs
substantially control the customer relationship with the subscriber. Each
Affiliated LCO has complete discretion regarding the pricing of the @Home
service to subscribers in its territory (except for certain premium services
for which @Home contracts directly with the subscriber). @Home currently
receives a revenue split of 35% of subscriber revenue collected by the
Affiliated LCOs. Each @Home Principal Cable Stockholder and its Affiliated
LCOs are entitled to "most favored nation" terms and conditions of carriage
with respect to the distribution of @Home's services.
To expand distribution, @Home is aggressively seeking to work with
additional United States and international cable system operators. In order to
shorten time to market for cable operators, @Home provides a turnkey solution,
which includes not only technology platform, but also marketing, customer
service, billing and a national brand. @Home is also exploring alternative
delivery mechanisms such as the use of telephone return and the use of
high-speed telecommunications services for multiple dwelling units.
@Work Services. @Work services provide a platform for corporate
Internet, intranet and extranet connectivity solutions and have the ability to
provide a series of networked business applications over both HFC cable and
leased digital telecommunications lines that leverage the @Network. In order to
accelerate deployment of @Work services into metropolitan areas, @Home has
established a strategic relationship with Teleport, the country's largest CLEC,
to provide targeted co-location facilities and local telephone circuits for
infrastructure and subscriber connectivity. (TCI's 30% equity interest in
Teleport is also included in the TCI Ventures Group). By combining @Network's
distributed architecture with cable, telephone and technology relationships,
the @Work services provide a compelling platform for nationwide delivery
III-42
<PAGE> 204
of network-based business applications. @Home has developed this platform at a
low incremental cost by leveraging its existing @Network investment.
@Home offers @Work Internet service and plans to offer @Work Remote
services. The @Work Internet service delivers dedicated, high-speed,
end-to-end managed Internet connectivity to commercial enterprises over both
local telephone circuits and HFC cable. The @Work Internet service is
currently available in five major metropolitan markets: Chicago, Hartford, San
Diego, the San Francisco Bay Area and Seattle. As of May 15, 1997, @Home was
receiving revenue from five @Work Internet customers and had agreements with
more than 50 additional business customers to begin to install the service.
@Home's @Work Remote service offers secure, high-speed telecommuting solutions
via HFC cable and virtual private networks among remote users, branch offices
and a corporate local area network. The @Work Remote service includes the
network equipment and software needed to connect the corporate local area
network securely to the @Network via high-bandwidth local telephone circuits.
@Home is currently negotiating arrangements with the @Home Cable Partners to
offer the @Work Remote service over the cable infrastructure for telecommuters.
@Media Services and Technologies. The @Media division provides the
programming services that aggregate the high-quality and compelling multimedia
content delivered through the @Home Guide described above. In addition, the
@Media division sells advertising and, in partnership with content providers,
packages advertising-supported transaction and premium services which it will
offer to @Home subscribers. Advertisers and content providers can utilize
@Media technologies that enable them to exploit the high-bandwidth, multimedia
capabilities of the @Network. The @Media division sells advertising through
the "B*box," a broadband audio/video advertising space located in the @Home
Guide. With the B*box, advertisers are not constrained by the Web banner
paradigm and can broaden their creative presentation using video clips,
near-CD-quality audio and animation. @Home has a broad range of
revenue-generating advertisers, including CondeNet, General Motors, InsWeb,
Toyota and Unilever. Advertisers have reported response rates (click- throughs)
substantially greater than they currently experience with traditional Web
banner advertisements. @Home believes that advertisers' ability to present more
compelling messages to online users will lead to advertising rates greater than
those charged for banner advertising on the Web. @Home retains 100% of all
national advertising revenue delivered on the @Home service, but Affiliated
LCOs retain 100% of revenue generated from local service offerings that relate
to programming within the local areas of the browser for the @Home service,
such as revenue from local advertising.
@Home believes that growth in its subscriber base will be critical to
attracting advertisers. In addition to traditional sales and marketing efforts,
@Home has developed a variety of compelling programming services delivered
through the @Home Guide in order to drive incremental subscriber penetration.
In addition to receiving advertising fees, the @Media programming services
provide a variety of revenue sources. Examples of @Media programming services
include real-time news and entertainment services, enhanced search and
directory services, near CD quality digital audio services, the ability to
purchase and download software titles at speeds substantially faster and with
greater reliability than a typical dial-up modem, the ability to download and
play popular Internet games against other online players, and interactive
shopping.
The @Media division offers a series of technologies to advertisers
and content providers in delivering compelling multimedia advertising and
premium services, including technologies which enable @Home's content partners
to: place copies of their content and applications locally on the @Network;
connect directly to @Home's high-speed network without traversing the congested
Internet; and deliver advertising, content and services such as continually
updated news and sports information, from one source to many subscribers
simultaneously.
Competition. The markets for consumer and business Internet services
and online content are extremely competitive, and @Home expects that
competition will intensify in the future. @Home's most direct competitors in
these markets are Internet service providers ("ISPs"), national long distance
carriers and local exchange carriers, wireless service providers, online
service providers ("OSPs") and Internet content aggregators. Many of these
competitors are offering (or may soon offer) technologies that will attempt to
compete with some or all of @Home's high-speed data service offerings. Such
technologies include Integrated Services Digital Network ("ISDN") and Digital
Subscriber Line ("DSL"). @Home also competes with other cable-based data
services that are seeking to contract with cable system operators to bring
their services into geographic areas that are not covered by an exclusive
relationship between @Home and the @Home Principal
III-43
<PAGE> 205
Cable Stockholders. The bases of competition in these markets include
transmission speed, reliability of service, ease of access, price/performance,
ease-of-use, content quality, quality of presentation, timeliness of content,
customer support, brand recognition, operating experience and revenue sharing.
@Home believes that it compares favorably with its competitors with respect to
each of these factors, except brand recognition, which @Home is starting to
build. However, many of @Home's competitors and potential competitors have
substantially greater resources than @Home, and there can be no assurance that
@Home will be able to compete effectively in its target markets.
ISPs provide basic Internet access to residential consumers and
businesses, generally using existing telephone network infrastructures. This
method is widely available and inexpensive, but performance is limited.
Barriers to entry are low, resulting in a highly competitive and fragmented
market.
Long distance IXCs and RBOCs and other local exchange carriers have
deployed large-scale Internet access networks and sell connectivity to business
and residential customers. Many of such carriers are offering diversified
packages of telecommunications services, including Internet access service, to
residential customers and could bundle such services together, which could
place @Home at a competitive disadvantage.
Wireless service providers are developing wireless Internet
connectivity, such as MMDS, local multipoint distribution service ("LMDS") and
DBS. MMDS and LMDS are not yet available, will require radio frequency
spectrum auctions before service is possible, and will require an entirely new
distribution infrastructure and new equipment including specialized modems.
OSPs include companies such as America Online, Inc. ("America
Online"), CompuServe Corporation ("CompuServe"), and Microsoft Corporation's
("Microsoft") Microsoft Network ("MSN") that provide, over the Internet and on
proprietary online services, content and applications ranging from news and
sports to consumer video conferencing. These services are designed for broad
consumer access over telecommunications-based transmission media, which enables
the provision of data services to the large group of consumers who have
personal computers with modems. In addition, they provide basic Internet
connectivity, ease-of-use and consistency of environment.
Internet content aggregators seek to provide a "one-stop" shop for
Internet and online users. Leading companies in this area include America
Online, CompuServe, Excite, Inc., Microsoft and Yahoo! Inc. In this market,
competition occurs in acquiring both content providers and subscribers. The
principal bases of competition in attracting content providers include quality
of demographics, audience size, cost-effectiveness of the medium and ability to
create differentiated experiences using aggregator tools. The principal bases
of competition in attracting subscribers include richness and variety of
content and ease of access to the desired content. The proprietary online
services such as America Online, CompuServe and MSN have the advantage of a
large customer base, industry experience, many content partnerships and
substantial resources.
@Home's competitors in the cable-based services market are those cable
companies that have developed their own cable-based services and market those
services to unaffiliated cable system operators that are planning to deploy
data services. Several cable system operators, including Time Warner Inc.
("Time Warner") and the Continental Cablevision subsidiary of US WEST, have
deployed high-speed Internet access services over their existing local HFC
networks. Specifically, Time Warner, the second largest cable company in the
United States, has established its own cable-based ISP with proprietary content
service, called Road Runner. Time Warner plans to market the Road Runner
service through Time Warner's own cable systems as well as to other cable
system operators nationwide. Continental Cablevision has developed another
service called Highway One, which offers high-speed Internet services to its
existing customers. Others that have publicly announced limited-area trials
for their own cable-based Internet services include Adelphia Communications
Corporation, BellSouth Corporation and Jones Intercable, Inc. Some of these
companies such as Time Warner have their own substantial libraries of
multimedia content, which could provide them with a significant competitive
advantage.
Many of @Home's competitors and potential competitors in the Internet
industry have substantially greater financial, technical and marketing
resources, larger subscriber bases, longer operating histories, greater name
recognition
III-44
<PAGE> 206
and more established relationships with advertisers and content and application
providers than @Home. Such competitors may be able to undertake more extensive
marketing campaigns, adopt more aggressive pricing policies and devote
substantially more resources to developing Internet services or online content
than @Home. There can be no assurance that @Home will be able to compete
successfully against current or future competitors or that competitive
pressures faced by @Home will not materially adversely affect @Home's business,
operating results or financial condition. Further, as a strategic response to
changes in the competitive environment, @Home may make certain pricing, service
or marketing decisions or enter into acquisitions or new ventures that could
have a material adverse effect on @Home's business, operating results or
financial condition.
Government Regulation. Although @Home's services are not directly
subject to current regulations of the FCC or any other federal or state
communications regulatory agency, changes in the regulatory environment
relating to the Internet connectivity market, including regulatory changes
that, directly or indirectly, affect telecommunications costs, limit usage of
subscriber-related information or increase the likelihood or scope of
competition from the RBOCs or other telecommunications companies, could affect
the prices at which @Home may sell its services. For example, proposed
regulations by the FCC would require discounted Internet connectivity rates for
schools and libraries, which would limit revenue without reducing related
costs. @Home cannot predict the impact, if any, that future regulation or
regulatory changes might have on its business. In addition, regulation of cable
television rates may affect the speed at which the @Home Cable Partners upgrade
their cable infrastructures to two-way HFC. Currently, the Affiliated LCOs of
the @Home Principal Cable Stockholders have generally elected to classify the
distribution of @Home's services as "additional cable services" under their
respective franchise agreements, and to pay franchise fees in accordance
therewith. Local franchise authorities may attempt to subject the Affiliated
LCOs to higher or other franchise fees or taxes or otherwise seek to require
them to obtain additional franchises in connection with their distribution of
the @Home services. There are thousands of franchise authorities in the United
States alone, and thus it will be difficult or impossible for @Home, the @Home
Cable Partners or their Affiliated LCOs to operate under a unified set of
franchise requirements. It is possible that governmental authorities may
attempt to impose additional fees or regulations on Affiliated LCOs carrying
@Home's services. In the event that the FCC or another governmental agency were
to classify the cable system operators as "common carriers" of Internet
services, or cable system operators were to seek such classification as a means
of protecting themselves against liabilities, @Home's rights as the exclusive
ISP over the systems of certain of the @Home Cable Partners could be lost. In
addition, if @Home, the @Home Cable Partners or their Affiliated LCOs were
classified as common carriers, they could be subject to government-regulated
tariff schedules for the amounts they could charge for their services. Rogers
and Shaw have informed @Home that, due to certain Canadian regulations, they
are required to provide access to their respective networks to third-party
ISPs, and that therefore @Home's services may not have exclusive access to such
networks. To the extent @Home increases the number of foreign jurisdictions in
which it offers its services, @Home will be subject to additional governmental
regulation.
Management. The Company currently owns an approximate 43% equity
interest in @Home. This interest includes ownership of all of the outstanding
stock of a class of stock which carries ten votes per share, giving the Company
an approximate 75% voting interest in @Home. Pursuant to the @Home certificate
of incorporation and based on current stock ownership, the Company currently
has the right to elect 8 of the 11 directors, and each of Comcast, Cox, and
KPCB has the right to elect one director. However, TCI, Cox, Comcast, and KPCB
(collectively, the "@Home Principal Stockholders") have agreed to elect one
joint designee of Rogers and Shaw and the chief executive officer of @Home as
directors of @Home, and thus the Company only has the power to elect 6 TCI
designees. Although TCI has the right to elect a majority of the @Home
directors, pursuant to the @Home charter, certain significant corporate actions
(such as amendments to @Home's charter, a merger of @Home, and certain other
business matters) may be taken only if such actions are approved by a
supermajority or, in certain cases, unanimous vote of the directors designated
by TCI, Comcast, Cox and KPCB. In addition, the Company and the other @Home
Principal Stockholders and @Home have entered into a stockholders agreement
(the "@Home Stockholders Agreement"), which, with certain exceptions, restricts
transfers of @Home securities by @Home Principal Stockholders until the
earliest to occur of (i) June 4, 2006, (ii) the fifth anniversary of the
termination of any @Home Principal Cable Stockholder's exclusive distribution
arrangements with @Home and (iii) the sixth anniversary of @Home's initial
public offering ("IPO"). Following the first anniversary of @Home's IPO, each
@Home Principal Stockholder will be permitted to sell its @Home securities in
the public market, subject to a right of first
III-45
<PAGE> 207
offer of the other @Home Principal Stockholders. The restrictions on transfer
do not apply to the sale of a controlling interest in @Home, but such sale is
subject to certain tag-along rights of certain other stockholders of @Home.
The @Home Stockholders' Agreement also provides that, if the number of homes
passed by an @Home Principal Cable Stockholder's cable systems that are subject
to (or have been released from) the exclusive distribution obligations to @Home
falls below a specified level, then such @Home Principal Cable Stockholder must
offer to sell a proportionate amount of its @Home securities to the other @Home
Principal Stockholders. Each @Home Principal Stockholder also has preemptive
rights to purchase its pro rata portion of any new equity securities offered by
@Home, subject to certain conditions and exceptions, including exceptions for
securities issued pursuant to a public offering. If @Home's IPO has not
occurred by June 4, 2001, KPCB has the right (the "KPCB Put") on an annual
basis from the year 2001 through the year 2005 to cause TCI to purchase KPCB's
shares of @Home at an appraised fair market value, and TCI has the right (the
"TCI Call") to purchase all of KPCB's shares of @Home during the same periods
at an appraised fair market value. Comcast and Cox have the right to
participate in the KPCB Put or the TCI Call on the same terms and conditions.
@Home has filed a registration statement for its initial public
offering with the SEC and anticipates that such offering will be consummated in
the third quarter of 1997, although there can be no assurance that the IPO will
occur within that time frame, or at all. In the event the @Home IPO is
consummated, the management structure of @Home will be substantially the same as
prior to the IPO, except that instead of each of Cox and Comcast being each able
to elect its respective director designee under @Home's charter, TCI will be
required to elect their designees under the @Home Stockholders Agreement and
except that the holders of @Home's series a common stock will have the right to
elect two outside directors of @Home (the "Series A Common Stock Directors").
Immediately following the IPO, TCI, together with Comcast or Cox are expected to
have the ability to elect both of the Series A Common Stock Directors. Because
the Series A Common Stock Directors are required to be independent directors and
because the @Home Principal Stockholders will continue to be obligated to elect
@Home's chief executive officer and the joint designee of Rogers and Shaw as
directors, it is expected that TCI will only be entitled to elect its inside
representatives to 4 of the 11 @Home director positions. However, following the
IPO the @Home charter will provide that substantially all matters will require
the approval of both a majority of the @Home board and a committee of directors,
of which TCI's inside directors will have a majority, and TCI's inside directors
will also have the power, exercisable at any time without a meeting of the @Home
stockholders, so long as TCI holds a majority of the voting power of @Home, to
increase the size of the @Home board to up to 17 directors and to elect up to 6
additional directors to fill any vacancies created by the increase, thereby
increasing its inside appointees to 10 members, constituting a majority of the
@Home board.
OTHER INVESTMENTS.
In addition to its interests in @Home, the TCI Ventures Group's
Internet-related assets also include: TCI's 7% interest in Sportsline USA,
Inc., an Internet provider of branded interactive sports information,
programming and merchandise; an 12% interest in iVillage, Inc., a developer of
and Internet and on-line provider of branded communities and information
services pertaining to parenting, careers and personal health; a 15% interest
in Interzine Productions, Inc., a provider of interactive sports programming
and information services on the Internet; 405,000 shares of common stock
(representing less than a 1% interest) of Netscape Communications Corporation
("Netscape"), a developer of Internet and intranet software; and a 7% interest
in KPCB Java Fund, L.P., a company which invests in companies that develop Java
applications for the Internet. Netscape is traded on the National Market tier
of The Nasdaq Stock Market under the symbol "NSCP".
OTHER ASSETS
OVERVIEW
In addition to the ventures and businesses mentioned above, the TCI
Ventures Group contains other assets of TCI, including (i) an 80% interest in
ETC, a developer and distributor of a wide range of for-profit education,
training and
III-46
<PAGE> 208
communication services and products, (ii) NDTC, a wholly owned subsidiary of
TCI, which provides digital compression and authorization services to
programming suppliers and to video distribution outlets, and (iii) Summitrak, a
wholly owned subsidiary of the Company which provides an integrated
network-based information management system. NDTC and Summitrak both currently
provide their services to TCI, its subsidiaries or affiliates. In addition,
both of such companies either currently, or expect in the future to, market
their services to third parties.
ETC W/TCI, INC.
The TCI Ventures Group includes the Company's 80% equity interest in
ETC w/tci, Inc., which is a developer and distributor of a wide range of
for-profit education, training and communication services and products for
customers at school, at work and at home. The TCI Ventures Group also includes
(i) the Company's interest in ETC's Series A Cumulative Redeemable Preferred
Stock which currently has a liquidation value of approximately $34 million and
(ii) certain debt obligations of ETC to TCI in an aggregate amount of
approximately $82 million at March 31, 1997. Formed in February 1996 to
consolidate the investments and initiatives the Company has made in the
education industry over the past 15 years, ETC manages these investments and
initiatives, creates synergies among them, and develops complementary new
businesses which can be distributed across the Company's existing and
developing distribution infrastructure.
ETC's current investments include: (i) a 95% interest in CareerTrack,
Inc. ("CareerTrack"), a training company which is a leader in the development,
marketing and production of business and educational seminars and related
publications targeting mid-level corporate managers; (ii) an 80% interest in
National School Conference Institute, Inc. , a training company which is a
leading provider of public seminars and satellite-delivered staff development
programming for educators; (iii) a 50% interest in Ingenius, a general
partnership which develops and distributes interactive multimedia current
events programming using satellite, cable television and Internet distribution
channels; (iv) an approximately 11% interest in The Lightspan Partnership,
Inc., a venture capital-financed, start-up company which develops and markets
innovative, curriculum-based, interactive reading, language arts and
mathematics programming for K-6 schools; and (v) an approximately 10% interest
in Academic Systems Corporation, a venture capital-financed, start-up company
which provides multimedia instructional materials for higher education. ETC
has agreed to acquire the remaining 50% of Ingenius which it does not already
own, which transaction is expected to close in the second quarter of 1997,
although there can be no assurance that such transaction will be consummated.
ETC's other major current initiatives include: (i) customized
technology solutions for school customers whereby ETC performs a feasibility
study to assess the needs of such customers and then recommends and implements
customized technology solutions for such customers, which may include wide and
local area networks, hardware, software, programming, Internet connectivity,
professional development, and support and maintenance; and (ii) single and
multi-day courses in educational technology taught at one of ETC's two
Educational Technology Centers located in Denver, Colorado and Washington, D.C.
ETC works closely with the National Education Association, the
American Federation of Teachers, the American Association of School
Administrators, the National School Boards Association and the National
Association of Secondary School Principals in developing and distributing ETC's
educational technology services and products.
ETC's business is divided into two separate divisions, Training and
Education. The Training Division concentrates primarily on the commercial
training market, including vocational and technical training, as well as
continuing adult education. Currently, ETC is structuring the Training Division
around CareerTrack, through which it markets various commercial training
services and products. The Education Division concentrates primarily on the
K-12 education market, including both public and private schools, but also
plans to address pre-kindergarten, post-secondary and home-school markets. The
services and products delivered by the Education Division consist of customized
technology solutions, staff development, professional development, software and
programming. In addition, ETC has recently undertaken additional activities to
(i) expand its products and services to focus on the rapidly growing small
business market, a sector which management believes has been underserved by
traditional training companies from an on-going training and education
perspective and (ii) facilitate the delivery of the services and products of
ETC to international customers.
III-47
<PAGE> 209
NATIONAL DIGITAL TELEVISION CENTER, INC.
General. NDTC, a wholly-owned subsidiary of the Company, provides a
wide range of analog and digital television services, including the digital
compression of television and multimedia programming, satellite uplinking,
transponder management, primary origination, production, and post-production
services, and the encryption and authorization of transmitted signals,
primarily to television programming suppliers and satellite distributors ("NDTC
Video Services"). Using a combination of these capabilities, NDTC also supplies
a package of television programming signal transport and addressable set-top
authorization services directly to cable systems ("Headend in the Sky" or
"HITS"). NDTC's primary facility is located in Littleton, Colorado where it has
two uplink transmitters, studios and other property and equipment sufficient to
provide the full range of its services. NDTC also has specialized facilities in
New York and, more recently, Hong Kong, which are primarily used for
post-production and origination services and also have uplinking capabilities,
and in Hollywood, which is primarily used for production and post-production
services.
NDTC's customers include television programmers, cable operators, and
satellite distributors, such as Primestar Partners L.P., Encore Media
Corporation, Liberty/Fox Regional Sports, L.L.C. and Discovery Communications,
Inc. The Liberty Media Group has interests in each of Encore Media Corporation,
Liberty/Fox Sports Regional Sports, L.L.C. and Discovery Communications, Inc.
NDTC derives a substantial portion of its revenue from companies that are
affiliated with TCI. For the year ended December 31, 1996, revenue from
services provided to TCI and its consolidated subsidiaries was $25 million or
34% of NDTC's total revenue for 1996. NDTC has been, and intends to continue,
seeking to expand its customer base to increase the number of unaffiliated
customers over time.
NDTC, working with a variety of new technologies, has implemented
statistical multiplexing of digitally compressed video signals. This technology
significantly increases the number of digital program signals that can be
transmitted simultaneously over a single satellite transponder or 6MHz cable
channel, thus effectively increasing the digital compression ratio. NDTC
believes that one effect of a successful implementation of such technologies
may be to increase and expand NDTC's customer base as the cable industry and
other television service providers (such as owners of SMATV and MMDS systems)
seek to increase the channel capacity of their transmission systems. Additional
technological innovations in the area of statistical multiplexing hold promise
for even higher compression ratios, while maintaining the quality of high
definition pictures; however, there can be no assurance that such additional
technology innovations will be successfully implemented.
NDTC has obtained both long and short term leases for 34 transponders
that are located on various satellites owned and operated primarily by four
satellite companies. Certain of the transponder leases are for fixed terms
while others have terms through the operational life of the respective
satellites; however, all of such transponder leases are expected to expire
between 1998 and 2006. In general, the transponder leases are either fully
protected or contain certain preemption rights if a transponder is deemed a
failure, as defined in the contracts. NDTC believes there currently is
reasonably sufficient transponder space available to satisfy its needs for the
foreseeable future, even in the event that a transponder preemption occurs,
which NDTC believes is unlikely.
NDTC Video Services. NDTC markets and provides NDTC Video Services
primarily to programming suppliers, which include several in which the Company
holds interests as well as third party content providers. Such services usually
consist of the digital compression and encryption of programming signals,
satellite uplinking, transponder management, and primary origination,
production, and post-production. Customers may contract for one or more of the
NDTC Video Services or for the full range of services offered. The NDTC Video
Services currently provided to affiliated companies are governed by agreements
which have been negotiated on a basis which approximates an arm's-length basis
and the material terms of which are substantially the same as those governing
relationships with third parties, except as appropriate to take into account
volume differences. Generally, NDTC Video Services contracts have a term of six
years and are terminable by the customers upon payment of significant early
termination fees. The majority of the NDTC Video Services contracts have
remaining terms of at least four years.
HITS Services. NDTC's HITS services consist of the transmission of
compressed and encrypted digital programming signals to addressable set-top
boxes and the authorization of such boxes. HITS provides cable operators and
other television service providers with securely encrypted signals and the
ability to control viewer access all the way to the subscriber set-top box from
a single national location, thereby reducing the need for costly local staffing
and headend equipment. HITS enables cable system operators to provide their
subscribers with new digital tiers composed of new cable television networks,
movie multiplexes and pay-per-view services, while maintaining the same analog
service they currently provide.
During the fourth quarter of 1996, NDTC began offering HITS
commercially. TCIC, which is included in the TCI Group, is presently utilizing
HITs in a few of TCIC's major markets, and TCIC intends to expand its use of
HITS to a substantial number of additional markets by the end of 1997.
Contracts related to HITS for authorization and transmission services are
currently under negotiation with a number of affiliated and unaffiliated
customers, including TCIC. These negotiations are being carried out on an
arm's-length basis and it is expected that the material terms made available to
the TCI Group will be substantially the same as those provided to unaffiliated
third parties, but will include pricing on a most favored nations basis due to
the importance to NDTC of the TCI Group's large customer base.
Competition. NDTC Video Services, specifically the transmission,
production and post-production services are highly competitive. There are a
number of well established competitors located in both the east and west coasts,
which have been in existence significantly longer than the NDTC and may have an
established customer base. HITS authorization and transport services compete
with locally operated authorization controllers, purchased from the same vendor
as are the set-top terminals, and with programmers who provide their own digital
signals transport. There can be no assurance that HITS service will achieve
significant market penetration beyond the TCI affiliated companies.
Regulatory Environment. NDTC is not directly regulated, but may be
indirectly impacted by regulation of its customers in the cable industry. It
should also be noted that the expansion of channels enabled by NDTC can provide
cable operators with an opportunity to increase unregulated revenue.
SUMMITRAK
Summitrak is wholly-owned by TCI and is a development stage business
which is in the process of developing and testing its software based customer
management and marketing tool designed to support the delivery of cable,
telephony and Internet access products. Summitrak will offer a suite of
networked software providing integrated business management, customer
information and customer care. The software supports customer service
representatives, dispatch and workforce management, billing, inventory control,
marketing support and set-top box or converter activation. Summitrak's two
largest components are for billing and marketing. Summitrak's billing module
calculates and produces billing statements. The marketing database is capable
of generating lists cross-referenced to various factors, allowing for marketing
campaigns to be targeted to best suit a customer's profile. Summitrak's
product development is substantially complete for video and Internet
applications and Summitrak is currently beta testing its integrated information
management system for a small number of TCI's local cable systems. At
present, Summitrak has no agreement with the TCI Group and the TCI Group is
only utilizing Summitrak on a test basis. If Summitrak is used by the TCI
Group on a commercial basis, it is intended that the TCI Group will purchase
such services at market rates negotiated on a basis that is intended to
approximate an arm's length basis. Upon completion of development and testing,
Summitrak will also make its services available commercially to non-affiliated
cable companies and other communication service providers on an outsourcing
basis or licensing arrangement.
DIGIVENTURES, LLC
DigiVentures, LLC ("DigiVentures") is a joint venture formed in
December 1996 by the Company and Babcock & Brown Financial Corporation, which
venture was established for the purpose of leasing digital set top boxes from
third parties to sublease such equipment to the TCI Group and other third
parties. Currently, DigiVentures leases certain equipment to the TCI Group
which DigiVentures purchased from General Instruments, Inc. In the future,
DigiVentures intends to lease equipment from third parties and then sublease
such equipment to the TCI Group and other third parties. The lease rates that
have been established and that the parties currently intend to use for future
leases between the TCI Group and DigiVentures are commensurate with market rates
given the TCI Group's size and credit worthiness, and as such, approximate the
rates that would be charged by unaffiliated third parties. The TCI Ventures
Group would be attributed the Company's 99% interest in DigiVentures. Babcock &
Brown Financial Corporation holds a 1% interest in the venture, but it has
significant control rights.
OTHER INVESTMENTS
The TCI Ventures Group also contains interests in the following
additional technology-related assets; an 9% interest in Acclaim Entertainment,
Inc. ("Acclaim"), a leading publisher of interactive entertainment software; a
16% interest in Antec Corporation ("Antec"), a communications company
specializing in the design, manufacture and distribution of products for hybrid
fiber/coax broadband networks; a 25% interest in MCNS Holdings, L.P., a joint
venture established for the purpose of developing and implementing technologies
for upgrades and expansions to the telecommunications systems of its partners;
a 100% interest in TCI TVGOS, Inc., which holds an undivided interest with one
other company to the intellectual property rights previously owned by TV Guide
on Screen, a joint venture formed to develop programming guides, which has been
dissolved; and Intessera, a wholly owned subsidiary of TCI that develops
database management software and offers back office support to its customers.
Each of Acclaim and Antec are traded on the National Market tier of The Nasdaq
Stock Market under the symbols "AKLM" and "ANTC," respectively.
III-48
<PAGE> 210
ANNEX IV
ILLUSTRATION OF CERTAIN TERMS
The following illustrations demonstrate the method of calculation of
any Inter-Group Interest in the TCI Ventures Group which the TCI Group may
create following the Exchange Offers, and the application of certain terms of
the TCI Ventures Group Stock Proposal based on the assumptions set forth herein
and using 825 million shares as the number of authorized shares of TCI Ventures
Group Common Stock, 160 million shares as the number of shares of TCI Ventures
Group Common Stock issued in the Exchange Offers (the "Outstanding Shares of
TCI Ventures Group Stock"), zero as the Number of Shares Issuable with Respect
to the TCI Ventures Group Inter-Group Interest immediately following the
Exchange Offers and 30 million shares as the number of TCI Ventures Group
Common Stock issuable upon the exchange of Pre- Exchange Offer Securities.
Unless otherwise specified, each illustration below should be read
independently as if none of the other transactions illustrated in this Annex IV
had occurred. Actual calculations may be slightly different due to rounding.
The following illustrations are not intended to be complete and are qualified
in their entirety by the more detailed information contained in the Proxy
Statement and the other Appendices thereto. Please note that the following
illustrations are purely hypothetical and the numbers used herein (including
assumptions of market values) were chosen to simplify the calculations and are
not intended to represent estimates of actual numbers or values. Capitalized
terms used herein have the respective meanings ascribed to them in the Proxy
Statement. See Annex I--Index of Certain Defined Terms.
At any given time, the TCI Ventures Group Outstanding Interest
Fraction, which represents the percentage interest in the equity value of the
Company attributable to the TCI Ventures Group that is represented by the
outstanding shares of TCI Ventures Group Common Stock, will be equal to:
OUTSTANDING SHARES OF TCI VENTURES GROUP COMMON STOCK
------------------------------------------------------------------------
OUTSTANDING SHARES OF TCI NUMBER OF SHARES ISSUABLE WITH
VENTURES GROUP COMMON STOCK + RESPECT TO THE TCI VENTURES
GROUP INTER-GROUP INTEREST
The balance of the equity of the TCI Ventures Group is represented by
the TCI Group's Inter-Group Interest in the TCI Ventures Group and, at any
given time, the TCI Ventures Group Inter-Group Interest Fraction, which
represents the percentage interest in the equity value of the Company
attributable to the TCI Ventures Group that is attributed to the TCI Group,
will be equal to:
NUMBER OF SHARES ISSUABLE WITH RESPECT TO THE TCI VENTURES GROUP COMMON STOCK
- - ------------------------------------------------------------------------------
OUTSTANDING SHARES OF TCI VENTURES NUMBER OF SHARES ISSUABLE WITH
GROUP COMMON STOCK + RESPECT TO THE TCI VENTURES
GROUP INTER-GROUP INTEREST
The sum of the TCI Ventures Group Outstanding Interest Fraction and
the TCI Ventures Group Inter-Group Interest Fraction will always equal 100%.
The Adjusted TCI Ventures Group Outstanding Interest Fraction is a
measure that differs from the TCI Ventures Group Outstanding Interest Fraction
in that it takes into account the dilutive effect of certain convertible
securities. It is used instead of the TCI Ventures Group Outstanding Interest
Fraction in certain situations and would be equal to:
IV-1
<PAGE> 211
<TABLE>
<CAPTION>
OUTSTANDING SHARES OF TCI VENTURES GROUP COMMON STOCK
------------------------------------------------------------------------------------------
<S> <C> <C>
OUTSTANDING NUMBER OF SHARES ISSUABLE NUMBER OF SHARES OF TCI VENTURES
SHARES OF TCI + WITH RESPECT TO THE TCI + GROUP COMMON STOCK ISSUABLE UPON
VENTURES GROUP VENTURES GROUP INTER-GROUP EXCHANGE OF PRE-EXCHANGE OFFER
COMMON STOCK INTEREST SECURITIES
</TABLE>
EXCHANGE OFFERS
The following illustration assumes the initial issuance by the Company
of 160 million shares of TCI Ventures Group Common Stock in the Exchange
Offers.
o Assuming that the Number of Shares Issuable with Respect to
the TCI Ventures Group Inter-Group Interest is zero
immediately following the Exchange Offers, the TCI Ventures
Group Outstanding Interest Fraction will be 100%, calculated
as follows:
160 million
---------------
160 million + 0
The TCI Ventures Group Inter-Group Interest Fraction will
accordingly represent an interest of 0% in the TCI Ventures
Group.
o In this case, the TCI Group would not be credited, and the TCI
Ventures Group would not be charged, with any amount with
respect to any dividend or other distribution paid on the
outstanding shares of TCI Ventures Group Common Stock.
o Immediately after the Exchange Offers, the Company would have
665 million authorized and unissued shares of TCI Ventures
Group Common Stock remaining (825 million minus 160 million
issued and outstanding).
PURCHASES OF TCI VENTURES GROUP COMMON STOCK
The following two illustrations reflect the purchase by the Company of
80 million shares of TCI Ventures Group Common Stock, which are retired or
otherwise cease to be outstanding following their purchase.
PURCHASE WITH TCI VENTURES GROUP FUNDS
Assume all such shares are identified as having been purchased with
funds attributed to the TCI Ventures Group, with the TCI Ventures Group being
charged with the consideration paid for such shares.
<TABLE>
<S> <C>
Shares previously issued and outstanding . . . . . . . . . . . . . 160 million
Shares purchased . . . . . . . . . . . . . . . . . . . . . . . . . 80 million
---------------
Total shares issued and outstanding after purchase . . . . . . . . 80 million
================
</TABLE>
o The Number of Shares Issuable with Respect to the TCI Ventures
Group Inter-Group Interest would not be changed by the
purchase of any shares of TCI Ventures Group Common Stock
which are purchased with funds attributed to the TCI Ventures
Group.
o The TCI Ventures Group Outstanding Interest Fraction would be
100%, calculated as follows:
IV-2
<PAGE> 212
80 million
--------------
80 million + 0
The TCI Ventures Group Inter-Group Interest Fraction would
accordingly represent an interest of 0% in the TCI Ventures
Group.
o In this case, the TCI Group would not be credited, and the TCI
Ventures Group would not be charged, with any amount with
respect to any dividend or other distribution paid on the
outstanding shares of TCI Ventures Group Common Stock.
o The Company would have 745 million authorized and unissued
shares of TCI Ventures Group Common Stock (825 million minus
80 million issued and outstanding).
PURCHASE WITH TCI GROUP FUNDS
Assume all such shares are identified as having been purchased with
funds attributed to the TCI Group, with the TCI Group being charged with the
consideration paid for such shares.
<TABLE>
<S> <C>
Shares previously issued and outstanding . . . . . . . . . . . . . 160 million
Shares purchased . . . . . . . . . . . . . . . . . . . . . . . . . 80 million
----------------
Total shares issued and outstanding after purchase . . . . . . . . 80 million
================
</TABLE>
o The Number of Shares Issuable with Respect to the TCI Ventures
Group Inter-Group Interest would be increased by the number of
shares of TCI Ventures Group Common Stock which are so
purchased with funds attributed to the TCI Group.
<TABLE>
<S> <C>
Number of Shares Issuable with Respect to the TCI Ventures Group
Inter-Group Interest prior to purchase . . . . . . . . . . . . . . 0
Shares purchased . . . . . . . . . . . . . . . . . . . . . . . . . 80 million
----------------
Number of Shares Issuable with Respect to the TCI Ventures Group
Inter-Group Interest after purchase . . . . . . . . . . . . . . . . 80 million
================
</TABLE>
o The TCI Ventures Group Outstanding Interest Fraction would be
50%, calculated as follows:
80 million
-----------------------
80 million + 80 million
The TCI Ventures Group Inter-Group Interest Fraction would
accordingly represent an interest of 50% in the TCI Ventures
Group.
o In this case, the TCI Group would be credited, and the TCI
Ventures Group would be charged, with an amount equal to 100%
(representing the ratio of the TCI Ventures Group Inter-Group
Interest Fraction (50%) to the TCI Ventures Group Outstanding
Interest Fraction (50%)) of the aggregate amount of any
dividend or other distribution paid on the outstanding shares
of TCI Ventures Group
IV-3
<PAGE> 213
Common Stock (other than a dividend or other distribution
payable in shares of TCI Ventures Group Common Stock or in
certain other securities). If, for example, a dividend of $1
per share were declared and paid on the 80 million shares of
TCI Ventures Group Common Stock outstanding (an aggregate of
$80 million), the TCI Group would be credited with $80
million, and the TCI Ventures Group would be charged with that
amount in addition to the $80 million dividend on the
outstanding shares of TCI Ventures Group Common Stock (a total
of $160 million). An example of the effects of a distribution
of TCI Ventures Group Common Stock is set forth under the
caption "TCI Ventures Group Common Stock Dividends."
o The Company would have 745 million authorized and unissued
shares of TCI Ventures Group Common Stock (825 million minus
80 million issued and outstanding).
TRANSFERS OF ASSETS BETWEEN THE TCI GROUP AND THE TCI VENTURES GROUP
CONTRIBUTION OF ASSETS FROM THE TCI GROUP TO THE TCI VENTURES GROUP
The following illustration reflects the contribution by the TCI Group
to the TCI Ventures Group of $1.6 billion of assets attributed to the TCI Group
on a date on which the Market Value of the TCI Ventures Group Common Stock is
$20 per share.
<TABLE>
<S> <C>
Shares previously issued and outstanding . . . . . . . . . . . . 160 million
Newly issued shares . . . . . . . . . . . . . . . . . . . . . . . 0
-----------
Total shares issued and outstanding after contribution . . . . . 160 million
===========
</TABLE>
o The Number of Shares Issuable with Respect to the Inter-Group
Interest would be increased to reflect the contribution to the
TCI Ventures Group of assets theretofore attributed to the TCI
Group.
<TABLE>
<S> <C>
Number of Shares Issuable with Respect to the TCI Ventures Group
Inter-Group Interest prior to contribution . . . . . . . . . . . . 0
Adjustment to reflect contribution to the TCI Ventures Group of
assets attributed to the TCI Group ($1.6 billion divided by $20) . 80 million
----------
Number of Shares Issuable with Respect to the TCI Ventures Group
Inter Group Interest after contribution . . . . . . . . . . . . . . 80 million
==========
</TABLE>
o The TCI Ventures Group Outstanding Interest Fraction would be
67%, calculated as follows:
160 million
------------------------
160 million + 80 million
The TCI Ventures Group Inter-Group Interest Fraction would
accordingly represent an interest of 33% in the TCI Ventures
Group.
o In this case, the TCI Group would be credited, and the TCI
Ventures Group would be charged, with an amount equal to 50%
(representing the ratio of the TCI Ventures Group Inter-Group
Interest Fraction (33%) to the TCI Ventures Group Outstanding
Interest Fraction (67%)) of the aggregate amount of any
dividend or other distribution paid on the outstanding shares
of TCI Ventures Group Common Stock (other than a dividend or
other distribution payable in shares of TCI Ventures Group
Common Stock or in certain other securities).
IV-4
<PAGE> 214
o The Company would have 665 million authorized and unissued
shares of TCI Ventures Group Common Stock (825 million minus
160 million issued and outstanding).
TRANSFER OF ASSETS FROM THE TCI VENTURES GROUP TO THE TCI GROUP
The following illustration reflects the transfer by the TCI Ventures
Group to the TCI Group of $800 million of assets attributed to the TCI Ventures
Group on a date on which the Market Value of the TCI Ventures Group Common
Stock is $20 per share and the Number of Shares Issuable with Respect to the
TCI Ventures Group Inter-Group Interest is 80 million.
<TABLE>
<S> <C>
Shares previously issued and outstanding . . . . . . . . . . . . 160 million
Shares purchased . . . . . . . . . . . . . . . . . . . . . . . . 0
-----------
Total shares issued and outstanding after transfer . . . . . . . 160 million
===========
</TABLE>
o The Number of Shares Issuable with Respect to the TCI Ventures
Group Inter-Group Interest would be decreased to reflect the
contribution to the TCI Group of assets theretofore attributed
to the TCI Ventures Group.
<TABLE>
<S> <C>
Number of Shares Issuable with Respect to the TCI Ventures Group
Inter-Group Interest prior to transfer . . . . . . . . . . . . . . 80 million
Adjustment to reflect transfer to the TCI Group of assets
attributed to the TCI Ventures Group ($800 million divided by $20) 40 million
----------
Number of Shares Issuable with Respect to the TCI Ventures Group
Inter Group Interest after transfer . . . . . . . . . . . . . . . . 40 million
==========
</TABLE>
The TCI Ventures Group will not make transfers of assets to the TCI
Group in reduction of the Inter-Group Interest if the effect would be to reduce
the Number of Shares Issuable with Respect to the TCI Ventures Group Inter-
Group Interest to less than zero. The TCI Ventures Group cannot have an
interest in the TCI Group corresponding to the Inter-Group Interest.
o The TCI Ventures Group Outstanding Interest Fraction would be
80%, calculated as follows:
160 million
------------------------
160 million + 40 million
The TCI Ventures Group Inter-Group Interest Fraction would
accordingly represent an interest of 20% in the TCI Ventures
Group.
o In this case, the TCI Group would be credited, and the TCI
Ventures Group would be charged, with an amount equal to 25%
(representing the ratio of the TCI Ventures Group Inter-Group
Interest Fraction (20%) to the TCI Ventures Group Outstanding
Interest Fraction (80%)) of the aggregate amount of any
dividend or other distribution paid on the outstanding shares
of TCI Ventures Group Common Stock (other than a dividend or
other distribution payable in shares of TCI Ventures Group
Common Stock or in certain other securities).
o The Company would have 665 million authorized and unissued
shares of TCI Ventures Group Common Stock (825 million minus
160 million issued and outstanding).
IV-5
<PAGE> 215
FUTURE OFFERINGS OF TCI VENTURES GROUP COMMON STOCK
The following illustrations reflect the sale by the Company of 80
million shares of TCI Ventures Group Common Stock on a date on which the Number
of Shares Issuable with Respect to the TCI Ventures Group Inter-Group Interest
is 80 million.
OFFERING FOR THE TCI VENTURES GROUP
Assume all such shares are identified as issued for the account of the
TCI Ventures Group, with the net proceeds credited to the TCI Ventures Group:
<TABLE>
<S> <C>
Shares previously issued and outstanding . . . . . . . . . . . . 160 million
Newly issued shares . . . . . . . . . . . . . . . . . . . . . . . 80 million
-----------
Total shares issued and outstanding after offering . . . . . . . 240 million
===========
</TABLE>
o The Number of Shares Issuable with Respect to the TCI Ventures
Group Inter-Group Interest would not be changed by the
issuance of any shares of TCI Ventures Group Common Stock for
the account of the TCI Ventures Group.
o The TCI Ventures Group Outstanding Interest Fraction would be
75%, calculated as follows:
240 million
------------------------
240 million + 80 million
The TCI Ventures Group Inter-Group Interest Fraction would
accordingly represent an interest of 25% in the TCI Ventures
Group.
o The Company would have 585 million authorized and unissued
shares of TCI Ventures Group Common Stock remaining (825
million minus 240 million issued and outstanding).
OFFERING FOR THE TCI GROUP
Assume all such shares are identified as issued for the account of the
TCI Group with respect to the Inter- Group Interest, with the net proceeds
credited to the TCI Group:
<TABLE>
<S> <C>
Shares previously issued and outstanding . . . . . . . . . . . . 160 million
Newly issued shares . . . . . . . . . . . . . . . . . . . . . . . 80 million
-----------
Total shares issued and outstanding after offering . . . . . . . 240 million
===========
</TABLE>
o The Number of Shares Issuable with Respect to the TCI Ventures
Group Inter-Group Interest would decrease by the number of
shares of TCI Ventures Group Common Stock issued for the
account of the TCI Group.
IV-6
<PAGE> 216
<TABLE>
<S> <C>
Number of Shares Issuable with Respect to the TCI Ventures Group
Inter-Group Interest prior to offering . . . . . . . . . . . . . . 80 million
Shares issued in offering . . . . . . . . . . . . . . . . . . . . . 80 million
----------
Number of Shares Issuable with Respect to the TCI Ventures Group
Inter Group Interest after offering . . . . . . . . . . . . . . . . 0
==========
</TABLE>
o The TCI Ventures Group Outstanding Interest Fraction would be
100%, calculated as follows:
240 million
---------------
240 million + 0
The TCI Ventures Group Inter-Group Interest Fraction would
accordingly represent an interest of 0% in the TCI Ventures
Group.
o The Company would have 585 million authorized and unissued
shares of TCI Ventures Group Common Stock (825 million minus
240 million issued and outstanding).
OFFERINGS OF CONVERTIBLE SECURITIES FOLLOWING THE EXCHANGE OFFERS
If the Company were to issue any debt or preferred stock convertible
into shares of TCI Ventures Group Common Stock, the TCI Ventures Group
Inter-Group Interest Fraction and the TCI Ventures Group Outstanding Interest
Fraction would be unchanged at the time of such issuance. If any shares of TCI
Ventures Group Common Stock were issued upon conversion of such Convertible
Security, however, then the TCI Ventures Group Inter-Group Interest Fraction
and the TCI Ventures Group Outstanding Interest Fraction would be affected in a
manner similar to that shown above under "Offering for the TCI Ventures Group",
if such Convertible Security were attributed to the TCI Ventures Group, or
under "Offering for the TCI Group," if such Convertible Security were
attributed to the TCI Group. The foregoing will not apply to the exchange of
Pre-Exchange Offer Securities.
TCI VENTURES GROUP COMMON STOCK DIVIDENDS
The following illustrations reflect dividends of TCI Ventures Group
Common Stock on outstanding TCI Ventures Group Common Stock and outstanding TCI
Group Common Stock, respectively, on a date on which the Number of Shares
Issuable with Respect to the TCI Ventures Group Inter-Group Interest is 80
million.
TCI VENTURES GROUP COMMON STOCK DIVIDEND ON TCI VENTURES GROUP COMMON STOCK
Assume the Company declares a dividend of one-half of one share of TCI
Ventures Group Common Stock on each outstanding share of TCI Ventures Group
Common Stock.
<TABLE>
<S> <C>
Shares previously issued and outstanding . . . . . . . . . . . . . 160 million
Newly issued shares . . . . . . . . . . . . . . . . . . . . . . . . 80 million
-----------
Total shares issued and outstanding after dividend . . . . . . . . 240 million
===========
</TABLE>
o The Number of Shares Issuable with Respect to the TCI Ventures
Group Inter-Group Interest would be increased proportionately
to reflect the stock dividend payable in shares of TCI
Ventures Group Common Stock to holders of TCI Ventures Group
Common Stock.
IV-7
<PAGE> 217
Number of Shares Issuable with Respect to the
TCI Ventures Group Inter-Group Interest prior
to dividend . . . . . . . . . . . . . . . . . 80 million
Adjustment to reflect dividend of shares on
outstanding shares of TCI Ventures Group
Common Stock . . . . . . . . . . . . . . . . . 40 million
----------
Number of shares Issuable with Respect to the
TCI Ventures Group Inter Group Interest after
dividend . . . . . . . . . . . . . . . . . . . 120 Million
===========
o The TCI Ventures Group Outstanding Interest Fraction would be
67%, calculated as follows:
240 million
-------------------------
240 million + 120 million
The TCI Ventures Group Inter-Group Interest Fraction would
accordingly represent an interest of 33% in the TCI Ventures
Group. The TCI Ventures Group Outstanding Interest Fraction
and the TCI Ventures Group Inter-Group Interest fraction would
be unchanged from the corresponding percentages prior to the
dividend.
o The Company would have 585 million authorized and unissued
shares of TCI Ventures Group Common Stock remaining (825
million minus 240 million issued and outstanding).
TCI VENTURES GROUP COMMON STOCK DIVIDEND ON TCI GROUP COMMON STOCK
Assume an aggregate of 600 million shares of TCI Group Common are
outstanding and the Company declares a dividend of one-tenth of one share of
TCI Ventures Group Common Stock on each outstanding share of TCI Group Common
Stock.
<TABLE>
<S> <C>
Shares previously issued and outstanding . . . . . . . . . . . . . 160 million
Newly issued shares . . . . . . . . . . . . . . . . . . . . . . . . 60 million
-----------
Total shares issued and outstanding after dividend . . . . . . . . 220 million
===========
</TABLE>
o Subsequent to the Exchange Offers, any dividend of shares of
TCI Ventures Group Common Stock on the outstanding shares of
TCI Group Common Stock will be treated as a dividend payable
from the Number of Shares Issuable with Respect to the TCI
Ventures Group Inter-Group Interest. As a result, the Number
of Shares Issuable with Respect to the TCI Ventures Group
Inter-Group Interest would decrease by the number of shares of
TCI Ventures Group Common Stock distributed on the outstanding
shares of TCI Group Common Stock as a dividend.
<TABLE>
<S> <C>
Number of Shares Issuable with Respect to the TCI Ventures Group
Inter-Group Interest prior to dividend . . . . . . . . . . . . . . 80 million
Shares distributed on outstanding shares of TCI Group
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 million
----------
Number of Shares Issuable with Respect to the TCI Ventures Group
Inter Group Interest after dividend . . . . . . . . . . . . . . . . 20 million
==========
</TABLE>
IV-8
<PAGE> 218
o The Company will not distribute to holders of TCI Group Common
Stock as a dividend a number of shares of TCI Ventures Group
Common Stock exceeding the Number of Shares Issuable with
Respect to the TCI Ventures Group Inter-Group Interest.
o The TCI Ventures Group Outstanding Interest Fraction would be
92%, calculated as follows:
220 million
------------------------
220 million + 20 million
The TCI Ventures Group Inter-Group Interest Fraction would
accordingly represent an interest of 8% in the TCI Ventures
Group.
o The Company would have 605 million authorized and unissued
shares of TCI Ventures Group Common Stock remaining (825
million minus 220 million issued and outstanding).
CERTAIN CONVERSION, REDEMPTION AND SPECIAL DIVIDEND PROVISIONS
The following illustrations reflect (a) conversion of the TCI Ventures
Group Common Stock at the option of the Company, (b) mandatory dividend,
redemption or conversion of the TCI Ventures Group Common Stock following the
Disposition of all or substantially all of the properties and assets of the TCI
Ventures Group and (c) redemption of all the TCI Ventures Group Common Stock in
exchange for stock of a subsidiary holding all the assets and liabilities of
the TCI Ventures Group, in each case assuming that (i) the number of
outstanding shares of TCI Ventures Group Common Stock is 90 million and (ii)
the Number of Shares Issuable with Respect to the TCI Ventures Group
Inter-Group Interest is 30 million.
CONVERSION AT THE OPTION OF THE COMPANY
Assume that the Company elects to convert the TCI Ventures Group
Common Stock into TCI Group Common Stock at the TCI Ventures Group Optional
Conversion Ratio; the TCI Ventures Group Private Market Value is determined to
be $4 billion and the number of shares of TCI Ventures Group Common Stock
deemed to be issued upon the conversion, exercise or exchange of Convertible
Securities (other than Pre-Exchange Offer Securities) is 10 million.
o The Adjusted Outstanding Shares of TCI Ventures Group Common
Stock would be 160 million (representing the sum of (i) the
number of outstanding shares of TCI Ventures Group Common
Stock, (ii) the Number of Shares Issuable with Respect to the
TCI Ventures Group Inter-Group Interest, (iii) the number of
shares of TCI Ventures Group Common Stock issuable upon
exchange of Pre-Exchange Offer Securities and (iv) the number
of shares of TCI Ventures Group Common Stock deemed to be
issued upon the conversion, exercise or exchange of
Convertible Securities) (other than Pre-Exchange Offer
Securities)), calculated as follows:
90 million + 30 million + 30 million + 10 million
o The TCI Ventures Group Common Stock Per Share Value would be
$25 (representing the quotient of the TCI Ventures Group
Private Market Value ($4 billion) and the Adjusted Outstanding
Shares of TCI Ventures Group Common Stock (160 million )).
o In this case, assuming that the average Market Value of one
share of Series A TCI Group Common Stock is $15 over the
20-Trading Day period ending on the Trading Day preceding the
date as of
IV-9
<PAGE> 219
which the TCI Ventures Group Private Market Value is
determined, the TCI Ventures Group Optional Conversion Ratio
would be 1.67 (representing the quotient of the TCI Ventures
Group Common Stock Per Share Value ($25) and such average
Market Value of the Series A TCI Group Common Stock ($15)),
and each outstanding share of TCI Ventures Group Common would
be converted into 1.67 shares of TCI Group Common Stock.
MANDATORY DIVIDEND, REDEMPTION OR CONVERSION OF TCI VENTURES GROUP COMMON
STOCK.
Assume that a Disposition of all (not merely substantially all) of the
properties and assets of the TCI Ventures Group occurs and the TCI Ventures
Group Net Proceeds from such Disposition equal $4 billion.
o If the Company elected to redeem all outstanding shares of TCI
Ventures Group Common Stock, the aggregate redemption price
would be $2.4 billion (representing the product of the
Adjusted TCI Ventures Group Outstanding Interest Fraction and
the TCI Ventures Group Net Proceeds of such Disposition),
calculated as follows:
90 million
------------------------------------ x $4 billion
90 million + 30 million + 30 million
In this case each outstanding share of TCI Ventures Group
Common Stock would be redeemed in exchange for $26.67 per
share (representing the quotient of the aggregate redemption
price ($2.4 billion) and the number of outstanding shares of
TCI Ventures Group Common Stock (90 million)). If
Pre-Exchange Offer Securities remain outstanding at the time
of any redemption of all outstanding shares of TCI Ventures
Group Common Stock following the disposition of all (not
merely substantially all) of the properties and assets of the
TCI Ventures Group, the proportionate interest in the TCI
Ventures Group Net Proceeds of the Disposition to be
distributed to the holders of TCI Ventures Group Common Stock
will be determined on the basis of the Adjusted TCI Ventures
Group Outstanding Interest Fraction, which will result in the
allocation to the TCI Group of a portion of such TCI Ventures
Group Net Proceeds, in addition to the portion attributable to
any Inter-Group Interest in the TCI Ventures Group, sufficient
to provide for the delivery of the portion of the
consideration (if any) deliverable by the Company on any
post-redemption exchange of Pre-Exchange Offer Securities that
is in substitution for shares of TCI Ventures Group Common
Stock that would have been issuable upon such exchange if it
had occurred prior to the redemption.
o If the Company elected to convert the TCI Ventures Group
Common Stock into TCI Group Common Stock, assuming that the
Market Value of one share of Series A TCI Ventures Group
Common Stock on each Trading Day during the ten-Trading Day
period beginning on the 16th Trading Day following the
consummation of such Disposition is $25 and the Market Value
of one share of Series A TCI Group Common Stock on each
Trading Day during such period is $15, the TCI Ventures Group
Common Stock would be converted into TCI Group Common Stock at
a ratio of 1.83 (representing 110% of the average daily ratio
during such period of the Market Value of one share of Series
A TCI Ventures Group Common Stock to the Market Value of one
share of Series A TCI Group Common Stock) shares of TCI Group
Common Stock for each share of TCI Ventures Group Common
Stock.
Assume that a Disposition of substantially all (but not all) of the
properties and assets of the TCI Ventures Group occurs and the TCI Ventures
Group Net Proceeds from the Disposition equal $3.2 billion.
o If the Company elected to pay a dividend to the holders of
TCI Ventures Group Common Stock, the aggregate amount of the
dividend would be $2.4 billion (representing the product of
the TCI Ventures
IV-10
<PAGE> 220
Group Outstanding Interest Fraction and the TCI Ventures
Group Net Proceeds of the Disposition), calculated as follows:
90 million
----------------------- x $3.2 billion
90 million + 30 million
In this case, the TCI Group would be credited, and the TCI
Ventures Group would be charged, with $800 million, an amount
equal to 33% (representing the ratio of the TCI Ventures Group
Inter-Group Interest Fraction (25%) and the TCI Ventures Group
Outstanding Interest Fraction (75%)) of the aggregate amount
of such dividend.
o If the Company elected to redeem shares of TCI Ventures Group
Common Stock, the aggregate redemption price would be $2.4
billion (representing the product of the TCI Ventures Group
Outstanding Interest Fraction and the TCI Ventures Group Net
Proceeds of such Disposition), calculated as follows:
90 million
----------------------- x $3.2 billion
90 million + 30 million
In this case, assuming that the average Market Value of one
share of Series A TCI Ventures Group Common Stock for the
ten-Trading Day period beginning on the 16th Trading Day
following the consummation of such Disposition is $33.33, an
aggregate of 72 million (equal to the quotient of the
aggregate redemption price and such average Market Value)
shares of TCI Ventures Group Common Stock would be redeemed
in exchange for $33.33 per share.
o If the Company elected to convert TCI Ventures Group Common
Stock into TCI Group Common Stock, assuming that the Market
Value of one share of Series A TCI Ventures Group Common Stock
on each Trading Day during the ten-Trading Day period referred
to in the preceding paragraph was $33.33 and the Market Value
of one share of Series A TCI Group Common Stock on each
Trading Day during such period was $15, the TCI Ventures Group
Common Stock would be converted into TCI Group Common Stock at
a ratio of 2.44 (representing 110% of the average daily ratio
during such period of the Market Value of one share of Series
A TCI Ventures Group Common Stock to the Market Value of one
share of Series A TCI Group Common Stock) shares of TCI Group
Common Stock for each share of TCI Ventures Group Common
Stock.
REDEMPTION IN EXCHANGE FOR STOCK OF SUBSIDIARY
Assume that Company elects to redeem all of the outstanding shares of
TCI Ventures Group Common Stock in exchange for shares of common stock of the
TCI Ventures Group Subsidiary and that the total number of outstanding shares
of common stock of the TCI Ventures Group Subsidiary is 150 million.
o In this case, shares of TCI Ventures Group Common Stock would
be redeemed in exchange for an aggregate number of shares of
common stock of the TCI Ventures Group Subsidiary equal to 90
million (representing the product of the Adjusted TCI Ventures
Group Outstanding Interest Fraction and the number of shares
of common stock of the TCI Ventures Group Subsidiary),
calculated as follows:
IV-11
<PAGE> 221
90 million
------------------------------------ x 150 million
90 million + 30 million + 30 million
In this case each outstanding share of TCI Ventures Group
Common Stock would be redeemed in exchange for one share of
common stock of the TCI Ventures Group Subsidiary, and the
Company would retain 60 million shares of common stock of the
TCI Ventures Group Subsidiary. 30 million of such shares
would be held by the Company to be used in connection with any
exchange of Pre-Exchange Offer Securities.
IV-12
<PAGE> 222
ANNEX V
FINANCIAL INFORMATION
INDEX TO ANNEX V
<TABLE>
<CAPTION>
Page
Numbers
<S> <C>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA V-3
CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS:
Tele-Communications, Inc. V-7
"TCI Ventures Group" V-15
"TCI Group" V-21
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES:
Management's Discussion and Analysis of Financial Condition and
Results of Operations, Three months ended March 31, 1997
and 1996 V-29
Consolidated Balance Sheets,
March 31, 1997 and December 31, 1996 (unaudited) V-36
Consolidated Statements of Operations,
Three month period ended March 31, 1997 and 1996 (unaudited) V-38
Consolidated Statement of Stockholders' Equity,
Three months ended March 31, 1996 (unaudited) V-39
Consolidated Statements of Cash Flows,
Three months ended March 31, 1997 and 1996 (unaudited) V-40
Notes to Consolidated Financial Statements,
March 31, 1997 (unaudited) V-41
Management's Discussion and Analysis of Financial Condition and
Results of Operations, Years ended December 31, 1996, 1995
and 1994 V-54
Independent Auditors' Report V-70
Consolidated Balance Sheets,
December 31, 1996 and 1995 V-71
Consolidated Statements of Operations,
Years ended December 31, 1996, 1995 and 1994 V-73
Consolidated Statements of Stockholders' Equity,
Years ended December 31, 1996, 1995, 1994 V-75
Consolidated Statements of Cash Flows,
Years ended December 31, 1996, 1995 and 1994 V-78
Notes to Consolidated Financial Statements,
December 31, 1996, 1995 and 1994 V-79
"TCI VENTURES GROUP":
Management's Discussion and Analysis of Financial Condition and
Results of Operations, Three months ended March 31, 1997
and 1996 V-123
Combined Balance Sheets,
March 31, 1997 and December 31, 1996 (unaudited) V-147
Combined Statements of Operations,
Three month period ended March 31, 1997 and 1996 (unaudited) V-149
Statement of Combined Equity,
Three months ended March 31, 1997 (unaudited) V-150
Combined Statements of Cash Flows,
Three months ended March 31, 1997 and 1996 (unaudited) V-151
Notes to Combined Financial Statements,
March 31, 1997 (unaudited) V-153
</TABLE>
V-1
<PAGE> 223
FINANCIAL INFORMATION ANNEX V
INDEX TO ANNEX V
<TABLE>
<CAPTION>
Page
Numbers
<S> <C>
"TCI VENTURES GROUP" (CONTINUED):
Management's Discussion and Analysis of Financial Condition and
Results of Operations, Years ended December 31, 1996, 1995
and 1994 V-177
Independent Auditors' Report V-203
Combined Balance Sheets,
December 31, 1996 and 1995 V-204
Combined Statements of Operations,
Years ended December 31, 1996, 1995 and 1994 V-206
Statements of Combined Equity,
Years ended December 31, 1996, 1995, 1994 V-207
Combined Statements of Cash Flows,
Years ended December 31, 1996, 1995 and 1994 V-209
Notes to Combined Financial Statements,
December 31, 1996, 1995 and 1994 V-211
</TABLE>
V-2
<PAGE> 224
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
TCI VENTURES GROUP
The following table supplementally sets forth selected historical
combined income statement data for the TCI Ventures Group for each of the three
fiscal years in the period ended December 31, 1996 and for the three month
periods ended March 31, 1997 and 1996. Additionally, the following table
supplementally sets forth selected historical combined balance sheet data for
the TCI Ventures Group as of March 31, 1997, December 31, 1996 and December 31,
1995. The selected financial data as of and for the three months ended March
31, 1997 are derived from unaudited financial statements which have been
prepared on the same basis as the audited financial information and, in the
opinion of management, contain all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
position and results of operations of the TCI Ventures Group as of and for the
three months ended March 31, 1997. The pro forma loss attributable to common
shareholders of the TCI Ventures Group assumes the Exchange Offers were
consummated prior to the beginning of the periods presented and assumes, solely
for the purpose of these pro forma amounts, that 28% of the outstanding shares
of each series of TCI Group common stock were tendered for exchange for each
share of the corresponding series of TCI Ventures Group common stock. The pro
forma data does not purport to be indicative of the results of operations or
financial position that may be obtained in the future. The following
information is qualified in its entirety by, and should be read in conjunction
with, the combined financial statements and notes thereto of the TCI Ventures
Group and with the consolidated financial statements and notes thereto of the
Company included elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
Three months ended March 31, Year ended December 31,
----------------------------------- ------------------------------------------------
Pro Pro
Forma Forma
1997 1997 1996 1996 1996 1995 1994
--------- --------- --------- --------- --------- --------- ---------
in thousands
<S> <C> <C> <C> <C> <C> <C> <C>
Summary of Operations Data:
Revenue $ 247,020 247,020 160,262 925,676 925,676 325,991 103,844
Operating income (loss) $ (115) (115) 309 (50,557) (50,557) (32,941) (25,543)
Share of losses of Telewest $ (41,708) (41,708) (30,597) (109,357) (109,357) (70,274) (42,520)
Share of losses of PCS Ventures $ (63,536) (63,536) (19,208) (133,497) (133,497) (33,890) (992)
Share of losses of Teleport $ (13,768) (13,768) (7,962) (50,543) (50,543) (29,975) (19,366)
Gain on sale of subsidiary stock $ -- -- -- -- -- 122,660 --
Gain on issuance of stock by
equity investees $ -- -- -- 12,668 12,668 164,900 161,481
Net earnings (loss) $ (77,252) (77,252) (54,572) (258,422) (258,422) 60,040 12,650
Loss attributable to TCI Ventures
Group common shareholders $ (77,252) -- -- (258,422) -- -- --
</TABLE>
<TABLE>
<CAPTION>
March 31, December 31,
----------------------- -----------------------
Pro Forma
1997 1997 1996 1995
---------- ---------- ---------- ----------
in thousands
<S> <C> <C> <C> <C>
Summary Balance Sheet Data:
Investment in Telewest $ 426,810 426,810 488,495 550,216
Investment in PCS Ventures $ 728,246 728,246 829,651 689,062
Investment in Teleport $ 262,850 262,850 276,112 244,012
Total assets $3,863,562 3,863,562 4,259,703 3,447,169
Combined equity $2,433,997 2,433,997 2,551,516 2,378,722
</TABLE>
V-3
<PAGE> 225
TELE-COMMUNICATIONS, INC.
The following table sets forth selected historical data for the Company
for each of the five fiscal years in the period ended December 31, 1996 and the
three month periods ended March 31, 1997 and 1996. The table also sets forth
selected unaudited pro forma balance sheet data for the Company as of March 31,
1997 assuming the Exchange Offers were consummated as of March 31, 1997 and
assumes, solely for the purpose of these pro forma amounts, that 28% of the
outstanding shares of each series of TCI Group common stock were tendered for
exchange for each share of the corresponding series of TCI Ventures Group
common stock, and selected unaudited pro forma statement of operations data for
the year ended December 31, 1996, giving pro forma effect to the Company's
distribution to the holders of TCI Group common stock of TCI Satellite
Entertainment, Inc. (the "SatCo Spin-off"), the acquisition by the Company of
all the common stock of a subsidiary of Viacom, Inc. (the "VII Cable
Acquisition") and the Exchange Offers and selected unaudited pro forma
statement of operations data for the three months ended March 31, 1997, giving
pro forma effect to the Exchange Offers as if the same had occurred prior to
January 1, 1996. The selected financial data as of and for the three months
ended March 31, 1997 are derived from unaudited financial statements which have
been prepared on the same basis as the audited financial information and, in
the opinion of management, contain all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
position and results of operations of the Company as of and for the three
months ended March 31, 1997. The pro forma financial data is not necessarily
indicative of the financial position or results of operations that would have
been obtained had the SatCo Spin-Off, the VII Cable Acquisition and the
Exchange Offers been effective at or prior to such assumed dates. The pro forma
information does not purport to be indicative of the results or financial
position that may be obtained in the future. The following information is
qualified in its entirety by, and should be read in conjunction with, the
consolidated financial statements and notes thereto of the Company included
elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
Three months
ended March 31, Year ended December 31,
----------------------------- --------------------------------------------------------------
Pro Pro
Forma Forma
1997 1997 1996 1996 1996 1995 1994 1993 1992
------- ------- ------- ------- ------- ------- ------- ------- -------
in millions
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Summary of Operations Data:
Revenue $ 1,827 1,827 1,861 7,925 8,022 6,506 4,682 3,977 3,463
Operating, selling, general
and administrative expenses $ 1,089 1,089 1,328 5,549 5,746 4,518 2,884 2,119 1,826
Operating income $ 349 349 172 832 632 542 788 916 864
Earnings (loss) from:
Continuing operations $ (58) (58) (121) 333 278 (171) 62 (5) 8
Discontinued operations -- -- -- -- -- -- -- -- (15)
------- ------- ------- ------- ------- ------- ------- ------- -------
(58) (58) (121) 333 278 (171) 62 (5) (7)
Dividend requirements on
preferred stock (10) (10) (9) (35) (35) (34) (8) (2) (15)
------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) attributable
to common shareholders $ (68) (68) (130) 298 243 (205) 54 (7) (22)
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
(continued)
V-4
<PAGE> 226
<TABLE>
<CAPTION>
Three months
ended March 31, Year ended December 31,
-------------------------- --------------------------------------------------------
Pro Pro
Forma Forma
1997 1997 1996 1996 1996 1995 1994 1993 1992
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
in millions, except per share data
Earnings (loss) attributable
to common shareholders:
TCI Class A and Class B
common stock $ -- -- -- -- -- (71) 54 (7) (22)
TCI Group common stock (7) (84) (145) (500) (813) (107) -- -- --
Liberty Media Group
common stock 16 16 15 1,056 1,056 (27) -- -- --
TCI Ventures Group
common stock (77) -- -- (258) -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------
$ (68) (68) (130) 298 243 (205) 54 (7) (22)
====== ====== ====== ====== ====== ====== ====== ====== ======
Primary earnings (loss) from
continuing operations
attributable to common
shareholders per common and
common equivalent share:
TCI Class A and Class B
common stock $ -- -- -- -- -- (.11) .10 (.02) (.01)
TCI Group Series A and
Series B common stock $ (.01) (.12) (.22) (1.04) (1.22) (.16) -- -- --
Liberty Media Group
Series A and Series B
common stock $ .06 .06 .06 3.97 3.97 (.11) -- -- --
TCI Ventures Group Series
A and Series B common
stock $ (.40) -- -- (1.39) -- -- -- -- --
Primary weighted average common
and common equivalent shares
outstanding:
TCI Class A and Class B
common stock -- -- -- -- -- 648 541 433 424
TCI Group Series A and
Series B common stock 487 678 659 479 665 656 -- -- --
Liberty Media Group
Series A and Series B
common stock 250 250 247 266 249 246 -- -- --
TCI Ventures Group Series
A and Series B common
stock 191 -- -- 186 -- -- -- -- --
</TABLE>
V-5
<PAGE> 227
<TABLE>
<CAPTION>
March 31, December 31,
----------------- -----------------------------------------------
Pro
Forma
1997 1997 1996 1995 1994 1993 1992
------- ------- ------- ------- ------- ------- -------
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Summary Balance Sheet Data:
Property and equipment, net $ 7,688 7,688 7,528 7,409 5,876 4,935 4,562
Franchise costs, net $15,911 15,911 15,436 12,230 9,444 9,197 9,300
Total assets $30,676 30,676 30,244 25,577 19,276 16,527 16,315
Total debt $15,049 15,049 14,926 13,211 11,162 9,900 10,285
Stockholders' equity $ 4,422 4,422 4,253 4,550 2,655 2,116 1,728
Shares outstanding (net of
shares held by subsidiaries):
Class A common stock -- -- -- -- 491 403 382
Class B common stock -- -- -- -- 85 47 48
TCI Group Series A common
stock 431 598 579 572 -- -- --
TCI Group Series B common
stock 61 85 85 85 -- -- --
Liberty Media Group Series A
common stock 229 229 228 225 -- -- --
Liberty Media Group Series B
common stock 21 21 21 21 -- -- --
TCI Ventures Group Series A
common stock 167 -- -- -- -- -- --
TCI Ventures Group Series B
common stock 24 -- -- -- -- -- --
</TABLE>
V-6
<PAGE> 228
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Condensed Pro Forma Combined Financial Statements
March 31, 1997
(unaudited)
The following unaudited condensed pro forma combined balance sheet of
Tele-Communications, Inc. ("TCI" or the "Company"), dated as of March 31, 1997,
assumes that the Exchange Offers (see note 1) had occurred as of such date.
The following unaudited condensed pro forma combined statement of
operations of TCI for the three months ended March 31, 1997 assumes that the
Exchange Offers had occurred as of January 1, 1997.
The following unaudited condensed pro forma combined statement of
operations of TCI for the year ended December 31, 1996 assumes that the
Exchange Offers, the distribution (the "Distribution") by TCI to the holders of
shares of TCI Group common stock of all the issued and outstanding common stock
of TCI Satellite Entertainment, Inc. ("Satellite") (see note 2) and the
acquisition of all the common stock of a subsidiary of Viacom, Inc. ("VII
Cable") (the "VII Cable Acquisition") (see note 3) had occurred as of January
1, 1996.
The unaudited pro forma results do not purport to be indicative of the
results of operations that would have been obtained if the Exchange Offers, the
Distribution and the VII Cable Acquisition had occurred as of January 1, 1996.
These condensed pro forma combined financial statements of TCI should be read
in conjunction with the historical financial statements and the related notes
thereto of TCI.
V-7
<PAGE> 229
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Condensed Pro Forma Combined Balance Sheet
(unaudited)
<TABLE>
<CAPTION>
March 31, 1997
--------------------------------------------------
TCI TCI
Historical Exchange Offers(1) Pro forma
-------------- ----------------- --------------
Assets amounts in millions
- - ------
<S> <C> <C> <C>
Cash, receivables and other current assets $ 1,191 -- 1,191
Investment in affiliates and Turner Broadcasting System,
Inc., and related receivables 4,935 -- 4,935
Property and equipment, net of accumulated depreciation 7,688 -- 7,688
Franchise costs, intangibles and other assets, net of
amortization 16,862 -- 16,862
-------------- -------------- --------------
$ 30,676 -- 30,676
============== ============== ==============
Liabilities and Stockholders' Equity
- - ------------------------------------
Payables and accruals $ 1,502 -- 1,502
Debt 15,049 -- 15,049
Deferred income taxes 5,946 -- 5,946
Other liabilities 251 -- 251
-------------- -------------- --------------
Total liabilities 22,748 -- 22,748
-------------- -------------- --------------
Minority interests 1,349 -- 1,349
Redeemable preferred stock 655 -- 655
Company-obligated mandatorily redeemable
preferred securities of subsidiary
trusts holding solely subordinated
debt securities of TCIC 1,502 -- 1,502
Stockholders' equity:
Preferred stock -- -- --
TCI Group Series A common stock 715 (167) 548
TCI Group Series B common stock 85 (24) 61
Liberty Media Group Series A common stock 229 -- 229
Liberty Media Group Series B common stock 21 -- 21
TCI Ventures Group Series A common stock -- 167 167
TCI Ventures Group Series B common stock -- 24 24
Additional paid-in capital 3,904 -- 3,904
Cumulative foreign currency translation adjustment 5 -- 5
Unrealized holding gains for available- for-sale
securities 11 -- 11
Accumulated deficit (234) -- (234)
TCI stock held by subsidiaries (314) -- (314)
-------------- -------------- --------------
4,422 -- 4,422
-------------- -------------- --------------
$ 30,676 -- 30,676
============== ============== ==============
</TABLE>
See accompanying notes to unaudited condensed pro forma combined financial
statements.
V-8
<PAGE> 230
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Condensed Pro Forma Combined Statement of Operations
(unaudited)
<TABLE>
<CAPTION>
Three months ended March 31, 1997
-----------------------------------------------
TCI TCI
Historical Exchange Offers(1) Pro forma
------------- ----------------- -------------
amounts in millions
<S> <C> <C> <C>
Revenue $ 1,827 -- 1,827
Operating, cost of sales, selling, general and
administrative expenses, compensation relating to stock
appreciation rights (1,104) -- (1,104)
Depreciation and amortization (374) -- (374)
------------- ------------- -------------
Operating income 349 -- 349
Interest expense (289) -- (289)
Interest and dividend income 21 -- 21
Share of losses of affiliates, net (156) -- (156)
Other income (expense), net (21) -- (21)
------------- ------------- -------------
Earnings (loss) before income taxes (96) -- (96)
Income tax benefit (expense) 38 -- 38
------------- ------------- -------------
Net earnings (loss) (58) -- (58)
Dividend requirement on redeemable preferred stocks (10) -- (10)
------------- ------------- -------------
Net earnings (loss) attributable to common
stockholders $ (68) -- (68)
============= ============= =============
Primary earnings (loss) attributable to common
stockholders per common and
common equivalent share:
TCI Group Series A and Series B common stock $ (.12) (.01)(8)
============= =============
Liberty Media Group Series A and Series B common stock $ .06 .06
============= =============
TCI Ventures Group Series A and Series B common stock $ -- (.40)(10)
============= =============
</TABLE>
See accompanying notes to unaudited condensed pro forma combined financial
statements.
V-9
<PAGE> 231
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Condensed Pro Forma Combined Statement of Operations
(unaudited)
<TABLE>
<CAPTION>
Year ended December 31, 1996
--------------------------------------------------------------------------------
TCI Exchange Satellite VII Cable Pro forma TCI
Historical Offers(1) Distribution(2) Historical(3) adjustments(3) Pro forma
---------- --------- --------------- ------------- ------------- ---------
amounts in millions
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 8,022 -- (377) 280 -- 7,925
Operating, cost of sales, selling, general
and administrative expenses,
compensation relating to stock
appreciation rights and restructuring
charges (5,774) -- 373 (176) -- (5,577)
Depreciation and amortization (1,616) -- 166 (52) (14)(4) (1,516)
-------- -------- -------- -------- -------- --------
Operating income (loss) 632 -- 162 52 (14) 832
Interest expense (1,096) -- -- (31) (44)(5) (1,171)
Interest and dividend income 64 -- -- 2 -- 66
Share of earnings (losses) of affiliates, net (473) -- -- -- -- (473)
Gains 1,605 -- -- -- -- 1,605
Other income (expense), net (192) -- -- 1 (18)(6) (209)
-------- -------- -------- -------- -------- --------
Earnings (loss) before income taxes 540 -- 162 24 (76) 650
Income tax benefit (expense) (262) -- (53) (13) 11 (7) (317)
-------- -------- -------- -------- -------- --------
Net earnings (loss) 278 -- 109 11 (65) 333
Dividend requirement on redeemable
preferred stocks (35) -- -- -- -- (35)
-------- -------- -------- -------- -------- --------
Net earnings (loss) attributable to
common stockholders $ 243 -- 109 11 (65) 298
======== ======== ======== ======== ======== ========
Primary earnings (loss) attributable to
common stockholders per common
and common equivalent share:
TCI Group Series A and Series B common
stock $ (1.22) (1.04)(9)
======== ========
Liberty Media Group Series A and
Series B common stock $ 3.97 3.97
======== ========
TCI Ventures Group Series A and Series
B common stock $ -- (1.39)(11)
======== ========
</TABLE>
See accompanying notes to unaudited condensed pro forma combined financial
statements.
V-10
<PAGE> 232
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Condensed Pro Forma Combined Financial Statements
March 31, 1997
(unaudited)
(1) On May 14, 1997, the Board of Directors of TCI authorized, subject to
shareholder approval (the "TCI Ventures Group Stock Proposal"), the
issuance of two new series of stock ("TCI Ventures Group Stock") which
are intended to reflect the separate performance of the TCI Ventures
Group.
The TCI Ventures Group Stock, if issued, will be intended to reflect
the separate performance of the TCI Ventures Group. The TCI Ventures
Group would initially consist principally of the following assets and
their related liabilities: (i) TCI's 85% equity interest (representing
a 92% voting interest) in Tele-Communications International, Inc.
("International"), which is the Company's primary vehicle for the
conduct of its international cable, telephony and programming
businesses (other than those international programming businesses
attributed to the Liberty Media Group), (ii) TCI's principal interests
in the telephony business consisting primarily of the Company's
investment in a series of partnerships formed to engage in the
business of providing wireless communications services, using the
radio spectrum for broadband personal communications services ("PCS"),
to residential and business customers nationwide under the Sprint(R)
brand (a registered trademark of Sprint Communications Company, L.P.)
(the "PCS Ventures"), the Company's 30% equity interest (representing
a 37% voting interest) in Teleport Communications Group Inc. ("TCG"),
a competitive local exchange carrier, and Western Tele-Communications,
Inc., a wholly owned subsidiary of the Company that provides long
distance transport of video, voice and data traffic and other
telecommunications services to interexchange carriers on a wholesale
basis using primarily a digital broadband microwave network located
throughout a 12 state region, (iii) TCI's 40% equity interest
(representing a 85% voting interest in United Video Satellite Group,
Inc. ("UVSG"), which provides satellite-delivered video, audio, data
and program promotion services to cable television systems, satellite
dish owners, radio stations and private network users, primarily
throughout North America, (iv) TCI's 43% equity interest (representing
a 75% voting interest) in At Home Corporation, a provider of high
speed multimedia Internet services, and TCI's interest in other
Internet-related assets and (v) miscellaneous other assets, including
ETC w/tci, Inc., an 80% owned subsidiary of the Company which is a
developer and distributor of for-profit education, training and
communications services and products, National Digital Television
Center, Inc. ("NDTC"), which provides digital compression and
authorization services to programming suppliers and to video
distribution outlets and TCI Summitrak of Texas, Inc. and TCI
Summitrak L.L.C., wholly owned subsidiaries of the Company that
provide an integrated network-based information management system
currently to certain of TCI's cable systems with plans to expand the
service to include third parties. The stocks of International, TCG and
UVSG are traded on the National Market tier of The Nasdaq Stock
Market.
(continued)
V-11
<PAGE> 233
Contemporaneously with the mailing of a proxy statement to
shareholders for the shareholder approval of the TCI Ventures Group
Stock Proposal, the Company is commencing offers (the "Exchange
Offers") to exchange shares of Series A TCI Ventures Group Stock and
Series B TCI Ventures Group Stock for shares of Series A TCI Group
Stock and shares of Series B TCI Group Stock, respectively,
(representing approximately 28-35% of the outstanding shares of each
such series) in the ratio of one share of the applicable series of TCI
Ventures Group Stock in exchange for each share of the corresponding
series of TCI Group Stock properly tendered. The Exchange Offers are
subject, among other conditions, to the approval by stockholders of
the TCI Ventures Group Stock Proposal. If such approval is obtained,
the Company would consummate the Exchange Offers promptly following
the annual meeting.
The aggregate number of shares of TCI Ventures Group Stock being
offered in the Exchange Offers is intended initially to represent 100%
of the common stockholders' equity value of the Company attributable
to the TCI Ventures Group.
Solely for purposes of these pro forma financial statements, it is
assumed that shares representing 28% of the TCI Group Stock, which
were issued and outstanding as of March 31, 1997 and December 31,
1996, as appropriate, were exchanged for TCI Ventures Group Stock on a
share for share basis.
(2) On December 4, 1996, TCI completed the Distribution by TCI to the
holders of shares of the TCI Group common stock of all of the issued
and outstanding common stock of Satellite. At the time of the
Distribution, Satellite was a Delaware corporation and a direct
wholly-owned subsidiary of TCI. The Distribution was effected as a
tax-free dividend to, and did not involve the payment of any
consideration by, the holders of TCI Group common stock. Prior to the
Distribution, TCI caused to be transferred to Satellite, or one or
more of Satellite's subsidiaries, certain assets and businesses (and
the related liabilities) of the TCI Group constituting all of TCI's
interests in the business of distributing multichannel programming
services in the United States direct to the home via medium power or
high power broadcast satellite, including the rental and sale of
customer premises equipment relating thereto.
(3) On July 31, 1996, pursuant to certain agreements entered into among
TCI Communications, Inc. ("TCIC"), a subsidiary of TCI, TCI, Viacom
International Inc. and Viacom, Inc. ("Viacom"), TCIC acquired all of
the common stock of VII Cable which, at the time of such acquisition,
owned Viacom's cable systems and related assets.
(continued)
V-12
<PAGE> 234
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Condensed Pro Forma Combined Financial Statements
The transaction was structured as a tax-free reorganization in which
VII Cable initially transferred all of its non-cable assets, as well
as all of its liabilities other than current liabilities, to a new
subsidiary of Viacom ("New Viacom Sub"). VII Cable also transferred to
New Viacom Sub the proceeds (the "Loan Proceeds") of a $1.7 billion
loan facility (the "Loan Facility") arranged by TCIC, TCI and VII
Cable. Following these transfers, VII Cable retained cable assets with
a value at closing of approximately $2.326 billion and the obligation
to repay the Loan Proceeds borrowed under the Loan Facility. Neither
Viacom nor New Viacom Sub has any obligation with respect to repayment
of the Loan Proceeds.
Prior to the consummation of the VII Cable Acquisition, Viacom offered
to the holders of shares of Viacom Class A Common Stock and Viacom
Class B Common Stock (collectively, "Viacom Common Stock") the
opportunity to exchange (the "Exchange Offer") a portion of their
shares of Viacom Common Stock for shares of Class A Common Stock, par
value $100 per share, of VII Cable ("VII Cable Class A Stock").
Immediately following the completion of the Exchange Offer, TCIC
acquired from VII Cable shares of VII Cable Class B Common Stock (the
"Share Issuance") in exchange for $350 million (which was used to
reduce VII Cable's obligations under the Loan Facility). At the time
of the Share Issuance, the VII Cable Class A Stock received by Viacom
stockholders pursuant to the Exchange Offer automatically converted
into 5% Class A Senior Cumulative Exchangeable Preferred Stock (the
"Exchangeable Preferred Stock") of VII Cable with a stated value of
$100 per share.
The cost to acquire VII Cable was approximately $2.326 billion,
consisting of the Loan Proceeds and the $626 million aggregate par
value of the VII Cable Exchangeable Preferred Stock. The accompanying
unaudited pro forma condensed combined statements of operations do not
reflect potential cost savings attributable to (i) economics of scale
which may be realized in connection with purchases of programming and
equipment or (ii) consolidation of certain operating and
administrative functions including the elimination of duplicative
facilities and personnel.
(4) Represents depreciation and amortization of VII Cable's allocated
excess purchase price based upon a weighted average life of 12.5 years
for property and equipment and a 40 year life for franchise costs.
(5) Represents assumed additional interest expense (after taking into
consideration interest expense reflected in the historical VII Cable
operations) incurred by the Company on the borrowings of the Loan
Proceeds. Solely for the purposes of this presentation, the Company
has assumed an interest rate of 7.50% for the year ended December 31,
1996, based upon historical interest rates adjusted for anticipated
terms of the Loan Facility.
(6) Reflects a 5.0% cumulative annual dividend on the $626 million of VII
Cable Exchangeable Preferred Stock included in minority share of
losses of consolidated subsidiaries.
(7) Reflects the estimated income tax effect of the VII Cable pro forma
adjustments. The effective income tax rate on a pro forma basis is
adversely affected by the amortization of excess acquisition costs,
which are assumed not to be deductible for tax purposes.
(continued)
V-13
<PAGE> 235
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Condensed Pro Forma Combined Financial Statements
(8) Reflects loss per common share based upon 486.80 million weighted
average shares of TCI Group at March 31, 1997. Such amount represents
the weighted average shares disclosed in TCI's historical financial
statements net of 191.2 million shares assumed exchanged in the
Exchange Offers.
(9) Reflects loss per common share based upon 478.8 million weighted
average shares of TCI Group for the entire period ended December 31,
1996, respectively. Such amounts represent TCI Group weighted average
shares, as disclosed in its historical financial statements net of
186.0 million shares assumed exchanged in the Exchange Offers.
(10) Reflects loss per common share for the three months ended March 31,
1997 based upon 191.2 million weighted average shares of TCI Ventures
Group assumed issued in exchange for TCI Group Stock in the Exchange
Offers.
(11) Reflects loss per common share for the year ended December 31, 1996
based upon 186.0 million weighted average shares of TCI Ventures Group
assumed issued in exchange for TCI Group Stock in the Exchange Offers.
V-14
<PAGE> 236
"TCI VENTURES GROUP"
Pro Forma Combined Financial Statements
March 31, 1997
(unaudited)
The following unaudited pro forma combined balance sheet of TCI Ventures
Group, dated as of March 31, 1996, assumes that the Exchange Offers (see note
1) had occurred as of such date.
The following unaudited pro forma combined statements of operations of TCI
Ventures Group for the three months ended March 31, 1997 and the year ended
December 31, 1996 assumes that the Exchange Offers had occurred as of January
1, 1996.
The unaudited pro forma results do not purport to be indicative of the
results of operations that would have been obtained if the Exchange Offers had
occurred as of January 1, 1996. These pro forma combined financial statements
of TCI Ventures Group should be read in conjunction with the historical
financial statements and the related notes thereto of TCI Ventures Group.
V-15
<PAGE> 237
"TCI VENTURES GROUP"
Pro Forma Combined Balance Sheet
(unaudited)
<TABLE>
<CAPTION>
March 31, 1997
-------------------------------------------
TCI Ventures TCI Ventures
Group Exchange Group
Historical Offers(1) Pro forma
----------- --------- ----------
Assets amounts in thousands
- - ------
<S> <C> <C>
Cash, receivables and other
current assets $ 171,264 -- 171,264
Investment in affiliates and
related receivables 1,821,126 -- 1,821,126
Property and equipment, net of
accumulated depreciation 745,393 -- 745,393
Franchise costs, intangibles and
other assets, net of amortization 1,125,779 -- 1,125,779
----------- --------- ----------
$ 3,863,562 -- 3,863,562
=========== ========= ==========
Liabilities and Stockholders' Equity
- - ------------------------------------
Payables and accruals $ 307,459 -- 307,459
Capital lease obligations 193,832 -- 193,832
Debt 512,757 -- 512,757
Deferred income taxes 189,107 -- 189,107
Other liabilities 8,263 -- 8,263
----------- --------- ----------
Total liabilities 1,211,418 -- 1,211,418
----------- --------- ----------
Minority interests 218,147 -- 218,147
Combined equity:
Combined equity 2,556,643 -- 2,556,643
Cumulative foreign currency translation
adjustment 4,817 -- 4,817
Unrealized holding gains for available-for-sale
securities 7,028 -- 7,028
Due from TCI (134,491) -- (134,491)
----------- --------- ----------
2,433,997 -- 2,433,997
----------- --------- ----------
$ 3,863,562 -- 3,863,562
=========== ========= ==========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
V-16
<PAGE> 238
"TCI VENTURES GROUP"
Pro Forma Combined Statement of Operations
(unaudited)
<TABLE>
<CAPTION>
Three months ended March 31, 1997
-------------------------------------------
TCI Ventures TCI Ventures
Group Exchange Group
Historical Offers(1) Pro forma
------------ -------- ------------
amounts in thousands
<S> <C> <C> <C>
Revenue $ 247,020 -- 247,020
Operating, selling, general and administrative
expenses and compensation relating to stock
appreciation rights (205,991) -- (205,991)
Depreciation and amortization (41,144) -- (41,144)
--------- -------- --------
Operating loss (115) -- (115)
Interest expense (14,196) -- (14,196)
Share of losses of affiliates, net (142,120) -- (142,120)
Other income (expense), net 34,809 -- 34,809
--------- -------- --------
Loss before income taxes (121,622) -- (121,622)
Income tax benefit 44,370 -- 44,370
--------- -------- --------
Net loss $ (77,252) -- (77,252)
========= ======== ========
Net loss attributable to common
stockholders $ -- (77,252) (77,252)
========= ======== ========
Loss attributable to common stockholders per
common share $ -- (.40)(2)
========= ========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
V-17
<PAGE> 239
"TCI VENTURES GROUP"
Pro Forma Combined Statement of Operations
(unaudited)
<TABLE>
<CAPTION>
Year ended December 31, 1996
------------------------------------------
TCI Ventures TCI Ventures
Group Exchange Group
Historical Offers(1) Pro forma
--------- -------- --------
amount in thousands
<S> <C> <C> <C>
Revenue $ 925,676 -- 925,676
Operating, selling, general and
administrative expenses, compensation
relating to stock appreciation rights
and restructuring charge (826,944) -- (826,944)
Depreciation and amortization (149,289) -- (149,289)
--------- -------- --------
Operating income (50,557) -- (50,557)
Interest expense (51,128) -- (51,128)
Share of losses of affiliates, net (368,338) -- (368,338)
Gains 32,941 -- 32,941
Other income (expense), net 68,315 -- 68,315
--------- -------- --------
Loss before income taxes (368,767) -- (368,767)
Income tax benefit 110,345 -- 110,345
--------- -------- --------
Net loss $(258,422) -- (258,422)
========= ======== ========
Net loss attributable to common stockholders $ -- (258,422) (258,422)
========= ======== ========
Loss attributable to common stockholders per
common share $ -- (1.39)(3)
========= ========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
V-18
<PAGE> 240
"TCI VENTURES GROUP"
Notes to Pro Forma Combined Financial Statements
March 31, 1997
(unaudited)
(1) On May 14, 1997, the Board of Directors of Tele-Communications, Inc.
("TCI" or the "Company") authorized, subject to shareholder approval
(the "TCI Ventures Group Stock Proposal"), the issuance of two new
series of stock ("TCI Ventures Group Stock") which are intended to
reflect the separate performance of the TCI Ventures Group.
The TCI Ventures Group Stock, if issued, will be intended to reflect
the separate performance of the TCI Ventures Group. The TCI Ventures
Group would initially consist principally of the following assets and
their related liabilities: (i) TCI's 85% equity interest (representing
a 92% voting interest) in Tele-Communications International, Inc.
("International"), which is the Company's primary vehicle for the
conduct of its international cable, telephony and programming
businesses (other than those international programming businesses
attributed to the Liberty Media Group), (ii) TCI's principal interests
in the telephony business consisting primarily of the Company's
investment in a series of partnerships formed to engage in the
business of providing wireless communications services, using the
radio spectrum for broadband personal communications services ("PCS"),
to residential and business customers nationwide under the Sprint(R)
brand (a registered trademark of Sprint Communications Company, L.P.)
(the "PCS Ventures"), the Company's 30% equity interest (representing
a 37% voting interest) in Teleport Communications Group Inc. ("TCG"),
a competitive local exchange carrier, and Western Tele-Communications,
Inc., a wholly owned subsidiary of the Company that provides long
distance transport of video, voice and data traffic and other
telecommunications services to interexchange carriers on a wholesale
basis using primarily a digital broadband microwave network located
throughout a 12 state region, (iii) TCI's 40% equity interest
(representing a 85% voting interest in United Video Satellite Group,
Inc. ("UVSG"), which provides satellite-delivered video, audio, data
and program promotion services to cable television systems, satellite
dish owners, radio stations and private network users, primarily
throughout North America, (iv) TCI's 43% equity interest (representing
a 75% voting interest) in At Home Corporation ("@Home"), a provider of
high speed multimedia Internet services, and TCI's interest in other
Internet-related assets and (v) miscellaneous other assets, including
ETC w/tci, Inc., an 80% owned subsidiary of the Company which is a
developer and distributor of for-profit education, training and
communications services and products, National Digital Television
Center, Inc., which provides digital compression and authorization
services to programming suppliers and to video distribution outlets
and TCI Summitrak of Texas, Inc. and TCI Summitrak L.L.C., wholly
owned subsidiaries of the Company that provide an integrated
network-based information management system currently to certain of
TCI's cable systems with plans to expand the service to include third
parties. The stocks of International, TCG and UVSG are traded on the
National Market tier of The Nasdaq Stock Market.
(continued)
V-19
<PAGE> 241
"TCI VENTURES GROUP"
Notes to Pro Forma Combined Financial Statements
Contemporaneously with the mailing of a proxy statement to
shareholders for the shareholder approval of the TCI Ventures Group
Stock Proposal, the Company is commencing offers (the "Exchange
Offers") to exchange shares of Series A TCI Ventures Group Stock and
Series B TCI Ventures Group Stock for shares of Series A TCI Group
Stock and shares of Series B TCI Group Stock, respectively,
(representing approximately 28-35% of the outstanding shares of each
such series) in the ratio of one share of the applicable series of TCI
Ventures Group Stock in exchange for each share of the corresponding
series of TCI Group Stock properly tendered. The Exchange Offers are
subject, among other conditions, to the approval by stockholders of
the TCI Ventures Group Stock Proposal. If such approval is obtained,
the Company would consummate the Exchange Offers promptly following
the annual meeting.
The aggregate number of shares of TCI Ventures Group Stock being
offered in the Exchange Offers is intended initially to represent 100%
of the common stockholders' equity value of the Company attributable
to the TCI Ventures Group. Accordingly, if all of such shares were
issued in the Exchange Offers the Inter-Group Interest of the TCI
Group would be reduced to zero. If immediately following the
consummation of the Exchange Offers the TCI Group has any remaining
Inter-Group Interest in the TCI Ventures Group, the Company will
extinguish such Inter-Group Interest in consideration of the
attribution to the TCI Group of a preferred equity interest in the TCI
Ventures Group with a face amount equal to the market value of the
shares of TCI Ventures Group Stock not issued in the Exchange Offers
(which shall be deemed to be the same, on a per share basis, as the
market value of the Series A TCI Group Stock on the last trading day
preceding the closing of the Exchange Offers), a dividend rate of 5%
per annum (with dividends being payable in kind until the fifth
anniversary of the closing of the Exchange Offers and a mandatory
redemption obligation on the 15th anniversary of the closing of the
Exchange Offers.
Solely for purposes of these pro forma financial statements, it is
assumed that shares representing 28% of the TCI Group Stock which were
issued and outstanding as of March 31, 1997 and December 31, 1996, as
appropriate, were exchanged for TCI Ventures Group Stock on a share
for share basis.
(2) Reflects loss per common share for the three months ended March 31,
1997 based upon 191.2 million weighted average shares of TCI Ventures
Group assumed issued in exchange for TCI Group Stock in the Exchange
Offers.
(3) Reflects loss per common share for the year ended December 31, 1996
based upon 186.0 million weighted average shares of TCI Ventures Group
assumed issued in exchange for TCI Group Stock in the Exchange Offers.
V-20
<PAGE> 242
"TCI Group"
Condensed Pro Forma Combined Financial Statements
March 31, 1997
(unaudited)
The following unaudited condensed pro forma combined balance sheet of TCI
Group, dated as of March 31, 1997, assumes that the Exchange Offers (see note
1) had occurred as of such date.
The following unaudited condensed pro forma combined statement of
operations of TCI Group for the three months ended March 31, 1997 assumes that
the Exchange Offers had occurred as of January 1, 1997.
The following unaudited condensed pro forma combined statement of
operations of TCI Group for the year ended December 31, 1996 assumes that the
Exchange Offers, the distribution (the "Distribution") by TCI to the holders of
shares of TCI Group common stock of all the issued and outstanding common stock
of TCI Satellite Entertainment, Inc. ("Satellite") (see note 2) and the
acquisition of all the common stock of a subsidiary of Viacom, Inc. ("VII Cable
") (the "VII Cable Acquisition") (see note 3) had occurred as of January 1,
1996.
The unaudited pro forma results do not purport to be indicative of the
results of operations that would have been obtained if the Exchange Offers, the
Distribution and the VII Cable Acquisition had occurred as of January 1, 1996.
These condensed pro forma combined financial statements of TCI Group should be
read in conjunction with the historical financial statements and the related
notes thereto of TCI Group.
V-21
<PAGE> 243
"TCI GROUP"
Condensed Pro Forma Combined Balance Sheet
(unaudited)
<TABLE>
<CAPTION>
March 31, 1997
-------------------------------------------------------------------
TCI Group TCI Ventures TCI Group
Historical Group Exchange Offers(1) Pro forma
---------- ----- ---------------- ----------
Assets amounts in millions
- - ------
<S> <C> <C> <C> <C>
Cash, receivables and other
current assets $ 733 (171) -- 562
Investment in affiliates and
related receivables 2,333 (1,821) -- 512
Property and equipment, net of
accumulated depreciation 7,678 (745) -- 6,933
Franchise costs, intangibles and
other assets, net of amortization 16,791 (1,127) -- 15,664
-------- ------ ---------- -------
$ 27,535 (3,864) -- 23,671
======== ====== ========== =======
Liabilities and Stockholders' Equity
- - ------------------------------------
Payables and accruals $ 1,439 (443) -- 996
Debt 15,049 (571) -- 14,478
Deferred income taxes 5,367 (189) -- 5,178
Other liabilities 229 (8) -- 221
-------- ------ ---------- -------
Total liabilities 22,084 (1,211) -- 20,873
-------- ------ ---------- -------
Minority interests 1,298 (218) -- 1,080
Redeemable preferred stock 655 -- -- 655
Company-obligated mandatorily redeemable
preferred securities of subsidiary
trusts holding solely subordinated
debt securities of TCIC 1,502 -- -- 1,502
Combined equity:
Combined equity (deficit) 2,039 -- (2,557) (518)
Cumulative foreign currency translation
adjustment 5 (5) -- --
Unrealized holding gains for
available-for-sale securities 11 (7) -- 4
Due from Liberty Media Group (59) -- -- (59)
Due to TCI Ventures Group -- 134 -- 134
Interest in TCI Ventures Group -- (2,557) 2,557 --
-------- ------ ---------- -------
1,996 (2,435) -- (439)
-------- ------ ---------- -------
$ 27,535 (3,864) -- 23,671
======== ====== ========== =======
</TABLE>
See accompanying notes to unaudited condensed pro forma combined financial
statements.
V-22
<PAGE> 244
"TCI GROUP"
Condensed Pro Forma Combined Statement of Operations
(unaudited)
<TABLE>
<CAPTION>
Three months ended March 31, 1997
--------------------------------------------------------
TCI Group TCI Ventures Exchange TCI Group
Historical Group Offers(1) Pro forma
---------- ------------ --------- ---------
amounts in millions
<S> <C> <C> <C> <C>
Revenue $ 1,791 (247) -- 1,544
Operating, selling, general and administrative
expenses and compensation relating to stock
appreciation rights (1,088) 206 -- (882)
Depreciation and amortization (373) 41 -- (332)
------- ---- ---- ------
Operating income 330 -- -- 330
Interest expense (289) 14 -- (275)
Share of losses of affiliates, net (159) 142 -- (17)
Other income (expense), net (6) (35) -- (41)
------- ---- ---- ------
Earnings (loss) before income taxes (124) 121 -- (3)
Income tax benefit (expense) 50 (44) -- 6
------- ---- ---- ------
Earnings (loss) before loss of TCI
Ventures Group (74) 77 -- 3
Loss of TCI Ventures Group -- (77) 77 --
------- ---- ---- ------
Net earning (loss) (74) -- 77 3
Dividend requirement on preferred stocks (10) -- -- (10)
------- ---- ---- ------
Net earnings (loss) attributable to
common stockholders $ (84) -- 77 (7)
======= ==== ==== ======
Loss attributable to common stockholders per
common share $ (.12) (.01)(8)
======= ======
</TABLE>
See accompanying notes to unaudited condensed pro forma combined financial
statements.
V-23
<PAGE> 245
"TCI GROUP"
Condensed Pro Forma Combined Statement of Operations
(unaudited)
<TABLE>
<CAPTION>
Year ended December 31, 1996
------------------------------------------
TCI
TCI Group Ventures Exchange
Historical Group Offers(1)
---------- ----- ---------
amount in millions
<S> <C> <C> <C>
Revenue $ 6,790 (926) --
Operating, selling, general and administrative
expenses and compensation relating to
stock appreciation rights (4,689) 827 --
Depreciation and amortization (1,555) 149 --
------- ---- ---
Operating income 546 50 --
Interest expense (1,080) 51 --
Share of losses of affiliates, net (469) 368 --
Gains 68 (33) --
Other income (expense), net (149) (68) --
------- ---- ---
Earnings (loss) before income taxes (1,084) 368 --
Income tax benefit (expense) 306 (110) --
------- ---- ---
Earnings (loss) before losses of
TCI Ventures Group (778) 258 --
Loss of TCI Ventures Group -- (258) 258
------- ---- ---
Net earnings (loss) (778) -- 258
Dividend requirement on redeemable preferred
stocks (35) -- --
------- ---- ---
Net earnings (loss) attributable to common
stockholders $ (813) -- 258
======= ==== ===
Loss attributable to common stockholders per
common share $ (1.22)
=======
<CAPTION>
Year ended December 31, 1996
-------------------------------------------------------------
Satellite VII Cable Pro forma TCI Group
Distribution (2) Historical (3) adjustments (3) Pro forma
---------------- -------------- --------------- ----------
amount in millions
<S> <C> <C> <C> <C>
Revenue (377) 280 -- 5,767
Operating, selling, general and administrative
expenses and compensation relating to
stock appreciation rights 373 (176) -- (3,665)
Depreciation and amortization 166 (52) (14)(4) (1,306)
---- ---- ------ ------
Operating income 162 52 (14) 796
Interest expense -- (31) (44)(5) (1,104)
Share of losses of affiliates, net -- -- -- (101)
Gains -- -- -- 35
Other income (expense), net -- 3 (18)(6) (232)
---- ---- ------ ------
Earnings (loss) before income taxes 162 24 (76) (606)
Income tax benefit (expense) (53) (13) 11 (7) 141
---- ---- ------ ------
Earnings (loss) before losses of
TCI Ventures Group 109 11 (65) (465)
Loss of TCI Ventures Group -- -- -- --
---- ---- ------ ------
Net earnings (loss) 109 11 (65) (465)
Dividend requirement on redeemable preferred
stocks -- -- -- (35)
---- ---- ------ ------
Net earnings (loss) attributable to common
stockholders 109 11 (65) (500)
==== ==== ====== ======
Loss attributable to common stockholders per
common share (1.04)(9)
======
</TABLE>
See accompanying notes to unaudited condensed pro forma combined financial
statements.
V-24
<PAGE> 246
"TCI GROUP"
Notes to Condensed Pro Forma Combined Financial Statements
March 31, 1997
(unaudited)
(1) On May 14, 1997, the Board of Directors of Tele-Communications, Inc.
("TCI" or the "Company") authorized, subject to shareholder approval
(the "TCI Ventures Group Stock Proposal"), the issuance of two new
series of stock ("TCI Ventures Group Stock") which are intended to
reflect the separate performance of the TCI Ventures Group.
The TCI Ventures Group Stock, if issued, will be intended to reflect
the separate performance of the TCI Ventures Group. The TCI Ventures
Group would initially consist principally of the following assets and
their related liabilities: (i) TCI's 85% equity interest (representing
a 92% voting interest) in Tele-Communications International, Inc.
("International"), which is the Company's primary vehicle for the
conduct of its international cable, telephony and programming
businesses (other than those international programming businesses
attributed to the Liberty Media Group), (ii) TCI's principal interests
in the telephony business consisting primarily of the Company's
investment in a series of partnerships formed to engage in the
business of providing wireless communications services, using the
radio spectrum for broadband personal communications services ("PCS"),
to residential and business customers nationwide under the Sprint(R)
brand (a registered trademark of Sprint Communications Company, L.P.)
(the "PCS Ventures"), the Company's 30% equity interest (representing
a 37% voting interest) in Teleport Communications Group Inc. ("TCG"),
a competitive local exchange carrier, and Western Tele-Communications,
Inc., a wholly owned subsidiary of the Company that provides long
distance transport of video, voice and data traffic and other
telecommunications services to interexchange carriers on a wholesale
basis using primarily a digital broadband microwave network located
throughout a 12 state region, (iii) TCI's 40% equity interest
(representing a 85% voting interest in United Video Satellite Group,
Inc. ("UVSG"), which provides satellite-delivered video, audio, data
and program promotion services to cable television systems, satellite
dish owners, radio stations and private network users, primarily
throughout North America, (iv) TCI's 43% equity interest (representing
a 75% voting interest) in At Home Corporation, a provider of high
speed multimedia Internet services, and TCI's interest in other
Internet-related assets and (v) miscellaneous other assets, including
ETC w/tci, Inc., an 80% owned subsidiary of the Company which is a
developer and distributor of for-profit education, training and
communications services and products, National Digital Television
Center, Inc. ("NDTC"), which provides digital compression and
authorization services to programming suppliers and to video
distribution outlets and TCI Summitrak of Texas, Inc. and TCI
Summitrak L.L.C., wholly owned subsidiaries of the Company that
provide an integrated network-based information management system
currently to certain of TCI's cable systems with plans to expand the
service to include third parties. The stocks of International, TCG and
UVSG are traded on the National Market tier of The Nasdaq Stock
Market.
(continued)
V-25
<PAGE> 247
"TCI GROUP"
Notes to Condensed Pro Forma Combined Financial Statements
Contemporaneously with the mailing of a proxy statement to
shareholders for the shareholder approval of the TCI Ventures Group
Stock Proposal, the Company is commencing offers (the "Exchange
Offers") to exchange shares of Series A TCI Ventures Group Stock and
Series B TCI Ventures Group Stock for shares of Series A TCI Group
Stock and shares of Series B TCI Group Stock, respectively,
(representing approximately 28-35% of the outstanding shares of each
such series) in the ratio of one share of the applicable series of TCI
Ventures Group Stock in exchange for each share of the corresponding
series of TCI Group Stock properly tendered. The Exchange Offers are
subject, among other conditions, to the approval by stockholders of
the TCI Ventures Group Stock Proposal. If such approval is obtained,
the Company would consummate the Exchange Offers promptly following
the annual meeting.
The aggregate number of shares of TCI Ventures Group Stock being
offered in the Exchange Offers is intended initially to represent 100%
of the common stockholders' equity value of the Company attributable
to the TCI Ventures Group. Accordingly, if all of such shares were
issued in the Exchange Offers the Inter-Group Interest of the TCI
Group would be reduced to zero. If immediately following the
consummation of the Exchange Offers the TCI Group has any remaining
Inter-Group Interest in the TCI Ventures Group, the Company will
extinguish such Inter-Group Interest in consideration of the
attribution to the TCI Group of a preferred equity interest in the TCI
Ventures Group with a face amount equal to the market value of the
shares of TCI Ventures Group Stock not issued in the Exchange Offers
(which shall be deemed to be the same, on a per share basis, as the
market value of the Series A TCI Group Stock on the last trading day
preceding the closing of the Exchange Offers), a dividend rate of 5%
per annum (with dividends being payable in kind until the fifth
anniversary of the closing of the Exchange Offers and a mandatory
redemption obligation on the 15th anniversary of the closing of the
Exchange Offers.
Solely for purposes of these pro forma financial statements, it is
assumed that shares representing 28% of the TCI Group Stock, which
were issued and outstanding as of March 31, 1997 and December 31,
1996, as appropriate, were exchanged for TCI Ventures Group Stock on a
share for share basis.
(2) On December 4, 1996, TCI completed the Distribution by TCI to the
holders of shares of the TCI Group common stock of all of the issued
and outstanding common stock of Satellite. At the time of the
Distribution, Satellite was a Delaware corporation and a direct
wholly-owned subsidiary of TCI. The Distribution was effected as a
tax-free dividend to, and did not involve the payment of any
consideration by, the holders of TCI Group common stock. Prior to the
Distribution, TCI caused to be transferred to Satellite, or one or
more of Satellite's subsidiaries, certain assets and businesses (and
the related liabilities) of the TCI Group constituting all of TCI's
interests in the business of distributing multichannel programming
services in the United States direct to the home via medium power or
high power broadcast satellite, including the rental and sale of
customer premises equipment relating thereto.
(continued)
V-26
<PAGE> 248
"TCI GROUP"
Notes to Condensed Pro Forma Combined Financial Statements
(3) On July 31, 1996, pursuant to certain agreements entered into among
TCIC, TCI, Viacom International Inc. and Viacom, TCIC acquired all of
the common stock of VII Cable which, at the time of such acquisition,
owned Viacom's cable systems and related assets.
The transaction was structured as a tax-free reorganization in which
VII Cable initially transferred all of its non-cable assets, as well as
all of its liabilities other than current liabilities, to New Viacom
Sub. VII Cable also transferred to New Viacom Sub the Loan Proceeds of
the Loan Facility arranged by TCIC, TCI and VII Cable. Following these
transfers, VII Cable retained cable assets with a value at closing of
approximately $2.326 billion and the obligation to repay the Loan
Proceeds borrowed under the Loan Facility. Neither Viacom nor New
Viacom Sub has any obligation with respect to repayment of the Loan
Proceeds.
Prior to the consummation of the VII Cable Acquisition, Viacom offered
to the holders of shares of Viacom Common Stock the opportunity to
exchange a portion of their shares of Viacom Common Stock for shares
of VII Cable Class A Stock. Immediately following the completion of
the Exchange Offer, TCIC acquired from VII Cable shares of VII Cable
Class B Common Stock in exchange for $350 million (which was used to
reduce VII Cable's obligations under the Loan Facility). At the time
of the Share Issuance, the VII Cable Class A Stock received by Viacom
stockholders pursuant to the Exchange Offer automatically converted
into the Exchangeable Preferred Stock of VII Cable with a stated value
of $100 per share. The terms of the Exchangeable Preferred Stock,
including its dividend, redemption and exchange features, were
designed to cause the Exchangeable Preferred Stock, in the opinion of
two investment banks, to initially trade at the Stated Value.
The cost to acquire VII Cable was approximately $2.326 billion,
consisting of the Loan Proceeds and the $626 million aggregate par
value of the VII Cable Exchangeable Preferred Stock. The accompanying
unaudited pro forma condensed combined statements of operations do not
reflect potential cost savings attributable to (i) economics of scale
which may be realized in connection with purchases of programming and
equipment or (ii) consolidation of certain operating and
administrative functions including the elimination of duplicative
facilities and personnel.
(4) Represents depreciation and amortization of VII Cable's allocated
excess purchase price based upon a weighted average life of 12.5 years
for property and equipment and a 40 year life for franchise costs.
(5) Represents assumed additional interest expense (after taking into
consideration interest expense reflected in the historical VII Cable
operations) incurred by TCI Group on the borrowings of the Loan
Proceeds. Solely for the purposes of this presentation, TCI Group has
assumed an interest rate of 7.50% for the year ended December 31,
1996, based upon historical interest rates adjusted for anticipated
terms of the Loan Facility.
(6) Reflects a 5.0% cumulative annual dividend on the $626 million of VII
Cable Exchangeable Preferred Stock included in minority share of
losses of consolidated subsidiaries.
(continued)
V-27
<PAGE> 249
"TCI GROUP"
Notes to Condensed Pro Forma Combined Financial Statements
(7) Reflects the estimated income tax effect of the pro forma adjustments.
The effective income tax rate on a pro forma basis is adversely
affected by the amortization of excess acquisition costs, which are
assumed not to be deductible for tax purposes.
(8) Reflects loss per common share based upon 486.8 million weighted
average shares. Such amount represents TCI Group's weighted average
shares, as disclosed in its March 31, 1997 historical financial
statements net of 191.2 million shares assumed exchanged in the
Exchange Offers.
(9) Reflects loss per common share based upon 478.8 million weighted
average shares for the entire period ended December 31, 1996. Such
amount represents TCI Group's weighted average shares as disclosed in
its December 31, 1996 historical financial statements net of 186.0
million shares assumed exchanged in the Exchange Offers.
V-28
<PAGE> 250
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with
the Company's Management's Discussion and Analysis of Financial Condition and
Results of Operations included herein for the year ended December 31, 1996. The
following discussion focuses on material changes in the trends, risks and
uncertainties affecting the Company's results of operations and financial
condition. Reference should also be made to the Company's consolidated
financial statements included herein.
(1) Material changes in financial condition:
The Company is organized based upon four lines of business: Domestic
Cable and Communications; Programming; International Cable and Programming
("TINTA"); and Technology/Venture Capital. Within the Domestic Cable and
Communications line of business, the Company operates three strategic business
units: Cable, Telephony and Internet. The Company's organizational structure
provides for financial and operational independence in the four operating
units, each under the direction of its own chief executive officer, while
maintaining the synergies and scale economies provided by a common corporate
parent. While none of TINTA, the Technology/Venture Capital unit, the Telephony
unit or the Internet unit is currently significant to the Company as a whole,
the Company believes each unit has growth potential and each unit is unique
enough in nature to warrant separate operational focus.
During March 1997, the Company, through special purpose entities formed
as Delaware business trusts, issued $300 million in face value of 9.65% Capital
Securities and $200 million in face value of 9.72% Trust Preferred Securities.
The Company used the net proceeds from such issuances to retire commercial
paper and repay certain other indebtedness.
In January 1997, the Company acquired the 50% ownership interest in TKR
Cable Company ("TKR Cable") that the Company did not previously own and certain
additional assets for aggregate consideration of approximately $970 million.
The Company issued approximately 16 million shares of Series A TCI Group common
stock ("TCI Group Stock"), assumed $584 million of TKR Cable's debt and paid
cash of $88 million and shares of Time Warner, Inc. ("Time Warner") common
stock valued at $41 million upon consummation of such acquisition.
On July 31, 1996, TCI Communications, Inc. ("TCIC") consummated the
acquisition (the "Viacom Acquisition") of all of the common stock of a
subsidiary ("Cable Sub") of Viacom, Inc. ("Viacom") which owned Viacom's cable
systems and related assets. The transaction was structured as a tax-free
reorganization in which Cable Sub initially transferred all of its non-cable
assets, as well as all of its liabilities other than current liabilities, to a
new subsidiary of Viacom ("New Viacom Sub"). Cable Sub also transferred to New
Viacom Sub the proceeds (the "Loan Proceeds") of a $1.7 billion loan facility
(the "Loan Facility") arranged by TCIC, TCI and Cable Sub. Following these
transfers, Cable Sub retained cable assets with a value at closing of
approximately $2.326 billion and the obligation to repay the Loan Proceeds
borrowed under the Loan Facility. Neither Viacom nor New Viacom Sub has any
obligation with respect to repayment of the Loan Proceeds. For additional
discussion of the Viacom Acquisition, see note 6 to the accompanying
consolidated financial statements.
(continued)
V-29
<PAGE> 251
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(1) Material changes in financial condition (continued):
At March 31, 1997, subsidiaries of the Company had approximately $2.0
billion of availability in unused lines of credit, excluding amounts related to
lines of credit which provide availability to support commercial paper.
Although such subsidiaries of the Company were in compliance with the
restrictive covenants contained in their credit facilities at said date,
additional borrowings under the credit facilities are subject to the
subsidiaries' continuing compliance with the 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 subsidiaries' lines of credit.
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, compensation relating to
stock appreciation rights and adjustments to compensation relating to stock
appreciation rights) ($738 million and $533 million for the three months ended
March 31, 1997 and 1996, respectively) to interest expense ($289 million and
$261 million for the three months ended March 31, 1997 and 1996, respectively),
is determined by reference to the consolidated statements of operations. The
Company's interest coverage ratio was 255% and 204% for the three months ended
March 31, 1997 and 1996, respectively. Management of the Company believes that
the foregoing interest coverage ratio is adequate in light of the relative
predictability of its cable television operations and interest expense, almost
half of which results from fixed rate indebtedness. However, the Company's
current intent is to reduce its outstanding indebtedness such that its interest
coverage ratio could be increased. There is no assurance that the Company will
be able to achieve such objective. 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 ($239 million and $317 million
for the three months ended March 31, 1997 and 1996, respectively) 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. Historically,
amounts expended by the Company for its investing activities have exceeded net
cash provided by operating activities. However, management believes that net
cash provided by operating activities, the ability of the Company and its
subsidiaries to obtain additional financing (including the subsidiaries
available lines of credit and access to public debt markets), issuances and
sales of the Company's equity or equity of its subsidiaries, and proceeds from
disposition of assets will provide adequate sources of short-term and long-term
liquidity in the future. See the Company's consolidated statements of cash
flows included in the accompanying consolidated financial statements.
(continued)
V-30
<PAGE> 252
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(1) Material changes in financial condition (continued):
The Company's subsidiaries generally finance acquisitions and capital
expenditures through net cash provided by operating and financing activities.
Historically, amounts expended for acquisitions, investments and capital
expenditures have exceeded net cash provided by operating activities. The
Company has reevaluated its capital expenditure strategy and currently
anticipates that it will expend significantly less for property and equipment
in 1997 than it did in 1996. In this regard, the amount of capital expended by
the Company for property and equipment was $90 million during the three months
ended March 31, 1997, as compared to $423 million during the corresponding
period in 1996. The Company currently estimates that it will spend
approximately $750 million for capital expenditures during 1997. To the extent
that net cash provided by operating activities exceeds net cash used in
investing activities in 1997, the Company currently anticipates that such
excess cash will initially be used to reduce outstanding debt.
The Company is obligated to pay fees for the rights to exhibit certain
films that are released by various producers through 2017 (the "Film Licensing
Obligations"). Based on customer levels at March 31, 1997, these agreements
require minimum payments aggregating approximately $651 million. The aggregate
amount of the Film Licensing Obligations under other license agreements is not
currently estimable because such amount is dependent upon the number of
qualifying films released theatrically by certain motion picture studios as
well as the domestic theatrical exhibition receipts upon the release of such
qualifying films. Nevertheless, the Company's aggregate payments under the Film
Licensing Obligations could prove to be significant.
The Company has made certain financial commitments related to the
acquisition of sports program rights through 2004. At March 31, 1997, such
commitments aggregated $215 million.
The Company has guaranteed notes payable and other obligations of
affiliated and other companies with outstanding balances of approximately $252
million at March 31, 1997. Although there can be no assurance, management of
the Company believes that it will not be required to meet its obligations under
such guarantees, or if it is required to meet any of such obligations, that
they will not be material to the Company.
The Company's various partnerships and other affiliates accounted for
under the equity method generally fund their acquisitions, required debt
repayments and capital expenditures through borrowings under and refinancing of
their own credit facilities (which are generally not guaranteed by the Company)
and through net cash provided by their own operating activities.
(continued)
V-31
<PAGE> 253
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(1) Material changes in financial condition (continued):
In order to achieve the desired balance between variable and fixed rate
indebtedness and to diminish its exposure to extreme increases in variable
interest rates, the Company has entered into various interest rate exchange
agreements. Pursuant to the interest rate exchange agreements, the Company (i)
pays fixed interest rates (the "Fixed Rate Agreements") ranging from 7.1% to
9.3% and receives variable interest rates on notional amounts of $410 million
at March 31, 1997 and (ii) pays variable interest rates (the "Variable Rate
Agreements") and receives fixed interest rates ranging from 4.8% to 9.7% on
notional amounts of $2,250 million at March 31, 1997. During the three months
ended March 31, 1997 and 1996, the Company's net receipts pursuant to the Fixed
Rate Agreements were $3 million and $5 million, respectively; and the Company's
net receipts pursuant to the Variable Rate Agreements were $1 million and $8
million, respectively. The Company is exposed to credit losses for the periodic
settlements of amounts due under the interest rate exchange agreements in the
event of nonperformance by the other parties to the agreements. However, the
Company does not anticipate that it will incur any material credit losses
because it does not anticipate nonperformance by the counterparties.
On March 12, 1997, the TCI stockholders authorized the TCI Board of
Directors to issue two new series of the Company's common stock, par value
$1.00 per share, (and a corresponding increase in the total number of
authorized shares of common stock) to be designated Tele-Communications, Inc.
Series A Telephony Group common stock and Tele-Communications, Inc. Series B
Telephony Group common stock (collectively, the "Telephony Group Stock"). The
Telephony Group Stock, if issued, would be intended to reflect the separate
performance of Telephony Group, which initially consists of the Company's
investments in certain entities engaged in the domestic wireline and wireless
telephony businesses. A total of 750 million shares of Series A Telephony Group
Stock and 75 million shares of Series B Telephony Group Stock were authorized.
As of March 31, 1997, no shares of Telephony Group Stock have been issued.
TCI is considering the creation of a new series of its common stock which
would be intended to reflect the performance of substantially all of TCI
Group's international and non-cable assets. To do this, TCI is contemplating
amending the recently approved Telephony Group Stock to expand that group to
track such assets, including TCI's investments in At Home Corporation, TINTA,
United Video Satellite Group, Inc. and others. The tracking stock may be issued
through an exchange offer whereby the Company's stockholders will have the
opportunity to exchange their TCI Group Stock for tracking stock of the new
group.
On April 21, 1997, TCI announced that it had entered into an agreement to
merge Kearns-Tribune Corporation into a wholly-owned TCI subsidiary. The merger
is valued at approximately $627 million. Pursuant to the merger agreement, TCI
would exchange shares of Series A TCI Group Stock for shares of Kearns-Tribune
Corporation which holds 17.9 million shares of TCI Group Stock and 6.7 million
shares of Liberty Group Stock. Liberty Media Group intends to purchase from TCI
Group the 6.7 million shares that would be acquired in such transaction at
market valuations to be determined at the time of the merger closing.
(continued)
V-32
<PAGE> 254
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(2) Material changes in results of operations:
Communications and Programming Services Revenue
The operation of the Company's cable television systems is regulated at
the federal, state and local levels. The Cable Television Consumer Protection
and Competition Act of 1992 and the Telecommunications Act of 1996
(collectively, the "Cable Acts") established rules under which the Company's
basic and tier service rates and its equipment and installation charges (the
"Regulated Services") are regulated if a complaint is filed or if the
appropriate franchise authority is certified. At March 31, 1997, approximately
79% of the Company's basic customers were served by cable television systems
that were subject to such rate regulation.
During the three months ended March 31, 1997, 65% of the Company's
revenue from Communications and Programming Services was derived from Regulated
Services. As noted above, any increases in rates charged for Regulated Services
are regulated by the Cable Acts. Moreover, competitive factors may limit the
Company's ability to increase its service rates.
Through December 4, 1996, the Company had an investment in a direct
broadcast satellite partnership, PRIMESTAR Partners L.P. ("Primestar").
Primestar provides programming and marketing support to each of its cable
partners who provide satellite television service to their customers. On
December 4, 1996, the Company distributed (the "Satellite Spin-off") to the
holders of shares of TCI Group Stock all of the issued and outstanding common
stock of TCI Satellite Entertainment, Inc. ("Satellite"). At the time of the
Satellite Spin-off, Satellite's assets and operations included the Company's
interest in Primestar, the Company's business of distributing Primestar
programming and two communications satellites. As a result of the Satellite
Spin-off, Satellite's operations are no longer consolidated with those of the
Company.
Revenue from communications and programming services increased 14% for
the three months ended March 31, 1997, as compared to the corresponding period
of 1996. Exclusive of the effects of acquisitions, revenue from the Company's
domestic cable customers accounted for 5% of such increase as a result of an
11% increase in the Company's average basic rate, a 1% increase in the
Company's average premium rate and a 3% decrease in the number of average
premium subscribers. The number of average basic customers increased less than
1% from 1996 to 1997. The Company's revenue from domestic cable operations
aggregated $1,556 million and $1,333 million for the three months ended March
31, 1997 and 1996, respectively. In addition, the Company's revenue from
communications and programming services increased 15% due to acquisitions and
decreased 5% due to the deconsolidation of the Company's sports programming
businesses (see discussion below) and decreased 5% due to the Satellite
Spin-off. Increases in the Company's domestic programming revenue (from Encore
Media Corporation and QE+), international cable revenue and other revenue
accounted for the remaining 4% increase.
As of April 29, 1996, Liberty Media Group, The News Corporation Limited
("News Corp.") and TINTA formed two sports programming ventures. In the United
States, Liberty Media Group and News Corp. formed Liberty/Fox U.S. Sports LLC
("Fox Sports") into which Liberty Media Group contributed interests in its
national and regional sports networks and into which News Corp. contributed its
fx cable network and certain other assets. Liberty Media Group received a 50%
interest in Fox Sports and $350 million in cash.
(continued)
V-33
<PAGE> 255
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(2) Material changes in results of operations (continued):
Internationally, News Corp. and a limited liability company
("Liberty/TINTA") formed Liberty Media Group and TINTA formed a venture ("Fox
Sports International") to operate previously existing sports services in Latin
America and Australia and a variety of new sports services in selected areas
throughout the world. Liberty/TINTA and News Corp. each own 50% of Fox Sports
International. News Corp. contributed various international sports rights and
certain trademark rights. Liberty/TINTA contributed its interests in certain
international sports programming services, various international sports and
satellite transponder rights and cash.
As part of the formation of Fox Sports International, Liberty/TINTA is
entitled to receive from News Corp. 7.5% of the outstanding stock of Star
Television Limited. Upon delivery of such stock to Liberty/TINTA, News Corp. is
entitled to receive from Liberty/TINTA $20 million and rights under various
Asian sports programming agreements. Star Television Limited operates a
satellite-delivered television platform in Asia.
Net Sales From Electronic Retailing Services
As a result of the merger of Home Shopping Network, Inc. ("HSN") with a
subsidiary of Silver King Communications, Inc. in December 1996, HSN is no
longer a consolidated subsidiary of the Company. Accordingly, the Company no
longer reports revenue or cost of sales related to electronic retailing
services. See note 4 to the accompanying consolidated financial statements.
Operating Costs and Expenses
Operating expenses increased 5% for the three months ended March 31,
1997, as compared to the corresponding period of 1996. Exclusive of the effects
of acquisitions, net of dispositions, such expenses increased 8%. Programming
expenses accounted for the majority of such increase. The Company cannot
determine whether and to what extent increases in the cost of programming will
affect its future operating costs.
Selling general and administrative expenses decreased 22% for the three
months ended March 31, 1997, as compared to the corresponding period of 1996.
Exclusive of the effects of acquisitions, net of dispositions, such expenses
decreased 3%. Such decrease is due primarily to a reduction in salaries and
related payroll expenses due to work force reductions in the fourth quarter of
1996, as well as reduced marketing and general overhead expenses.
The decrease in the Company's depreciation expense in 1997 is the result
of the net effect of a decrease due to the Satellite Spin-off partially offset
by increases due to acquisitions and capital expenditures. The increase in
amortization expense in 1997 is due to acquisitions.
The Company records compensation relating to stock appreciation rights
and restricted stock awards granted to certain employees. Such compensation is
subject to future adjustment based upon market value, and ultimately, on the
final determination of market value when the rights are exercised or the
restricted stock awards are vested.
(continued)
V-34
<PAGE> 256
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(2) Material changes in results of operations (continued):
Other Income and Expenses
At March 31, 1997, the Company had an effective ownership interest of
approximately 27% in Telewest Communications plc, a company that is currently
operating and constructing cable television and telephone systems in the United
Kingdom ("UK"). Telewest, which is accounted for under the equity method, had a
carrying value at March 31, 1997 of $427 million and comprised $42 million and
$31 million of the Company's share of its affiliates' losses during the three
months ended March 31, 1997 and 1996, respectively. In addition, the Company
has other less significant investments accounted for under the equity method in
video distribution and programming businesses located in the UK, other parts of
Europe, Asia, Latin America and certain other foreign countries. In the
aggregate, such other equity method investments had a carrying value of $373
million at March 31, 1997 and accounted for $22 million and $18 million of the
Company's share of its affiliates' losses for the three months ended March 31,
1997 and 1996, respectively. Additionally, included in share of losses of
affiliates for the three months ended March 31, 1997 and 1996 is $64 million
and $53 million, respectively, attributable to Sprint Spectrum Holding Company,
L.P., MinorCo, L.P. and PhillieCo, L.P. Such 1996 amount includes $34 million
associated with prior periods.
Minority interests in earnings of consolidated subsidiaries aggregated
$38 million for the three months ended March 31, 1997, as compared to minority
interests in losses of consolidated subsidiaries for the corresponding period
in 1996. Such change is due primarily to the accrual of dividends on the Trust
Preferred Securities in 1997. See note 8 to the accompanying consolidated
financial statements.
Net Loss
The Company's net loss (before preferred stock dividend requirements) of
$58 million for the three months ended March 31, 1997 represents an improvement
of $63 million, as compared to the Company's net loss (before preferred stock
dividend requirements) of $121 million for the three months ended March 31,
1996. Such change is primarily the net result of an increase in operating
income partially offset by increases in share of losses of affiliates,
dividends on the Trust Preferred Securities reflected as minority interests in
earnings of consolidated subsidiaries and interest expense.
V-35
<PAGE> 257
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- ------------
Assets amounts in millions
- - ------
<S> <C> <C>
Cash and cash equivalents $ 505 394
Trade and other receivables, net 455 448
Prepaid expenses 84 81
Prepaid program rights 58 49
Committed film inventory 89 136
Investments in affiliates, accounted for under
the equity method, and related receivables (note 4) 2,898 3,012
Investment in Time Warner, Inc. ("Time Warner") (note 5) 2,037 2,027
Property and equipment, at cost:
Land 76 77
Distribution systems 10,373 10,078
Support equipment and buildings 1,514 1,541
------- ------
11,963 11,696
Less accumulated depreciation 4,275 4,168
------- ------
7,688 7,528
------- ------
Franchise costs 18,416 17,875
Less accumulated amortization 2,505 2,439
------- ------
15,911 15,436
------- ------
Other assets, net of amortization 951 1,133
------- ------
$30,676 30,244
======= ======
</TABLE>
(continued)
V-36
<PAGE> 258
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets, continued
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- ------------
Liabilities and Stockholders' Equity amounts in millions
- - ------------------------------------
<S> <C> <C>
Accounts payable $ 137 216
Accrued interest 168 274
Accrued programming expense 372 347
Other accrued expenses 825 812
Debt (note 7) 15,049 14,926
Deferred income taxes 5,946 6,012
Other liabilities 251 253
-------- -------
Total liabilities 22,748 22,840
-------- -------
Minority interests in equity of consolidated
subsidiaries 1,349 1,493
Redeemable preferred stocks 655 658
Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts ("Trust Preferred
Securities") holding solely subordinated debt
securities of TCI Communications, Inc.
("TCIC")(note 8) 1,502 1,000
Stockholders' equity (note 9):
Series Preferred Stock, $.01 par value -- --
Class B 6% Cumulative Redeemable Exchangeable
Junior Preferred Stock, $.01 par value -- --
Tele-Communications, Inc. Series A TCI Group
common stock, $1 par value. Authorized
1,750,000,000 shares; issued 715,058,159
shares in 1997 and 696,325,478 shares in 1996 715 696
Tele-Communications, Inc. Series B TCI Group
common stock, $1 par value. Authorized
150,000,000 shares; issued 84,647,065 shares
in 1997 and 1996 85 85
Tele-Communications, Inc. Series A Liberty Media
Group common stock, $1 par value. Authorized
750,000,000 shares; issued 228,749,797 shares
in 1997 and 227,844,437 shares in 1996 229 228
Tele-Communications, Inc. Series B Liberty Media
Group common stock, $1 par value. Authorized
75,000,000 shares; issued 21,187,969 shares
in 1997 and 21,189,369 shares in 1996 21 21
Tele-Communications, Inc. Series A Telephony
Group Stock, $1 par value. Authorized
750,000,000 shares, no shares outstanding -- --
Tele-Communications, Inc. Series B Telephony
Group Stock, $1 par value. Authorized
75,000,000 shares, no shares outstanding -- --
Additional paid-in capital 3,904 3,672
Cumulative foreign currency translation adjustment,
net of taxes 5 26
Unrealized holding gains for available-for-sale
securities, net of taxes 11 15
Accumulated deficit (234) (176)
-------- -------
4,736 4,567
Series A TCI Group common stock, at cost, held by
subsidiaries (116,853,196 shares in 1997 and 1996) (314) (314)
-------- -------
Total stockholders' equity 4,422 4,253
-------- -------
Commitments and contingencies (note 10) $ 30,676 30,244
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
V-37
<PAGE> 259
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31
------------------------
1997 1996
------- ------
amounts in millions,
except per share amounts
Revenue:
<S> <C> <C>
Communications and programming services $ 1,827 1,605
Net sales from electronic retailing services
(note 4) -- 256
------- ------
1,827 1,861
------- ------
Operating costs and expenses:
Operating 696 662
Cost of sales from electronic retailing services
(note 4) -- 165
Selling, general and administrative 393 501
Compensation (adjustment to compensation)
relating to stock appreciation rights 15 (9)
Depreciation 241 252
Amortization 133 118
------- ------
1,478 1,689
------- ------
Operating income 349 172
Other income (expense):
Interest expense (289) (261)
Interest and dividend income 21 10
Share of losses of affiliates, net (note 4) (156) (115)
Minority interests in losses (earnings) of
consolidated subsidiaries, net (38) 2
Gain on disposition of assets 19 10
Other, net (2) 6
------- ------
(445) (348)
------- ------
Loss before income taxes (96) (176)
Income tax benefit 38 55
------- ------
Net loss (58) (121)
Dividend requirements on preferred stocks (10) (9)
------- ------
Net loss attributable to common stockholders $ (68) (130)
======= ======
Net earnings (loss) attributable to common stockholders:
TCI Group Series A and Series B common stock $ (84) (145)
Liberty Media Group Series A and Series B
common stock 16 15
------- ------
$ (68) (130)
======= ======
Net earnings (loss) attributable to common stockholders
per common share (note 2):
TCI Group Series A and Series B common stock $ (.12) (.22)
Liberty Media Group Series A and Series B
common stock $ .06 .06
</TABLE>
See accompanying notes to consolidated financial statements.
V-38
<PAGE> 260
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
Three months ended March 31, 1997
(unaudited)
<TABLE>
<CAPTION>
Common Stock
------------------------------------------------------------
Class B TCI Group Liberty Media Group Telephony Group
Preferred ------------------ ------------------- ------------------
Stock Series A Series B Series A Series B Series A Series B
--------- -------- -------- -------- -------- -------- --------
amounts in millions
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 $-- 696 85 228 21 -- --
Net loss -- -- -- -- -- -- --
Issuance of common stock for acquisition -- 16 -- -- -- -- --
Issuance of common stock upon conversion of
notes -- 3 -- 1 -- -- --
Issuance of common stock to
Tele-Communications, Inc. Employee Stock
Purchase Plan -- -- -- -- -- -- --
Accreted dividends on all classes of
preferred stock -- -- -- -- -- -- --
Accreted dividends on all classes of
preferred stock not subject to mandatory
redemption requirements -- -- -- -- -- -- --
Payment of preferred stock dividends -- -- -- -- -- -- --
Foreign currency translation adjustment -- -- -- -- -- -- --
Change in unrealized holding gains for
available-for-sale securities -- -- -- -- -- -- --
--- --- -- --- -- -- ---
Balance at March 31, 1997 $-- 715 85 229 21 -- --
=== === == === == == ===
<CAPTION>
Unrealized
Cumulative holding
foreign gains for
currency available-
Additional translation for-sale Total
paid-in adjustment, securities, Accumulated Treasury stockholders'
capital net of taxes net of taxes deficit stock equity
---------- ------------ ------------ ----------- -------- ------------
amounts in millions
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 3,672 26 15 (176) (314) 4,253
Net loss -- -- -- (58) -- (58)
Issuance of common stock for acquisition 242 -- -- -- -- 258
Issuance of common stock upon conversion of
notes -- -- -- -- -- 4
Issuance of common stock to
Tele-Communications, Inc. Employee Stock
Purchase Plan 8 -- -- -- -- 8
Accreted dividends on all classes of
preferred stock (10) -- -- -- -- (10)
Accreted dividends on all classes of
preferred stock not subject to mandatory
redemption requirements 2 -- -- -- -- 2
Payment of preferred stock dividends (10) -- -- -- -- (10)
Foreign currency translation adjustment -- (21) -- -- -- (21)
Change in unrealized holding gains for
available-for-sale securities -- -- (4) -- -- (4)
------ --- --- ---- ---- ------
Balance at March 31, 1997 3,904 5 11 (234) (314) 4,422
====== === === ==== ==== ======
</TABLE>
See accompanying notes to consolidated financial statements.
V-39
<PAGE> 261
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------
1997 1996
------ ------
amounts in millions
(see note 3)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (58) (121)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 374 370
Compensation (adjustment to compensation)
relating to appreciation rights 15 (9)
Payments of stock appreciation rights (1) (3)
Share of losses of affiliates 156 115
Minority interests in earnings (losses) 38 (2)
Gain on disposition of assets (19) (10)
Deferred income tax benefit (66) (57)
Payments of restructuring charges (16) --
Other noncash charges (credits) 3 (1)
Changes in operating assets and liabilities,
net of the effect of acquisitions:
Change in receivables (16) 25
Change in inventories -- 9
Change in prepaids (32) (10)
Change in accrued interest (112) (54)
Change in other accruals and payables (27) 65
------ ------
Net cash provided by operating activities 239 317
------ ------
Cash flows from investing activities:
Cash paid for acquisitions (156) (3)
Capital expended for property and equipment (90) (423)
Additional investments in and loans to affiliates
and others (35) (88)
Repayments of loans to affiliates 120 6
Proceeds from disposition of assets 140 41
Cash received in exchanges 22 50
Other investing activities (104) (59)
------ ------
Net cash used in investing activities (103) (476)
------ ------
Cash flows from financing activities:
Borrowings of debt 363 1,588
Repayments of debt (820) (1,954)
Proceeds from issuance of common stock 4 --
Proceeds from issuance of Trust Preferred Securities 490 486
Proceeds from issuance of subsidiary preferred stock -- 223
Payment for repurchase of subsidiary common stock (7) --
Payment of preferred stock dividends (21) (21)
Payment of dividends on subsidiary preferred
stock and Trust Preferred Securities (34) --
------ ------
Net cash provided (used) by financing activities (25) 322
------ ------
Net increase in cash and cash equivalents 111 163
Cash and cash equivalents at beginning of period 394 118
------ ------
Cash and cash equivalents at end of period $ 505 281
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
V-40
<PAGE> 262
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1997
(unaudited)
(1) General
The accompanying consolidated financial statements include the accounts of
Tele-Communications, Inc. and those of all majority-owned subsidiaries
("TCI" or the "Company"). All significant intercompany accounts and
transactions have been eliminated in consolidation.
The accompanying interim consolidated financial statements are unaudited
but, in the opinion of management, reflect all adjustments (consisting of
normal recurring accruals) necessary for a fair presentation of the
results for such periods. The results of operations for any interim period
are not necessarily indicative of results for the full year. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto contained in TCI's
Annual Report on Form 10-K for the year ended December 31, 1996.
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.
Effective January 13, 1997, the Company issued a stock dividend to holders
of Tele-Communications, Inc. Series A and Series B Liberty Media Group
common Stock ("Liberty Group Stock") consisting of one share of Series A
Liberty Group Stock for every two shares of Series A Liberty Group Stock
owned and one share of Series A Liberty Group Stock for every two shares
of Series B Liberty Group Stock owned (the "Liberty Group Stock
Dividend"). The Liberty Group Stock Dividend has been treated as a stock
split, and accordingly, all share and per share amounts have been
retroactively restated to reflect the Liberty Group Stock Dividend.
Certain amounts have been reclassified for comparability with the 1997
presentation.
(2) Earnings (Loss) Per Common and Common Equivalent Share
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("Statement
No. 128"). Statement No. 128 requires the presentation of basic earnings
per share ("EPS") and, for companies with potentially dilutive securities,
such as convertible debt, options and warrants, diluted EPS. Statement No.
128 is effective for annual and interim periods ending after December 31,
1997. The Company does not expect that Statement No. 128 will have a
material impact on the Company's earnings (loss) per share as described
below.
(continued)
V-41
<PAGE> 263
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
TCI Group Series A and Series B Common Stock
The loss attributable to Tele-Communications, Inc. Series A and Series B
TCI Group common stock ("TCI Group Stock") stockholders per common share
for the three months ended March 31, 1997 and 1996 was computed by
dividing net loss attributable to TCI Group Series A and Series B common
stockholders by the weighted average number of common shares outstanding
of TCI Group Series A and Series B common stock during the period (678.0
million and 659.3 million, respectively). Common stock equivalents were
not included in the computation of weighted average shares outstanding
because their inclusion would be anti-dilutive.
Liberty Media Group Series A and Series B Common Stock
Earnings attributable to Liberty Group Stock stockholders per common share
for the three months ended March 31, 1997 and 1996 was computed by
dividing net earnings attributable to Liberty Media Group Series A and
Series B common stockholders by the weighted average number of common
shares outstanding of Liberty Media Group Series A and Series B common
stock during the period (249.7 million and 247.2 million, respectively).
Common stock equivalents were not included in the computation because
their inclusion would be anti-dilutive to TCI.
(3) Supplemental Disclosures to Consolidated Statements of Cash Flows
Cash paid for interest was $401 million and $315 million for the three
months ended March 31, 1997 and 1996, respectively. Cash paid for income
taxes during these periods was not material.
Significant noncash investing and financing activities are as follows:
<TABLE>
<CAPTION>
Three months ended
March 31,
---------------------
1997 1996
-------- --------
amounts in millions
<S> <C> <C>
Cash paid for acquisitions:
Fair value of assets acquired $ 1,065 1,130
Liabilities assumed, net of current assets (616) (374)
Deferred tax liability recorded in acquisitions (34) (240)
Minority interests in equity of acquired entities (1) (52)
Common stock and preferred stock issued in acquisitions (258) (461)
-------- --------
Cash paid for acquisitions $ 156 3
======== ========
Cash received in exchanges:
Aggregate cost basis of assets acquired $ (294) (193)
Historical cost of assets exchanged 305 222
Gain recorded on exchange of assets 11 21
-------- --------
Cash received in exchanges $ 22 50
======== ========
</TABLE>
(continued)
V-42
<PAGE> 264
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------
1997 1996
-------- --------
amounts in millions
<S> <C> <C>
Effect of foreign currency translation
adjustment on book value of foreign
equity investments $ 21 7
======== ========
Change in unrealized gains, net of deferred
income taxes, on available-for-sale securities $ 4 24
======== ========
Accrued preferred stock dividends $ 8 7
======== ========
</TABLE>
(4) Investments in Affiliates
The Company has various investments accounted for under the equity method.
The following table includes the Company's carrying value and percentage
ownership of the more significant investments at March 31, 1997.
<TABLE>
<CAPTION>
March 31, 1997
--------------------------
Percentage Carrying
Ownership Value
---------- --------
amounts in millions
<S> <C> <C>
Sprint Spectrum Holding Company, L.P.,
MinorCo, L.P. and PhillieCo, L.P. 30% - 35.3% $ 728
Teleport Communications Group, Inc. 31.1% 263
Home Shopping Network, Inc. ("HSN") 19.9% 144
BDTV INC. and BDTV II, INC. 99% 200
Telewest Communications plc ("Telewest") 27% 427
Various foreign equity investments
(other than Telewest) various 373
Discovery Communications, Inc. 49% 118
QVC, Inc. 43% 110
</TABLE>
Summarized unaudited results of operations for affiliates accounted for
under the equity method are as follows:
<TABLE>
<CAPTION>
Three months ended
Combined Operations March 31,
------------------- ---------------------
1997 1996
-------- --------
amounts in millions
<S> <C> <C>
Revenue $ 1,751 1,308
Operating expenses (1,642) (1,151)
Depreciation and amortization (282) (149)
-------- --------
Operating income (loss) (173) 8
Interest expense (171) (108)
Other, net (152) (31)
-------- --------
Net loss $ (496) (131)
======== ========
</TABLE>
(continued)
V-43
<PAGE> 265
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company is a partner in a series of partnerships formed to engage in
the business of providing wireless communications services, using the
radio spectrum for broadband personal communications services ("PCS"), to
residential and business customers nationwide, using the "Sprint" brand
(the "PCS Ventures"). The PCS Ventures include Sprint Spectrum Holding
Company, L. P. ("Sprint Spectrum") and MinorCo, L.P. (collectively, the
"Sprint PCS Partnerships") and PhillieCo, L.P. ("PhillieCo"). The partners
of each of the Sprint PCS Partnerships are subsidiaries of Sprint
Corporation ("Sprint"), Comcast Corporation, Cox Communications, Inc.
("Cox") and the Company. The partners of PhillieCo are subsidiaries of
Sprint, Cox and the Company. The Company has a 30% partnership interest in
each of the Sprint PCS Partnerships and a 35.3% interest as a partner in
PhillieCo. During the three months ended March 31, 1997 and 1996, the
Sprint PCS Partnerships contributed $64 million and $53 million,
respectively, to the Company's share of affiliate losses. Such 1996 amount
includes $34 million related to prior periods.
The Sprint PCS Partnerships have licenses, and have affiliated with other
entities (including PhillieCo) that have licenses, to provide PCS service
to MTAs (or metropolitan trading areas) covering over 190 million "Pops"
(or population equivalents). The Sprint PCS Partnerships' licenses, which
cover 29 markets, were acquired in an auction conducted by the Federal
Communications Commission ("FCC") that ended in March 1995, for an
aggregate license cost of approximately $2.1 billion. The Sprint PCS
Partnerships have invested in (acquiring a 49% interest) and affiliated
with American PCS, L.P. ("APC"), which owns a PCS license for and operates
a PCS system in the Baltimore/Washington, D.C. MTA, and Cox California
PCS, L.P. ("Cox-California"), which holds a PCS license for the Los
Angeles/San Diego MTA and currently operates a PCS system in San Diego,
California. The Sprint PCS Partnerships may invest in other entities that
hold PCS Licenses. PhillieCo holds the license for the Philadelphia MTA,
which was acquired at a license cost of $85 million. During December 1996,
the Sprint PCS Partnerships initiated the commercial launch of PCS service
in seven markets.
From inception through March 1997, the four partners have contributed
approximately $3.0 billion to the Sprint PCS Partnerships (of which the
Company contributed an aggregate of approximately $0.9 billion). The
remaining capital that the Sprint PCS Partnerships will require to fund
the construction of the PCS systems and the commitments made to APC and
Cox-California will be substantial. The partners had agreed in forming the
Sprint PCS Partnerships to contribute up to an aggregate of approximately
$4.2 billion of equity thereto, from inception through fiscal 1999,
subject to certain requirements. The Company expects that the remaining
approximately $1.2 billion of such amount (of which the Company's share is
approximately $0.4 billion) will be contributed by the end of the second
quarter of 1998 (although there can be no assurance that any additional
capital will be contributed). The Company expects that the Sprint PCS
Partnerships will require additional equity thereafter.
(continued)
V-44
<PAGE> 266
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Pursuant to an agreement entered into in connection with certain
financings by Sprint Spectrum, under certain circumstances the partners in
Sprint Spectrum may be required to make additional contributions to Sprint
Spectrum to fund projected cash shortfalls to the extent that the amount
of the partners' aggregate contributions to Sprint Spectrum (exclusive of
certain amounts, including amounts invested in certain affiliates of
Sprint Spectrum), following December 31, 1995 are less than $1.0 billion;
however, based on the currently expected timing and use of the partners'
contributions to Sprint Spectrum, the Company currently believes that such
agreement will not result in the Company's being required to make any
incremental capital contributions in addition to its pro rata portion of
the aforementioned $4.2 billion amount.
Pursuant to an agreement among Liberty Media Corporation ("Liberty"), a
subsidiary of TCI, Barry Diller and certain of their respective affiliates
entered into in August 1995 and amended in August 1996 (the "BDTV
Agreement"), Liberty contributed to BDTV INC. ("BDTV-I"), in August 1996,
an option (the "Option") to purchase 2 million shares of Class B common
stock of Silver King Communications, Inc. ("Silver King") (which shares
represented voting control of Silver King at such time) and $3,500,000 in
cash, representing the exercise price of the Option. BDTV-I is a
corporation formed by Liberty and Mr. Diller pursuant to the BDTV
Agreement, in which Liberty owns over 99% of the equity and none of the
voting power (except for protective rights with respect to certain
fundamental corporate actions) and Mr. Diller owns less than 1% of the
equity and all of the voting power. BDTV-I exercised the Option shortly
after its contribution, thereby becoming the controlling stockholder of
Silver King. Such change in control of Silver King had been approved by
the FCC in June 1996, subject, however, to the condition that the equity
interest of Liberty in Silver King not exceed 21.37% without the prior
approval of the FCC (the "FCC Order").
Pursuant to an Agreement and Plan of Exchange and Merger entered into in
August 1996, Silver King acquired HSN by merger of HSN with a subsidiary
of Silver King in December 1996 (the "HSN Merger"). In order to effect the
HSN Merger in compliance with the FCC Order, Liberty agreed to defer
receiving certain shares of Silver King that would otherwise have become
issuable to it in the HSN Merger until such time as it was permitted to
own such shares. As a result, the HSN Merger was structured so that
Liberty received (i) 7,809,111 shares of Class B common stock of Silver
King, all of which shares Liberty contributed to BDTV II INC. ("BDTV-II"),
(ii) the contractual right (the "Contingent Right") to be issued up to an
additional 2,591,752 shares of Class B common stock of Silver King from
time to time upon the occurrence of certain events which would allow
Liberty to own additional shares in compliance with the FCC Order
(including events resulting in the dilution of Liberty's percentage equity
interest), and (iii) 739,141 shares of Class B common stock and 17,566,702
shares of common stock of HSN (representing approximately 19.9% of the
equity of HSN). BDTV-II is a corporation formed by Liberty and Barry
Diller pursuant to the BDTV Agreement, in which the relative equity
ownership and voting power of Liberty and Mr. Diller are substantially the
same as their respective equity ownership and voting power in BDTV-I.
(continued)
V-45
<PAGE> 267
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As a result of the HSN Merger, HSN is no longer a subsidiary of Liberty
and therefore, the financial results of HSN are no longer consolidated
with the financial results of Liberty. Although Liberty no longer
possesses voting control over HSN, it continues to have an indirect equity
interest in HSN through its ownership of the equity securities of BDTV-I
and BDTV-II as well as a direct interest in HSN which would be
exchangeable into shares of Silver King. Accordingly, HSN, BDTV-I and
BDTV-II are accounted for using the equity method.
Telewest is a company that is currently operating and constructing cable
television and telephone systems in the United Kingdom ("UK"). Telewest
contributed $42 million and $31 million of the Company's share of its
affiliates' losses during the three months ended March 31, 1997 and 1996,
respectively. In addition, the Company has other less significant equity
method investments in video distribution and programming businesses
located in the UK, other parts of Europe, Asia, Latin America and certain
other foreign countries. In the aggregate, such other equity method
investments accounted for $22 million and $18 million of the Company's
share of its affiliates' losses in 1997 and 1996, respectively.
Certain of the Company's affiliates are general partnerships and any
subsidiary of the Company that is a general partner in a general
partnership is, as such, liable as a matter of partnership law for all
debts of that partnership in the event liabilities of that partnership
were to exceed its assets.
(5) Investment in Time Warner
Through October 9, 1996, TCI owned shares of Turner Broadcasting System,
Inc. ("TBS") common stock and shares of TBS preferred stock that were
convertible into TBS common stock. The Company's total holdings
represented an approximate 7.5% voting interest for those matters which
preferred and common voted as a single class. On October 10, 1996, Time
Warner and TBS consummated a merger (the "TBS/Time Warner Merger") whereby
TBS shareholders received 0.75 of a Time Warner common share for each TBS
Class A and Class B common share held, and each holder of TBS Class C
preferred stock received 0.80 of a Time Warner common share for each of
the 6 shares of TBS Class B common stock into which each share of Class C
preferred stock could have been converted.
(continued)
V-46
<PAGE> 268
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Time Warner, TBS, TCI and Liberty entered into an Agreement Containing
Consent Order with the Federal Trade Commission ("FTC") dated August 14,
1996, as amended on September 4, 1996 (the "FTC Consent Decree"). Pursuant
to the FTC Consent Decree, among other things, Liberty agreed to exchange
the shares of Time Warner common stock to be received in the TBS/Time
Warner Merger for shares of a separate series of Time Warner common stock
with limited voting rights (the "TW Exchange Stock"). Holders of the TW
Exchange Stock are entitled to one one-hundredth (l/100th) of a vote for
each share with respect to the election of directors. Holders of the TW
Exchange Stock will not have any other voting rights, except as required
by law or with respect to limited matters, including amendments of the
terms of the TW Exchange Stock adverse to such holders. Subject to the
federal communications laws, each share of the TW Exchange Stock will be
convertible at any time at the option of the holder on a one-for-one basis
for a share of Time Warner common stock. Holders of TW Exchange Stock are
entitled to receive dividends ratably with the Time Warner common stock
and to share ratably with the holders of Time Warner common stock in
assets remaining for common stockholders upon dissolution, liquidation or
winding up of Time Warner.
In connection with the TBS/Time Warner Merger, the Company received
approximately 50.6 million shares of the TW Exchange Stock in exchange for
its TBS holdings. At March 31, 1997, the Company's investment in Time
Warner, carried at cost, had an aggregate fair value of approximately $2.2
billion based upon the market value of the marketable common stock into
which it is convertible.
Subject to a number of conditions, including receipt of a ruling from the
Internal Revenue Service ("IRS") that such dividend would be tax free to
the Liberty Group Stock stockholders, TCI agreed in an Agreement
Containing Consent Order (the "FTC Consent Decree") with the FTC that it
would distribute in the form of a stock dividend (the "Spin-Off") to the
Liberty Group Stock stockholders the stock of a new company ("Spinco")
which would own, directly or indirectly, the TW Exchange Stock and the
business of Southern Satellite Systems, Inc. ("Southern"), a wholly owned
subsidiary of Liberty which distributes the TBS SuperStation ("WTBS")
signal in the United States and Canada. The IRS has declined to provide
the requested ruling and, accordingly, TCI has canceled plans for the
Spin-Off. Pursuant to the FTC Consent Decree, the level of TCI's ownership
in Time Warner is restricted to the lower of 9.2% of the fully diluted
number of shares of Time Warner's common stock and 12.4% of the aggregate
number of outstanding shares of Time Warner's common stock.
(continued)
V-47
<PAGE> 269
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In connection with the TBS/Time Warner Merger, Liberty and Time Warner
entered into, among other agreements, an agreement providing for the grant
to Time Warner of an option (the "Contract Option") to enter into a
contract with Southern (the "Distribution Contract") pursuant to which
Southern would provide Time Warner with certain uplinking and distribution
services relating to WTBS and would assist Time Warner in converting WTBS
from a superstation into a copyright paid cable programming service. The
agreement provides for the Contract Option to be granted no later than the
fifth business day following the earlier of May 31, 1997, the receipt of a
favorable IRS ruling and the determination that the IRS ruling will not be
obtained, subject to extension for a 30-day period, if the IRS ruling were
not obtained, during which period the parties would seek to negotiate an
alternative structure for the transaction. On the date of grant of the
Contract Option, the agreement provides for Time Warner to issue to
Southern, in consideration for the Contract Option and certain
noncompetition covenants, an aggregate of 5.0 million shares of TW
Exchange Stock and $66,666,700, payable at Time Warner's option in cash or
TW Exchange Stock. If Time Warner were to exercise the Contract Option and
enter into the Distribution Contract, Time Warner would be obligated to
make quarterly payments to Southern in an amount which, when added to
Southern's net cash flow, would aggregate approximately $213.3 million on
a present value basis discounted to the effective date of the Distribution
Contract. In light of the cancellation of the Spin-Off, Liberty is seeking
to renegotiate the Contract Option to provide instead for an option for
Time Warner to acquire Southern's business.
(6) Acquisitions
In January 1997, the Company acquired the 50% ownership interest in TKR
Cable Company ("TKR Cable") that the Company did not previously own and
certain additional assets for aggregate consideration of approximately
$970 million. The Company issued approximately 16 million shares of TCI
Group Stock, assumed $584 million of TKR Cable's debt and paid cash of $88
million and shares of Time Warner common stock valued at $41 million upon
consummation of such acquisition.
On July 31, 1996, pursuant to certain agreements entered into among TCIC,
a subsidiary of TCI; TCI; Viacom International, Inc. and Viacom, Inc.
("Viacom"), TCIC acquired all of the common stock of a subsidiary of
Viacom ("Cable Sub") which owned Viacom's cable systems and related assets
(the "Viacom Acquisition").
The transaction was structured as a tax-free reorganization in which Cable
Sub transferred all of its non-cable assets, as well as all of its
liabilities other than current liabilities, to a new subsidiary of Viacom
("New Viacom Sub"). Cable Sub also transferred to New Viacom Sub the
proceeds (the "Loan Proceeds") of a $1.7 billion loan facility (the "Loan
Facility") arranged by TCIC, TCI and Cable Sub. Following these transfers,
Cable Sub retained cable assets with a value at closing of approximately
$2.326 billion and the obligation to repay the Loan Proceeds. Neither
Viacom nor New Viacom Sub has any obligation with respect to repayment of
the Loan Proceeds.
(continued)
V-48
<PAGE> 270
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Prior to the consummation of the Viacom Acquisition, Viacom offered to the
holders of shares of Viacom Class A Common Stock and Viacom Class B Common
Stock (collectively, "Viacom Common Stock") the opportunity to exchange
(the "Exchange Offer") a portion of their shares of Viacom Common Stock
for shares of Class A Common Stock, par value $100 per share, of Cable Sub
("Cable Sub Class A Stock"). Immediately following the completion of the
Exchange Offer, TCIC acquired from Cable Sub shares of Cable Sub Class B
Common Stock (the "Share Issuance") for $350 million (which was used to
reduce Cable Sub's obligations under the Loan Facility). At the time of
the Share Issuance, the Cable Sub Class A Stock received by Viacom
stockholders pursuant to the Exchange Offer automatically converted into
5% Class A Senior Cumulative Exchangeable Preferred Stock of Cable Sub
with a stated value of $100 per share.
(7) Debt
Debt is summarized as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- ------------
amounts in millions
<S> <C> <C>
Notes payable $ 9,254 9,308
Bank credit facilities 5,219 4,813
Commercial paper 404 638
Convertible notes (a) 41 43
Other debt 131 124
-------- --------
$ 15,049 14,926
======== ========
</TABLE>
(a) These convertible notes, which are stated net of unamortized discount
of $168 million at March 31, 1997 and $178 million at December 31,
1996, mature on December 18, 2021. The notes require, so long as
conversion of the notes has not occurred, an annual interest payment
through 2003 equal to 1.85% of the face amount of the notes. During
the three months ended March 31, 1997, certain of these notes were
converted into 2,150,000 shares of Series A TCI Group Stock and
810,000 shares of Series A Liberty Group Stock. At March 31, 1997,
the notes were convertible, at the option of the holders, into an
aggregate of 34,933,772 shares of Series A TCI Group Stock and
13,100,153 shares of Series A Liberty Group Stock.
The bank credit facilities and various other debt instruments of the
Company's subsidiaries generally contain restrictive covenants which
require, among other things, the maintenance of certain earnings,
specified cash flow and financial ratios (primarily the ratios of cash
flow to total debt and cash flow to debt service, as defined), and include
certain limitations on indebtedness, investments, guarantees,
dispositions, stock repurchases and/or dividend payments.
As security for borrowings under one of the Company's bank credit
facilities, the Company has pledged 116,853,195 shares of Series A TCI
Group Stock held by a subsidiary of the Company. Also, as security for
borrowings under another of the Company's credit facilities, the Company
has pledged a portion of its Time Warner common stock with an estimated
market value of $2.2 billion.
(continued)
V-49
<PAGE> 271
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The fair value of the debt of the Company's subsidiaries is estimated
based on the quoted market prices for the same or similar issues or on the
current rates offered to the Company for debt of the same remaining
maturities. The fair value of debt, which has a carrying value of $15,049
million, was $15,098 million at March 31, 1997.
In order to achieve the desired balance between variable and fixed rate
indebtedness, the Company has entered into various interest rate exchange
agreements pursuant to which it (i) pays fixed interest rates (the "Fixed
Rate Agreements") ranging from 7.1% to 9.3% and receives variable interest
rates on notional amounts of $410 million at March 31, 1997 and (ii) pays
variable interest rates (the "Variable Rate Agreements") and receives
fixed interest rates ranging from 4.8% to 9.7% on notional amounts of
$2,250 million at March 31, 1997. During the three months ended March 31,
1997 and 1996, the Company's net receipts pursuant to the Fixed Rate
Agreements were $3 million and $5 million, respectively; and the Company's
net receipts pursuant to the Variable Rate Agreements were $1 million and
$8 million, respectively.
The Company's Fixed Rate Agreements and Variable Rate Agreements expire as
follows (dollar amounts in millions):
<TABLE>
<CAPTION>
Fixed Rate Agreements Variable Rate Agreements
- - ----------------------------------------- -------------------------------------------
Expiration Interest Rate Notional Expiration Interest Rate Notional
Date To Be Paid Amount Date To Be Received Amount
- - ---------- ------------- -------- ---------- -------------- --------
<S> <C> <C> <C> <C> <C>
October 1997 7.1%-9.3% $ 180 April 1997 7.0% $ 200
December 1997 8.7% 230 September 1998 4.8%-5.4% 450
------- April 1999 7.4% 50
$ 410 February 2000 5.8%-6.6% 300
======= March 2000 5.8%-6.0% 675
September 2000 5.1% 75
March 2027 9.7% 300
December 2036 9.7% 200
-------
$ 2,250
=======
</TABLE>
The Company is exposed to credit losses for the periodic settlements of
amounts due under these interest rate exchange agreements in the event of
nonperformance by the other parties to the agreements. However, the
Company does not anticipate that it will incur any material credit losses
because it does not anticipate nonperformance by the counterparties.
The fair value of the interest rate exchange agreements is the estimated
amount that the Company would pay or receive to terminate the agreements
at March 31, 1997, taking into consideration current interest rates and
the current creditworthiness of the counterparties. At March 31, 1997, the
Company would be required to pay an estimated $47 million to terminate the
Fixed Rate Agreements and an estimated $7 million to terminate the
Variable Rate Agreements.
Certain of TCI's subsidiaries are required to maintain unused availability
under bank credit facilities to the extent of outstanding commercial
paper. Also, certain of TCI's subsidiaries pay fees ranging from 1/4% to
1/2% per annum on the average unborrowed portion of the total amount
available for borrowings under bank credit facilities.
(continued)
V-50
<PAGE> 272
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(8) Company-Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trusts Holding Solely Subordinated Debt Securities of TCIC
In 1996 and 1997, the Company, through certain subsidiary trusts, (the
"Trusts"), issued preferred securities as follows:
<TABLE>
<CAPTION>
Subsidiary Trust Interest Rate Face Amount
---------------- ------------- -----------
in millions
<S> <C> <C>
TCI Communications Financing I 8.72% $ 500
TCI Communications Financing II 10.00% 500
TCI Communications Financing III 9.65% 300
TCI Communications Financing IV 9.72% 200
-------
$ 1,500
=======
</TABLE>
The Trusts exist for the exclusive purpose of issuing the Trust
Preferred Securities and investing the proceeds thereof into
Subordinated Deferrable Interest Notes (the "Subordinated Debt
Securities") of TCIC. The Subordinated Debt Securities have interest
rates equal to the interest rate of the corresponding Trust Preferred
Securities and have maturity dates ranging from 30 to 49 years from
the date of issuance. The Subordinated Debt Securities are unsecured
obligations of TCIC and are subordinate and junior in right of payment
to certain other indebtedness of the Company. Upon redemption of the
Subordinated Debt Securities, the Trust Preferred Securities will be
mandatorily redeemable. TCIC effectively provides a full and
unconditional guarantee of the Trusts' obligations under the Trust
Preferred Securities.
The Trust Preferred Securities are presented together in a separate
line item in the accompanying consolidated balance sheets captioned
"Company-obligated mandatorily redeemable preferred securities of
subsidiary trusts holding solely subordinated debt securities of TCI
Communications, Inc." Dividends accrued on the Trust Preferred
Securities are included in minority interests in losses (earnings) of
consolidated subsidiaries in the accompanying consolidated financial
statements.
(9) Stockholders' Equity
In August 1995, TCI issued the Liberty Group Stock which reflects the
separate performance of TCI's business which produces and distributes
programming services ("Liberty Media Group").
As of March 31, 1997, the TCI Group Stock reflects the separate
performance of TCI's subsidiaries and assets not attributed to Liberty
Media Group, including (i) TCI's Cable and Communications unit, (ii)
TCI's International Cable and Programming Unit ("TINTA") and (iii)
TCI's Technology/Venture Capital unit. Such subsidiaries and assets
are referred to as "TCI Group".
(continued)
V-51
<PAGE> 273
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Notwithstanding the attribution of assets and liabilities, equity and
items of income and expense to TCI Group or to Liberty Media Group for
purposes of preparing their combined financial statements, the change
in the capital structure of TCI did not affect the ownership or the
respective legal title to assets or responsibility for liabilities of
TCI or any of its subsidiaries. TCI and its subsidiaries each continue
to be responsible for their respective liabilities. Holders of TCI
Group Stock or Liberty Group Stock are holders of common stock of TCI
and continue to be subject to risks associated with an investment in
TCI and all of its businesses, assets and liabilities. The issuance of
Liberty Group Stock did not affect the rights of creditors of TCI.
On March 12, 1997, the TCI stockholders authorized the TCI Board of
Directors to issue two new series of the Company's common stock, par
value $1.00 per share, (and a corresponding increase in the total
number of authorized shares of common stock) to be designated
Tele-Communications, Inc. Series A Telephony Group common stock and
Tele-Communications, Inc. Series B Telephony Group common stock
(collectively, the "Telephony Group Stock"). The Telephony Group
Stock, if issued, would be intended to reflect the separate
performance of Telephony Group, which initially consists of the
Company's investments in certain entities engaged in the domestic
wireline and wireless telephony businesses. A total of 750 million
shares of Series A Telephony Group Stock and 75 million shares of
Series B Telephony Group Stock were authorized. As of March 31, 1997,
no shares of Telephony Group Stock have been issued.
Stock Options
Estimated compensation relating to restricted stock awards, stock
appreciation rights ("SARs") and options with tandem SARs awarded by
the Company has been recorded through March 31, 1997, but is subject
to future adjustment based upon market value, and ultimately, on the
final determination of market value when the rights are exercised or
the restricted stock awards are vested.
Other
At March 31, 1997, there were 126,384,805 shares of Series A TCI Group
Stock and 30,616,358 shares of Series A Liberty Group Stock reserved
for issuance under exercise privileges related to options, convertible
debt securities and convertible preferred stock. Also, one share of
Series A TCI Group Stock is reserved for each share of Series B TCI
Group Stock, and one share of Series A Liberty Group Stock is reserved
for each share of Series B Liberty Group Stock. Additionally,
subsidiaries of TCI own an aggregate of 278,307 shares of TCI
Convertible Redeemable Participating Preferred Stock, Series F
("Series F Preferred Stock"). Each share of Series F Preferred Stock
is convertible into 1,496.65 shares of Series A TCI Group Stock.
(continued)
V-52
<PAGE> 274
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(10) Commitments and Contingencies
The Company is obligated to pay fees for the rights to exhibit certain
films that are released by various producers through 2017 (the "Film
Licensing Obligations"). Based on customer levels at March 31, 1997,
these agreements require minimum payments aggregating approximately
$651 million. The aggregate amount of the Film Licensing Obligations
under other license agreements is not currently estimable because such
amount is dependent upon the number of qualifying films released
theatrically by certain motion picture studios as well as the domestic
theatrical exhibition receipts upon the release of such qualifying
films. Nevertheless, the Company's aggregate payments under the Film
Licensing Obligations could prove to be significant.
The Company has made certain financial commitments related to the
acquisition of sports program rights through 2004. At March 31, 1997,
such commitments aggregated $215 million.
The Company has guaranteed notes payable and other obligations of
affiliated and other companies with outstanding balances of
approximately $252 million at March 31, 1997. Although there can be no
assurance, management of the Company believes that it will not be
required to meet its obligations under such guarantees, or if it is
required to meet any of such obligations, that they will not be
material to the Company.
Certain key employees of the Company hold restricted stock awards,
options and options with tandem SARs to acquire shares of certain
subsidiaries' common stock. Estimates of the compensation related to
the restricted stock awards and options and/or SARs have been recorded
in the accompanying consolidated financial statements, but are subject
to future adjustment based upon the market value of the respective
common stock and, ultimately, on the final market value when the
rights are exercised or the restricted stock awards are vested.
Estimates of compensation relating to phantom stock appreciation
rights ("PSARs") granted to employees of a subsidiary of TCI have been
recorded in the accompanying combined financial statements, but is
subject to future adjustment based upon a valuation model derived from
such subsidiary's cash flow, working capital and debt. Effective
January 1, 1994, these employees have a put right that requires such
subsidiary to purchase their respective PSARs. The subsidiary may call
the PSARs on or after January 1, 1996.
The Company has contingent liabilities related to legal proceedings
and other matters arising in the ordinary course of business. Although
it is reasonably possible the Company may incur losses upon conclusion
of such matters, an estimate of any loss or range of loss cannot be
made. In the opinion of management, it is expected that amounts, if
any, which may be required to satisfy such contingencies will not be
material in relation to the accompanying consolidated financial
statements.
V-53
<PAGE> 275
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Summary of Operations
As of January 27, 1994, TCI Communications, Inc. (formerly
Tele-Communications, Inc. or "Old TCI") and Liberty Media Corporation
("Liberty") entered into a definitive merger agreement to combine the two
companies (the "TCI/Liberty Combination"). The transaction was consummated on
August 4, 1994 and was structured as a tax free exchange of Class A and Class B
shares of both companies and preferred stock of Liberty for like shares of a
newly formed holding company, TCI/Liberty Holding Company. In connection with
the TCI/Liberty Combination, Old TCI changed its name to TCI Communications,
Inc. ("TCIC") and TCI/Liberty Holding Company changed its name to
Tele-Communications, Inc.
On August 3, 1995, the stockholders of TCI authorized the Board to
issue the Liberty Group Stock which reflects the separate performance of
Liberty Media Group. Additionally, the stockholders of TCI approved the
redesignation of the previously authorized TCI Class A and Class B common stock
into Series A TCI Group and Series B TCI Group common stock. The issuance of
the Liberty Group Stock did not result in any transfer of assets or liabilities
of TCI or any of its subsidiaries or affect the rights of holders of TCI's or
any of its subsidiaries' debt. On August 10, 1995, TCI distributed, in the form
of a dividend, one share of Liberty Group Stock for each four shares of TCI
Group Stock owned. Such distribution represented one hundred percent of the
equity value attributable to Liberty Media Group. As of December 31, 1996, the
TCI Group Stock reflects the performance of those businesses of the Company not
attributed to Liberty Media Group. Such businesses are referred to herein as
"TCI Group". Liberty Media Group and TCI Group are sometimes herein after
referred to individually as a "Group".
On March 12, 1997, the TCI stockholders authorized the Board to issue
two new series of the Company's common stock, par value $1.00 per share, (and a
corresponding increase in the total number of authorized shares of common
stock) to be designated Tele-Communications, Inc. Series A Telephony Group
Common Stock and Tele-Communications, Inc. Series B Telephony Group Common
Stock. The Telephony Group Stock, if issued, would be intended to reflect the
separate performance of Telephony Group, which initially consists of the
Company's investments in certain entities engaged in the domestic wireline and
wireless telephony businesses. A total of 750 million shares of Series A
Telephony Group Stock and 75 million shares of Series B Telephony Group Stock
were authorized.
The Company is organized based upon four lines of business: Domestic
Cable and Communications; Programming; International Cable and Programming
("TINTA"); and Technology/Venture Capital. Within the Domestic Cable and
Communications line of business, the Company operates three strategic business
units: Cable, Telephony and Internet. The Company's organizational structure
provides for financial and operational independence in the four operating
units, each under the direction of its own chief executive officer, while
maintaining the synergies and scale economies provided by a common corporate
parent. While the International Cable and Programming unit, Telephony unit,
Internet unit or the Technology/Venture Capital unit is currently significant
to the Company as a whole, the Company believes each unit has growth potential
and each unit is unique enough in nature to warrant separate operational focus.
V-54
<PAGE> 276
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notwithstanding the foregoing, the Company currently has significant
operations principally in two industry segments: cable and communications
services and programming services. Home shopping is a programming service which
includes a retail function. Separate amounts for home shopping services have
been provided to enhance the readers understanding of the Company. The
Technology/Venture Capital, Telephony, Internet and the International Cable and
Programming portions of the Company's business have been included with cable
and communications services due to their relative insignificance. The amounts
provided for the Company's programming services segment represent the results
of Liberty Media Group since the date of the TCI/Liberty Combination.
Cable and Communications Services
The table below sets forth for the periods presented, the percentage
relationship that certain items bear to revenue. This summary provides trend
data relating to the normal recurring operations of the Company. Other items of
significance are discussed under separate captions below.
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------------------------------
1996 1995 1994
-------------------- -------------------- ---------------------
dollar amounts in millions
<S> <C> <C> <C> <C> <C> <C>
Revenue 100% $ 6,790 100% $ 5,145 100% $ 4,043
Operating, selling, general and
administrative expenses (1) 69 4,678 61 3,173 56 2,275
Compensation (adjustment to
compensation) relating to stock
appreciation rights -- (30) 1 45 -- (5)
Restructuring charges -- 41 -- -- -- --
Depreciation and amortization 23 1,555 25 1,274 25 992
------ --------- ------ --------- ------ ----------
Operating income 8% $ 546 13% $ 653 19% $ 781
===== ========= ===== ========= ===== =========
</TABLE>
---------------------
(1) Includes intercompany programming charges of $107 million, $80 million
and $33 million in 1996, 1995 and 1994, respectively. Such programming
charges eliminate in consolidation.
The operation of the Company's cable television systems is regulated
at the federal, state and local levels. The Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act") and the
Telecommunications Act of 1996 (together with the 1992 Cable Act, the "Cable
Acts") established rules under which the Company's basic and tier service rates
and its equipment and installation charges (the "Regulated Services") are
regulated if a complaint is filed or if the appropriate franchise authority is
certified. At December 31, 1996, approximately 78% of the Company's basic
customers were served by cable television systems that were subject to such
rate regulation.
During the year ended December 31, 1996, 61% of the Company's revenue
from Cable and Communications Services was derived from Regulated Services. As
noted above, any increases in rates charged for Regulated Services are
regulated by the Cable Acts. Moreover, competitive factors may limit the
Company's ability to increase its service rates.
V-55
<PAGE> 277
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Through December 4, 1996, the Company had an investment in a direct
broadcast satellite partnership, PRIMESTAR Partners L.P. ("Primestar").
Primestar provides programming and marketing support to each of its cable
partners who provide satellite television service to their customers. On
December 4, 1996, the Company distributed (the "Satellite Spin-off") to the
holders of shares of TCI Group Stock all of the issued and outstanding common
stock of TCI Satellite Entertainment, Inc. ("Satellite"). At the time of the
Satellite Spin-off, Satellite's assets and operations included the Company's
interest in Primestar, the Company's business of distributing Primestar
programming and two communications satellites. As a result of the Satellite
Spin-off, Satellite's operations are no longer consolidated with the Company's.
See note 7 to the accompanying consolidated financial statements for the effect
of the Satellite Spin-off on the Company's results of operations and financial
position.
Revenue from Cable and Communications services increased 32% and 27%
for the years ended December 31, 1996 and 1995, respectively, as compared to
the prior years. In the Company's regulated cable systems, the Company
implemented rate increases for its Regulated Services in June 1996. As allowed
by Federal Communications Commission ("FCC") regulations, such rate increases
included amounts intended to recover increased programming costs incurred
during the first five months of 1996 and not previously recovered, as well as
interest on said amounts.
The 1996 increase in revenue from Cable and Communications is due to
the effect of certain acquisitions (18%), increases in the rates charged to the
Company's customers due to inflation, programming cost increases as previously
discussed and channel additions (7%), growth in the Company's satellite
customers through the date of the Satellite Spin-off (3%), net growth in basic
customer levels within the Company's cable television systems (1%) and an
increase in the Company's international programming revenue, advertising sales
and other revenue (3%).
The 1995 increase in revenue from Cable and Communications is due to
the effect of certain acquisitions (13%), growth in the Company's satellite
customers (4%), increases in the rates charged to the Company's customers from
inflation, programming cost increases and channel additions (4%), net growth in
basic customer levels within the Company's cable television systems (4%) and an
increase in the Company's long-distance voice and data service and other
revenue (2%).
Operating, selling, general and administrative expenses increased 47%
and 39% for the years ended December 31, 1996 and 1995, respectively, as
compared to the prior year. Exclusive of the effects of acquisitions (21% and
13%) and Primestar (5% and 8%), such expenses increased 21% and 18%,
respectively. Programming expenses accounted for the majority of such increase.
In this regard, programming expenses, including intercompany programming
charges, represented $1,782 million (38%), $1,331 million (42%) and $936
million (41%) of operating, selling, general and administrative expenses during
1996, 1995 and 1994, respectively. The Company cannot determine whether and to
what extent increases in the cost of programming will affect its future
operating costs. However, such programming costs have increased at a greater
percentage than increases in revenue of Regulated Services. During the fourth
quarter of 1995, the Company incurred $25 million in expenses related to
payment of bonuses to the majority of its employees.
During the fourth quarter of 1996, the Company restructured certain of
its operating and accounting functions (the "Restructuring"). In connection
with the Restructuring, the Company recognized a charge of $41 million related
primarily to work force reductions. As of December 31, 1996, $8 million of such
restructuring charges had been paid. The Company anticipates that the majority
of the remaining charges will be paid during the six months ended June 30,
1997.
V-56
<PAGE> 278
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
The increase in the Company's depreciation expense in 1996 and 1995
is due to acquisitions, as well as increased capital expenditures due to a
program to upgrade and install optical fiber technology in the Company's cable
systems. The increase in amortization expense in 1996 and 1995 is due to
acquisitions.
The Company records compensation relating to stock appreciation rights
and restricted stock awards granted to certain employees. Such compensation is
subject to future adjustment based upon market value, and ultimately, on the
final determination of market value when the rights are exercised or the
restricted stock awards are vested.
Programming Services
The table below sets forth for the periods presented, the percentage
relationship that certain items bear to revenue. This summary provides trend
data relating to the normal recurring operations of the Company. Other items of
significance are discussed under separate captions below.
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------------------------------------
1996 1995 1994
-------------------- ------------------------- ------------------
dollar amounts in millions
Electronic Retailing Services:
<S> <C> <C> <C> <C> <C> <C>
Net sales 100% $ 984 100% $ 920 100% $ 432
Cost of sales 61 605 66 603 61 263
Operating, selling, general and
administrative expenses 31 306 37 342 34 145
Restructuring charges -- -- 2 17 -- --
Depreciation and amortization 4 37 4 43 3 15
------ --------- ------ --------- ------ ---------
Operating income (loss) 4% $ 36 (9)% $ (85) 2% $ 9
===== ======= ====== ======= ===== ========
Other Programming Services:
Revenue (1) 100% $ 355 100% $ 521 100% $ 240
Operating, selling, general and
administrative expenses 74 264 92 480 97 234
Compensation (adjustment to
compensation) relating to stock
appreciation rights 5 17 2 12 (1) (3)
Depreciation and amortization 7 24 11 55 5 11
------ --------- ------ --------- ------ ---------
Operating income (loss) 14% $ 50 (5)% $ (26) (1)% $ (2)
===== ======= ====== ======= ====== ========
</TABLE>
------------------
(1) Includes intercompany programming revenue of $107 million, $80
million and $33 million in 1996, 1995 and 1994, respectively. Such
programming revenue eliminates in consolidation.
V-57
<PAGE> 279
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Electronic Retailing Services
This information reflects the results of Home Shopping Network, Inc.
("HSN"), which became a consolidated subsidiary of the Company in the
TCI/Liberty Combination and ceased to be a consolidated subsidiary in December
1996 pursuant to the transactions described below. HSN's primary business is
the sale of merchandise to viewers of the home shopping programming produced
and distributed by Home Shopping Club, Inc. ("HSC"), a wholly-owned subsidiary
of HSN.
Pursuant to an agreement among Liberty Media Group, Barry Diller and
certain of their respective affiliates entered into in August 1995 and amended
in August 1996 (the "BDTV Agreement"), Liberty Media Group contributed to BDTV
INC. ("BDTV-I"), in August 1996, an option (the "Option") to purchase 2 million
shares of Class B common stock of Silver King Communications, Inc. ("Silver
King") (which shares represented voting control of Silver King at such time)
and $3,500,000 in cash, representing the exercise price of the Option. BDTV-I
is a corporation formed by Liberty Media Group and Mr. Diller pursuant to the
BDTV Agreement, in which Liberty Media Group owns over 99% of the equity and
none of the voting power (except for protective rights with respect to certain
fundamental corporate actions) and Mr. Diller owns less than 1% of the equity
and all of the voting power. BDTV-I exercised the option shortly after its
contribution, thereby becoming the controlling stockholder of Silver King. Such
change in control of Silver King had been approved by the FCC in June 1996,
subject, however, to the condition that the equity interest of Liberty Media
Group in Silver King not exceed 21.37% without the prior approval of the FCC
(the "FCC Order").
Pursuant to an Agreement and Plan of Exchange and Merger entered into
in August 1996, Silver King acquired HSN by merger of HSN with a subsidiary of
Silver King in December 1996 (the "HSN Merger") where HSN is the surviving
corporation and a subsidiary of Silver King following the HSN Merger. In order
to effect the HSN Merger in compliance with the FCC Order, Liberty Media Group
agreed to defer receiving certain shares of Silver King that would otherwise
have become issuable to it in the HSN Merger until such time as it was
permitted to own such shares. As a result, the HSN Merger was structured so
that Liberty Media Group received (i) 7,809,111 shares of Class B common stock
of Silver King, all of which shares Liberty Media Group contributed to BDTV II
INC. ("BDTV-II"), (ii) the contractual right (the "Contingent Right") to be
issued up to an additional 2,591,752 shares of Class B common stock of Silver
King from time to time upon the occurrence of certain events which would allow
Liberty Media Group to own additional shares in compliance with the FCC Order
(including events resulting in the dilution of Liberty Media Group's percentage
equity interest), and (iii) 739,141 shares of Class B common stock and
17,566,702 shares of common stock of HSN (representing approximately 19.9% of
the equity of HSN). BDTV-II is a corporation formed by Liberty Media Group and
Barry Diller pursuant to the BDTV Agreement, in which the relative equity
ownership and voting power of Liberty Media Group and Mr. Diller are
substantially the same as their respective equity ownership and voting power in
BDTV-I.
V-58
<PAGE> 280
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
As a result of the HSN Merger, HSN is no longer a subsidiary of
Liberty Media Group and therefore, the financial results of HSN will no longer
be consolidated with the financial results of Liberty Media Group. Although
Liberty Media Group no longer possesses voting control over HSN, it continues
to have an indirect equity interest in HSN through its ownership of the equity
securities of BDTV-I and BDTV-II as well as a direct interest in HSN which
would be exchangeable into shares of Silver King. Accordingly, HSN, BDTV-I and
BDTV-II are accounted for using the equity method.
During the year ended December 31, 1996, HSN's net sales increased
7%, as compared to the prior year. Such increase is due primarily to the net
effect of an 11.5% increase in the number of packages shipped partially offset
by an 8.5% decrease in the average price per unit sold.
Net sales from electronic retailing services increased from $432
million in 1994 to $920 million in 1995. Such increase is due to the
consolidation of HSN in August of 1994 in connection with the TCI/Liberty
Combination. However, on an annualized basis, HSN's net sales decreased
approximately 11%. Such annualized decrease is the net affect of a 19% decrease
in the number of packages shipped, partially offset by a 9% increase in the
average price per unit sold.
For the year ended December 31, 1996, cost of sales increased $2
million or less than 1% as compared to 1995. As a percentage of net sales, cost
of sales decreased from 66% to 61% from 1995 to 1996. Such decrease is due to
promotional events in 1995 which had the effect of lowering revenue but not
cost of sales and to a change in product sales mix in 1996.
Cost of sales increased from $263 million in 1994 to $603 million in
1995. As a percent of sales, cost of sales increased from 61% in 1994 to 66% in
1995. The increase in the cost of sales percentages primarily relate to
warehouse sales and other promotional events. Such events included price
discounts to (i) facilitate the restructuring of HSN's distribution center,
(ii) make room for new holiday merchandise and (iii) adjust inventory levels
and product mix. In addition, cost of sales for the year ended December 31,
1995 includes a $12 million increase in HSC's inventory carrying value
adjustment related to products which were inconsistent with HSN's then new
sales and merchandise philosophy.
HSN believes that seasonality does impact its business, but not to the
same extent it impacts the retail industry in general.
Other Programming Services
On April 1, 1996, United Video Satellite Group, Inc. ("UVSG"), a
subsidiary of TCI Group, and Netlink USA ("Netlink"), a subsidiary of Liberty
Media Group, formed Superstar/Netlink Group LLC ("Superstar/Netlink"), a
limited liability company comprised of UVSG's Superstar Satellite Entertainment
and Netlink's retail C-band satellite business. Liberty Media Group and UVSG
each own 50% of Superstar/Netlink. As of April 1, 1996, Netlink's retail C-band
business is no longer consolidated with the financial results of Liberty Media
Group.
As of April 29, 1996, Liberty Media Group, The News Corporation
Limited ("News Corp.") and TINTA formed two sports programming ventures both of
which are accounted for using the equity method. In the United States, Liberty
Media Group and News Corp. formed the Liberty/Fox U.S. Sports LLC ("Fox
Sports") into which Liberty Media Group contributed interests in its national
and regional sports networks and into which News Corp. contributed its fx cable
network and certain other assets. Liberty Media Group received a 50% interest
in Fox Sports and $350 million in cash.
V-59
<PAGE> 281
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Internationally, News Corp. and a limited liability company
("Liberty/TINTA") formed by Liberty Sports, Inc., a wholly-owned subsidiary of
Liberty Media Group, and TINTA formed a venture ("Fox Sports International") to
operate previously existing sports services in Latin America and Australia and
a variety of new sports services throughout the world, except in Asia and in
the United Kingdom, Japan and New Zealand where prior arrangements preclude an
immediate collaboration. Liberty/TINTA owns 50% of Fox Sports International
with News Corp. owning the other 50%. News Corp. contributed various
international sports rights and certain trademark rights. Liberty/TINTA
contributed Prime Deportiva, a Spanish language sports service distributed in
Latin American and in Hispanic markets in the United States; an interest in
Torneos y Competencias S.A., an Argentinean sports programming and production
business; various international sports and satellite transponder rights and
cash. Liberty/TINTA also contributed its 50% interest in Premier Sports and
All-Star Sports. Both are Australian 24-hour sports services available via
multichannel, multipoint distribution systems or cable television.
As part of the formation of Fox Sports International, Liberty/TINTA is
entitled to receive from News Corp. 7.5% of the outstanding stock of Star
Television Limited. Upon delivery of such stock to Liberty/TINTA, News Corp. is
entitled to receive from Liberty/TINTA $20 million and rights under various
Asian sports programming agreements. Star Television Limited operates a
satellite-delivered television platform in Asia.
Revenue from the Company's Other Programming Services decreased $166
million or 32% from 1995 to 1996. Such decrease is due to the net effect of the
deconsolidation of (i) the Company's sports programming entities upon the
formation of Fox Sports and Fox Sports International and (ii) Netlink's retail
C-band satellite business offset by a $50 million increase in revenue from
Encore Media Corporation and a $9 million increase from other services.
Revenue from the Company's Other Programming Services increased $281
million or 117% from 1994 to 1995, and operating costs and expenses before
depreciation and amortization increased $246 million or 105%. Such increases
are primarily due to the TCI/Liberty Combination.
Other Income and Expense
The Company's interest expense increased $86 million or 9% during
1996, as compared to 1995 and $225 million or 29% during 1995, as compared to
1994. The increase in 1996 is the net result of an increase due to higher debt
balances partially offset by a decrease due to a lower weighted average
interest rate. The 1995 increase is the result of higher interest rates and
debt balances. The Company's weighted average interest rate on borrowings was
7.8%, 8.1% and 7.5% during 1996, 1995 and 1994, respectively.
During the year ended December 31, 1996, in order to reduce future
interest costs, the Company redeemed certain notes payable which had an
aggregate principle balance of $904 million and fixed interest rates ranging
from 7.88% to 10.44% (the "Redemption"). In connection with the Redemption, the
Company recognized a loss on early extinguishment of debt of $62 million. Such
loss related to prepayment penalties amounting to $60 million and the
retirement of deferred loan costs.
Also, during the year ended December 31, 1996, certain subsidiaries of
the Company terminated, at such subsidiaries' option, certain revolving bank
credit facilities with aggregate commitments of approximately $2 billion and
refinanced certain other bank credit facilities. In connection with such
termination and refinancings, the Company recognized a loss on early
extinguishment of debt of $9 million related to the retirement of deferred loan
costs.
V-60
<PAGE> 282
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
At December 31, 1996, the Company had an effective ownership interest
of approximately 27% in Telewest Communications plc ("Telewest"), a company
that is currently operating and constructing cable television and telephone
systems in the United Kingdom ("UK"). Telewest, which is accounted for under
the equity method, had a carrying value at December 31, 1996 of $488 million
and comprised $109 million, $70 million and $43 million of the Company's share
of its affiliates' losses in 1996, 1995, and 1994, respectively. The increase
in the Company's share of losses of Telewest in 1996 and 1995 is due, in part,
to an increase in Telewest's interest expense and foreign currency translation
losses related to the 1995 issuance of U.S. dollar denominated debentures by
Telewest. In addition, the Company has other less significant equity method
investments in video distribution and programming businesses located in the UK,
other parts of Europe, Asia, Latin America and certain other foreign countries.
In the aggregate, such other equity method investments had a carrying value of
$422 million at December 31, 1996 and accounted for $79 million, $62 million
and $50 million of the Company's share of its affiliates' losses in 1996, 1995
and 1994, respectively.
Telewest was formed during the fourth quarter of 1995 upon the merger
(the "TeleWest Merger") of TeleWest Communications plc (formerly TCI/US WEST
Cable Communications Group) ("TeleWest Communications") with SBC
(CableComms)(UK). Prior to the TeleWest Merger, the Company had an effective
ownership interest of approximately 36% in TeleWest Communications, and
subsequent to the TeleWest Merger the Company has an effective ownership
interest of approximately 27% in Telewest. As a result of the TeleWest Merger,
the Company recognized a gain of $165 million (before deducting the related tax
expense of $58 million). Such gain represents the difference between the
Company's recorded cost for TeleWest Communications and the Company's effective
proportionate share of Telewest's net assets. There is no assurance that the
Company will realize similar gains in future periods.
As a result of the TeleWest Communications November 1994 initial
public offering (the "TeleWest IPO") and the associated dilution of the
Company's ownership interest of TeleWest Communications, the Company recognized
a gain amounting to $161 million (before deducting the related tax expense of
$57 million) in 1994.
The Company's share of losses of affiliates was $473 million, $193
million and $112 million (exclusive of share of earnings of Liberty prior to
the TCI/Liberty Combination) in 1996, 1995 and 1994, respectively. The
increases in 1996 and 1995 are due in part to the aforementioned share of
losses of Telewest and the Company's other international investments.
Additionally, included in share of losses of affiliates for the year ended
December 31, 1996 is $168 million attributable to Sprint Spectrum Holding
Company, L.P. ("Sprint Spectrum"). Such amount includes $34 million associated
with prior periods.
On July 11, 1994, Rainbow Program Enterprise ("Rainbow") purchased
49.9% of Liberty's 50% general partnership interest in American Movie Classics
Company ("AMC"). The gain recognized by Liberty in connection with the
disposition of AMC was $183 million and is included in the Company's share of
Liberty's earnings prior to the TCI/Liberty Combination.
Teleport Communications Group Inc. ("TCG"), a competitive local
exchange carrier, conducted an initial public offering (the "TCG IPO") on July
2, 1996 in which it sold 27,025,000 shares of Class A common stock at $16.00
per share to the public for aggregate net proceeds of approximately
$410,000,000. As a result of the TCG IPO, the Company's ownership interest in
TCG was reduced from approximately 35% to approximately 31%. Accordingly, the
Company recognized a gain amounting to $12 million (before deducting deferred
income tax expense of approximately $5 million).
V-61
<PAGE> 283
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
During the year ended December 31, 1995, the Company recognized a
gain amounting to $123 million in connection with the sale by TINTA to the
public of 20 million shares of TINTA common stock (the "IPO") and the issuance
by TINTA of shares of common stock for an investment in an Argentine
programming entity (the "TYC Acquisition").
Minority interests in earnings of consolidated subsidiaries aggregated
$56 million for the year ended December 31, 1996, as compared to minority
interests in losses of consolidated subsidiaries in 1995 and 1994. Such change
in 1996 is due primarily to the accrual of dividends on preferred securities
issued by certain subsidiaries of the Company.
On October 10, 1996, Time Warner, Inc. ("Time Warner") and Turner
Broadcasting System, Inc. ("TBS") consummated a merger (the "TBS/Time Warner
Merger") whereby TBS shareholders received 0.75 of a Time Warner common share
for each TBS Class A and Class B common share held, and each holder of TBS
Class C preferred stock received 0.80 of a Time Warner common share for each of
the 6 shares of TBS Class B common stock into which each share of Class C
preferred stock could have been converted. Prior to the TBS/Time Warner Merger,
the Company owned shares of TBS common stock and shares of a class of TBS
preferred stock that were convertible into TBS common stock. Time Warner, TBS,
TCI and Liberty entered into an Agreement Containing Consent Order with the
Federal Trade Commission ("FTC") dated August 14, 1996, as amended September 4,
1996 (the "FTC Consent Decree"). Pursuant to the FTC Consent Decree, among
other things, Liberty agreed to exchange the shares of Time Warner common stock
to be received in the TBS/Time Warner Merger for shares of a separate series of
Time Warner common stock with limited voting rights (the "TW Exchange Stock")
in exchange for its TBS common and preferred stock. Holders of the TW Exchange
Stock are entitled to one one-hundredth of a vote for each share with respect
to the election of directors. Holders of the TW Exchange Stock will not have
any other voting rights, except as required by law or with respect to limited
matters, including amendments of the terms of the TW Exchange Stock adverse to
such holders. Subject to the federal communications laws, each share of the TW
Exchange Stock will be convertible at any time at the option of the holder on a
one-for-one basis for a share of Time Warner common stock. Holders of TW
Exchange Stock are entitled to receive dividends ratably with the Time Warner
common stock and to share ratably with the holder of Time Warner common stock
in assets remaining for common stockholders upon dissolution, liquidation or
winding up of Time Warner. In connection with the TBS/Time Warner Merger, the
Company received approximately 50.6 million shares of TW Exchange Stock in
exchange for its TBS holdings. As a result of the TBS/Time Warner Merger, the
Company recognized a pre-tax gain of approximately $1.5 billion in the fourth
quarter of 1996.
Net Earnings
The Company's net earnings (before preferred stock dividend
requirements) of $278 million for the year ended December 31, 1996 represents
an increase of $449 million as compared to the Company's net loss (before
preferred stock dividend requirements) of $171 million for 1995. Such increase
is due to the net effect of the gains recorded in connection with the TBS/Time
Warner Merger and the HSN Merger partially offset by an increase in share of
losses of affiliates, income tax expense and interest expense. Additionally,
the Company recognized gains in 1995 related to the TeleWest Merger and TINTA
IPO.
V62
<PAGE> 284
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
The Company's net loss (before preferred stock dividend requirements)
of $171 million for the year ended December 31, 1995 represents a decrease of
$233 million as compared to the Company's net earnings (before preferred stock
dividend requirements) of $62 million for the corresponding period of 1994.
Such decrease is due primarily to a decrease in operating income, a decrease in
share of earnings of affiliates (a significant portion of which results from
the gain recognized in 1994 by Liberty upon the sale of its investment in AMC),
and an increase in interest expense partially offset by the recognition of a
gain resulting from the TINTA IPO.
Inflation has not had a significant impact on the Company's results of
operations during the three-year period ended December 31, 1996.
Liquidity and Capital Resources
On July 31, 1996, pursuant to certain agreements entered into among
TCIC, TCI, Viacom International, Inc. and Viacom, Inc. ("Viacom"), TCIC
acquired all of the common stock of a subsidiary of Viacom ("Cable Sub") which
owned Viacom's cable systems and related assets (the "Viacom Acquisition").
The transaction was structured as a tax-free reorganization in which
Cable Sub transferred all of its non-cable assets, as well as all of its
liabilities other than current liabilities, to a new subsidiary of Viacom ("New
Viacom Sub"). Cable Sub also transferred to New Viacom Sub the proceeds (the
"Loan Proceeds") of a $1.7 billion loan facility (the "Loan Facility") arranged
by TCIC, TCI and Cable Sub. Following these transfers, Cable Sub retained cable
assets with a value at closing of approximately $2.326 billion and the
obligation to repay the Loan Proceeds. Neither Viacom nor New Viacom Sub has
any obligation with respect to repayment of the Loan Proceeds. The Viacom
Acquisition has been accounted for by the purchase method and accordingly, the
Company recorded Cable Sub's assets and liabilities at fair value.
Prior to the consummation of the Viacom Acquisition, Viacom offered to
the holders of shares of Viacom Class A Common Stock and Viacom Class B Common
Stock (collectively, "Viacom Common Stock") the opportunity to exchange (the
"Exchange Offer") a portion of their shares of Viacom Common Stock for shares
of Class A Common Stock, par value $100 per share, of Cable Sub ("Cable Sub
Class A Stock"). Immediately following the completion of the Exchange Offer,
TCIC acquired from Cable Sub shares of Cable Sub Class B Common Stock (the
"Share Issuance") for $350 million (which was used to reduce Cable Sub's
obligations under the Loan Facility). At the time of the Share Issuance, the
Cable Sub Class A Stock received by Viacom stockholders pursuant to the
Exchange Offer automatically converted into 5% Class A Senior Cumulative
Exchangeable Preferred Stock (the "Exchangeable Preferred Stock") of Cable Sub
with a stated value of $100 per share (the "Stated Value"). 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 Cable Sub, after 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 at a price equal to the Stated Value per share plus accrued and unpaid
dividends. Amounts payable by Cable Sub in satisfaction of its optional or
mandatory redemption obligations with respect to the Exchangeable Preferred
Stock may be made in cash or, at the election of Cable Sub, in shares of Series
A TCI Group Stock, or in any combination of the foregoing.
V-63
<PAGE> 285
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
In addition to the Viacom Acquisition, the Company consummated certain
other acquisitions during 1996. See note 3 to the accompanying consolidated
financial statements for additional information regarding assets acquired and
liabilities assumed in connection with all acquisitions.
During the year ended December 31, 1996, the Company, through certain
subsidiaries, issued (i) 4.6 million shares of Cumulative Exchangeable
Preferred Stock for net cash proceeds of $223 million, (ii) $500 million in
face value of 8.72% Trust Originated Preferred Securities(SM) for net cash
proceeds of $486 million (through a special purpose entity formed as a Delaware
business trust) (iii) $500 million in face value of 10% Trust Preferred
Securities for net cash proceeds of $485 million (through a special purpose
entity formed as a Delaware business trust) and (iv) $2.06 billion of
publicly-placed senior and medium term notes with interest rates ranging from
6.1% to 7.9% and maturity dates ranging through 2026. The Company used the
proceeds from the aforementioned debt and equity issuances to retire commercial
paper and to repay certain other indebtedness.
During March 1997, the Company, through special purpose entities
formed as Delaware business trusts, issued $300 million in face value of 9.65%
Capital Securities and $200 million in face value of 9.72% Trust Preferred
Securities. The Company used the net proceeds from such issuances to retire
commercial paper and repay certain other indebtedness.
Additionally, in February 1996, TINTA issued $345 million (before
deducting offering costs of $9 million) of 4.5% convertible subordinated
debentures. TINTA anticipates that it will use the net proceeds to fund capital
contributions to certain of its equity investees.
In January 1997, the Company acquired the 50% ownership interest in
TKR Cable Company ("TKR Cable") that the Company did not previously own and
certain additional assets for aggregate consideration of approximately $970
million. The Company issued approximately 16 million shares of TCI Group Stock,
assumed $584 million of TKR Cable's debt and paid cash of $88 million and
shares of Time Warner common stock valued at $41 million upon consummation of
such acquisition.
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 or series of preferred 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. The Company's subsidiaries are separate and distinct
legal entities and have no obligation, contingent or otherwise, to pay the
dividends on any class or series of preferred stock of TCI or to make any funds
available therefor, whether by dividends, loans or other payments. The payment
of dividends or the making of loans and advances to the Company by its
subsidiaries may be subject to statutory or regulatory restrictions, are
contingent upon the earnings of those subsidiaries and are subject to various
business considerations. Further, certain of the Company's subsidiaries are
subject to loan agreements that prohibit or limit the transfer of funds by such
subsidiaries to the Company in the form of dividends, loans, or advances, and
require that such subsidiaries' indebtedness to the Company be subordinate to
the indebtedness under such loan agreements. The amount of net assets of
subsidiaries subject to such restrictions exceeds the Company's consolidated
net assets. The Company's subsidiaries currently have the ability to transfer
funds to the Company in amounts exceeding the Company's dividend requirement on
any class or series of preferred stock. Net cash provided by operating
activities of subsidiaries which are not restricted from making transfers to
the parent company have been and are expected to continue to be sufficient to
enable the parent company to meet its cash obligations.
V-64
<PAGE> 286
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Moreover, almost all of the consolidated liabilities of the Company
have been incurred by its subsidiaries. Therefore, the Company's rights, and
the extent to which the holders of the Company's preferred stocks will be able
to participate in the distribution of assets of any subsidiary upon the
latter's liquidation or reorganization, will be subject to prior claims of the
subsidiary's creditors, including trade creditors, except to the extent that
the Company may itself be a creditor with recognized claims against such
subsidiary (in which case the claims of the Company would still be subject to
the prior claims of any secured creditor of such subsidiary and of any holder
of indebtedness of such subsidiary that is senior to that held by the Company).
During the second quarter of 1996, certain subsidiaries of the Company
terminated, at such subsidiaries' option, certain revolving bank credit
facilities with aggregate commitments of approximately $2 billion. The Company
does not believe that such terminations will adversely affect its future
liquidity. At December 31, 1996, subsidiaries of the Company had approximately
$1.8 billion in unused lines of credit, excluding amounts related to lines of
credit which provide availability to support commercial paper. Although such
subsidiaries were in compliance with the restrictive covenants contained in
their credit facilities at said date, additional borrowings under the credit
facilities are subject to the subsidiaries' continuing compliance with such
restrictive covenants (which relate primarily to the maintenance of certain
ratios of cash flow to total debt and cash flow to debt service, as defined in
the credit facilities) after giving effect to such additional borrowings. See
note 8 to the accompanying consolidated financial statements for additional
information regarding the material terms of the subsidiaries' lines of credit.
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, compensation relating
to stock appreciation rights, adjustment to compensation relating to stock
appreciation rights and restructuring charges) ($2,276 million, $1,988 million
and $1,798 million in 1996, 1995 and 1994, respectively) to interest expense
($1,096 million, $1,010 million and $785 million in 1996, 1995 and 1994,
respectively), is determined by reference to the consolidated statements of
operations. The Company's interest coverage ratio was 208%, 197% and 229% for
1996, 1995 and 1994, respectively. Management of the Company believes that the
foregoing interest coverage ratio is adequate in light of the consistency and
nonseasonal nature of its cable television operations and the relative
predictability of the Company's interest expense, almost half of which results
from fixed rate indebtedness. However, the Company's current intent is to
reduce its outstanding indebtedness such that its interest coverage ratio could
be increased. There is no assurance that the Company will be able to achieve
such objective. 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.
V-65
<PAGE> 287
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
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 ($1,228 million, $957 million
and $908 million in 1996, 1995 and 1994, respectively) 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. Amounts expended by the
Company for its investing activities exceed net cash provided by operating
activities. However, management believes that net cash provided by operating
activities, the ability of the Company and its subsidiaries to obtain
additional financing (including the subsidiaries' available lines of credit and
access to public debt markets), issuances and sales of the Company's equity or
equity of its subsidiaries, and proceeds from disposition of assets will
provide adequate sources of short-term and long-term liquidity in the future.
See the Company's consolidated statements of cash flows included in the
accompanying consolidated financial statements.
The Company's subsidiaries generally finance acquisitions and capital
expenditures through net cash provided by operating and financing activities.
Historically, amounts expended for acquisitions and capital expenditures have
exceeded net cash provided by operating activities. In this regard, the amount
of capital expended by the Company for property and equipment was $2,055
million, $1,782 million and $1,264 million in 1996, 1995 and 1994,
respectively. The Company has reevaluated its capital expenditure strategy and
currently anticipates that it will expend significantly less for property and
equipment in 1997 than it did in 1996. To the extent that net cash provided by
operating activities exceeds net cash used in investing activities in 1997, the
Company currently anticipates that such excess cash will initially be used to
reduce outstanding debt.
In late April 1996, TCIC was notified by Moody's Investors Service,
Inc. ("Moody's") and Duff & Phelps Credit Rating Co. ("Duff and Phelps") that
those rating agencies had downgraded by one level their respective ratings of
TCIC's senior debt to the first level below investment grade. Fitch Investors
Service, L.P. ("Fitch") reaffirmed its rating for TCIC's senior debt at the
last level of investment grade. On October 18, 1996, Standard and Poor's
Securities, Inc. ("Standard & Poor's") issued a press release stating that
TCIC's senior debt would be placed on CreditWatch with negative implications.
On January 24, 1997, Standard & Poor's removed TCIC's senior debt from
CreditWatch. TCIC's senior debt is currently rated BBB- by Standard & Poor's
(the last level of investment grade) with a negative outlook. These actions are
expected to marginally increase TCIC's cost of borrowings under certain bank
credit facilities, and may adversely affect TCIC's access to the public debt
market and its overall cost of future borrowings.
The Company is a partner in a series of partnerships formed to engage
in the business of providing wireless communications services, using the radio
spectrum for broadband personal communications services ("PCS"), to residential
and business customers nationwide, using the "Sprint" brand (the "PCS
Ventures"). The PCS Ventures include Sprint Spectrum and MinorCo, L.P.
(collectively, the "Sprint PCS Partnerships") and PhillieCo, L.P.
("PhillieCo"). The partners of each of the Sprint PCS Partnerships are
subsidiaries of Sprint Corporation ("Sprint"), Comcast, Cox Communications,
Inc. ("Cox") and the Company. The partners of PhillieCo are subsidiaries of
Sprint, Cox and the Company. The Company has a 30% partnership interest in each
of the Sprint PCS Partnerships and a 35.3% interest as a partner in PhillieCo
and accounts for its interests in the PCS Ventures by the equity method.
V-66
<PAGE> 288
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
The Sprint PCS Partnerships have licenses, and have affiliated with
other entities (including PhillieCo) that have licenses, to provide PCS service
to MTAs (or metropolitan trading areas) covering over 190 million "Pops" (or
population equivalents), based on the Donnelley Marketing Service estimate of
the December 31, 1995 population of the relevant geographic areas. The Sprint
PCS Partnerships' licenses, which cover 29 markets, were acquired in an auction
conducted by the FCC that ended in March 1995, for an aggregate license cost of
approximately $2.1 billion. The Sprint PCS Partnerships have invested in
(acquiring a 49% interest) and affiliated with American PCS, L.P. ("APC"),
which owns a PCS license for and operates a PCS system in the
Baltimore/Washington, D.C. MTA, and Cox California PCS, L.P.
("Cox-California"), which holds a PCS license for the Los Angeles/San Diego MTA
and currently operates a PCS system in San Diego, California. The Sprint PCS
Partnerships may invest in other entities that hold PCS Licenses. PhillieCo
holds the license for the Philadelphia MTA, which was acquired at a license
cost of $85 million. During December 1996, the Sprint PCS Partnerships
initiated the commercial launch of PCS service in seven markets.
From inception through 1996, the four partners have contributed
approximately $3.0 billion to the Sprint PCS Partnerships (of which the Company
contributed an aggregate of approximately $0.9 billion, including approximately
$0.2 billion during the year ended December 31, 1996.) The remaining capital
that the Sprint PCS Partnerships will require to fund the construction of the
PCS systems and the commitments made to APC and Cox-California will be
substantial. The partners had agreed in forming the Sprint PCS Partnerships to
contribute up to an aggregate of approximately $4.2 billion of equity thereto,
from inception through fiscal 1999, subject to certain requirements. The
Company expects that the remaining approximately $1.2 billion of such amount
(of which the Company's share is approximately $0.4 billion) will be
contributed by the end of the second quarter of 1998 (although there can be no
assurance that any additional capital will be contributed). The Company expects
that the Sprint PCS Partnerships will require additional equity thereafter.
The Company has guaranteed notes payable and other obligations of
affiliated and other companies with outstanding balances of approximately $278
million at December 31, 1996. Although there can be no assurance, management of
the Company believes that it will not be required to meet its obligations under
such guarantees, or if it is required to meet any of such guarantees, that they
will not be material to the Company.
The Company is obligated to pay fees for the rights to exhibit certain
films that are released by various producers through 2009 (the "Film Licensing
Obligations"). Based on customer levels at December 31, 1996, these agreements
require minimum payments aggregating approximately $571 million. The aggregate
amount of the Film Licensing Obligations under other license agreements is not
currently estimable because such amount is dependent upon the number of
qualifying films released theatrically by certain motion picture studios as
well as the domestic theatrical exhibition receipts upon the release of such
qualifying films. Nevertheless, the Company's aggregate payments under the Film
Licensing Obligations could prove to be significant.
The Company has made certain financial commitments related to the
acquisition of foreign sports program rights through 2004. At December 31,
1996, such commitments aggregated $226 million.
The Company's various partnerships and other affiliates accounted for
under the equity method generally fund their acquisitions, required debt
repayments and capital expenditures through borrowings under and refinancing of
their own credit facilities (which are generally not guaranteed by the Company)
and through net cash provided by their own operating activities.
V-67
<PAGE> 289
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
In order to achieve the desired balance between variable and fixed
rate indebtedness and to diminish its exposure to extreme increases in variable
interest rates, the Company has entered into various interest rate exchange
agreements. Pursuant to the interest rate exchange agreements, the Company (i)
pays fixed interest rates ranging from 7.2% to 9.3% and receives variable
interest rates on notional amounts of $310 million at December 31, 1996 (the
"Fixed Rate Agreements") and (ii) pays variable interest rates and receives
fixed interest rates ranging from 4.8% to 7.4% on notional amounts of $1,750
million at December 31, 1996 (the "Variable Rate Agreements"). During the year
ended December 31, 1996, 1995 and 1994, the Company's net payments pursuant to
the Fixed Rate Agreements were $14 million, $13 million and $26 million,
respectively; and the Company's net receipts (payments) pursuant to the
Variable Rate Agreements were $15 million, (less than $1 million) and $36
million, respectively. During the year ended December 31, 1996, the Company
terminated certain Variable Rate Agreements with an aggregate notional amount
of $700 million. The Company received $16 million upon such terminations. The
Company will amortize the termination settlement over the remainder of the
original terms of the terminated Variable Rate Agreements. The Company is
exposed to credit losses for the periodic settlements of amounts due under the
interest rate exchange agreements in the event of nonperformance by the other
parties to the agreements. However, the Company does not anticipate that it
will incur any material credit losses because it does not anticipate
nonperformance by the counterparties.
At December 31, 1996, after considering the net effect of the
aforementioned interest rate exchange agreements, the Company had $7,349
million (or 49%) of fixed-rate debt with a weighted average interest rate of
8.5% and $7,577 million (or 51%) of variable-rate debt with a weighted average
interest rate of 6.3%.
In connection with its investments in certain foreign entities, the
Company is exposed to unfavorable and potentially volatile fluctuations of the
U.S. dollar against the UK pound sterling ("(pound)"), the Japanese yen
("(Y)"), and various other foreign currencies that are the functional
currencies of the Company's foreign subsidiaries and affiliates. Any increase
(decrease) in the value of the U.S. dollar against any foreign currency that is
the functional currency of an operating subsidiary or affiliate of TINTA will
cause the Company to experience unrealized foreign currency translation losses
(gains) with respect to amounts already invested in such foreign currencies.
The Company is also exposed to foreign currency risk to the extent that the
Company or its foreign subsidiaries and affiliates enter into transactions
denominated in currencies other than their respective functional currencies.
Because the Company generally views its foreign operating subsidiaries and
affiliates as long-term investments, the Company generally does not attempt to
hedge existing investments in its foreign affiliates and subsidiaries. With
respect to funding commitments that are denominated in currencies other than
the U.S. dollar, the Company historically has sought to reduce its exposure to
short-term (generally no more than 90 days) movements in the applicable
exchange rates once the timing and amount of such funding commitments becomes
fixed. Although the Company monitors foreign currency exchange rates with the
objective of mitigating its exposure to unfavorable fluctuations in such rates,
the Company believes that it is not possible or practical to completely
eliminate the Company's exposure to unfavorable fluctuations in foreign
currency exchange rates.
V-68
<PAGE> 290
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Approximately twenty-seven percent of the franchises held by the
Company, involving approximately 4.5 million basic customers, expire within
five years. There can be no assurance that the franchises for the Company's
systems will be renewed as they expire, although the Company believes that its
cable television systems generally have been operated in a manner which
satisfies the standards established by the Cable Communications Policy Act of
1984 (the "1984 Cable Act"), as supplemented by the renewal provisions of the
1992 Cable Act, for franchise renewal. However, in the event they are renewed,
the Company cannot predict the impact of any new or different conditions that
might be imposed by the franchising authorities in connection with the
renewals. To date they have not varied significantly from the original terms.
During 1996, the Company has experienced a competitive impact from
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 Primestar partners distribute a
multi-channel programming service via a medium power communications satellite
to HSDs of approximately 3 feet in diameter. Prior to the Satellite Spin-off,
the Company provided this satellite service. DirecTv, Inc. ("DirecTv"), United
States Satellite Broadcasting Corporation ("USSB") and EchoStar Communications
Corp. ("EchoStar"), transmit from high power satellites and generally use
smaller dishes to receive their signals. Alphastar, Inc. ("Alphastar") began
offering medium power service in the second quarter of 1996. On February 24,
1997, 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 on a nationwide basis (not all of which would be
available to each subscriber), Internet services and local broadcast network
television signals, capable of reaching more than 50% of all television
householders upon the 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. However, the Company is unable to predict what effect
such competition will have on the Company's financial position.
V-69
<PAGE> 291
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Tele-Communications, Inc.:
We have audited the accompanying consolidated balance sheets of
Tele-Communications, Inc. and subsidiaries as of December 31, 1996 and 1995,
and the related consolidated statements of operations, stockholders' equity,
and cash flows for each of the years in the three-year period ended December
31, 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of
Tele-Communications, Inc. and subsidiaries as of December 31, 1996 and 1995,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Denver, Colorado
March 24, 1997
V-70
<PAGE> 292
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
------- -------
Assets amounts in millions
------
<S> <C> <C>
Cash and cash equivalents $ 394 118
Trade and other receivables, net 448 407
Inventories, net -- 104
Prepaid expenses 81 65
Prepaid program rights 49 47
Committed film inventory 136 122
Investments in affiliates, accounted for under the equity method,
and related receivables (note 4) 3,012 2,372
Investment in Time Warner, Inc. ("Time Warner") (note 5)
2,027 --
Investment in Turner Broadcasting System, Inc. ("TBS") (note 5)
-- 955
Property and equipment, at cost:
Land 77 88
Distribution systems 10,078 9,545
Support equipment and buildings 1,541 1,429
------- -------
11,696 11,062
Less accumulated depreciation 4,168 3,653
------- -------
7,528 7,409
------- -------
Franchise costs 17,875 14,322
Less accumulated amortization 2,439 2,092
------- -------
15,436 12,230
------- -------
Other assets, at cost, net of amortization 1,133 1,748
------- -------
$30,244 25,577
======= =======
</TABLE>
(continued)
V-71
<PAGE> 293
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets, continued
December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
-------- --------
Liabilities and Stockholders' Equity amounts in millions
------------------------------------
<S> <C> <C>
Accounts payable $ 216 243
Accrued interest 274 233
Accrued programming expense 347 318
Other accrued expenses 812 1,114
Debt (note 8) 14,926 13,211
Deferred income taxes (note 14) 6,012 4,584
Other liabilities 253 195
-------- --------
Total liabilities 22,840 19,898
-------- --------
Minority interests in equity of consolidated subsidiaries 1,493 651
Redeemable preferred stocks (note 9) 658 478
Company-obligated mandatorily redeemable preferred securities of subsidiary
trusts ("Trust Securities") holding solely subordinated debt securities of
TCI Communications, Inc.
("TCIC") (note 10) 1,000 --
Stockholders' equity (note 11):
Series Preferred Stock, $.01 par value -- --
Class B 6% Cumulative Redeemable Exchangeable Junior Preferred
Stock, $.01 par value -- --
Tele-Communications, Inc. Series A TCI Group common stock, $1
par value. Authorized 1,750,000,000 shares; issued
696,325,478 shares in 1996 and 672,211,009 shares in 1995 696 672
Tele-Communications, Inc. Series B TCI Group common stock, $1
par value. Authorized 150,000,000 shares; issued 84,647,065
shares in 1996 and 84,691,554 shares in 1995 85 85
Tele-Communications, Inc. Series A Liberty Media Group common
stock, $1 par value. Authorized 750,000,000 shares; issued
227,844,437 shares in 1996 and 224,942,830 shares in 1995 228 225
Tele-Communications, Inc. Series B Liberty Media Group common
stock, $1 par value. Authorized 75,000,000 shares; issued
21,189,369 shares in 1996 and 21,196,868 shares in 1995 21 21
Additional paid-in capital 3,672 3,986
Cumulative foreign currency translation adjustment, net of taxes 26 (9)
Unrealized holding gains for available-for-sale securities, net
of taxes 15 338
Accumulated deficit (176) (454)
-------- --------
4,567 4,864
Series A TCI Group common stock, at cost, held by subsidiaries (116,853,196
shares and 100,524,364 shares in 1996 and 1995, respectively) (314) (314)
-------- --------
Total stockholders' equity 4,253 4,550
-------- --------
Commitments and contingencies (note 15)
$ 30,244 25,577
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
V-72
<PAGE> 294
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
amounts in millions,
except per share amounts
<S> <C> <C> <C>
Revenue (note 16):
Communications and programming services (note 6) $ 7,038 5,586 4,250
Net sales from electronic retailing services 984 920 432
------- ------- -------
8,022 6,506 4,682
------- ------- -------
Operating costs and expenses:
Operating 2,917 2,161 1,507
Cost of sales from electronic retailing services 605 603 263
Selling, general and administrative 2,224 1,754 1,114
Compensation (adjustment to compensation) relating to
options and stock appreciation rights (13) 57 (8)
Restructuring charges 41 17 --
Depreciation 1,093 899 700
Amortization 523 473 318
------- ------- -------
7,390 5,964 3,894
------- ------- -------
Operating income (note 16) 632 542 788
Other income (expense):
Interest expense (1,096) (1,010) (785)
Interest and dividend income 64 52 36
Share of losses of affiliates, net (note 4) (473) (193) (112)
Share of earnings of Liberty Media Corporation -- -- 128
Loss on early extinguishment of debt (note 8) (71) (6) (9)
Minority interests in losses (earnings) of consolidated
subsidiaries, net (56) 17 2
Gain on sale of subsidiary stock (note 13) -- 123 --
Gain on sale of stock by equity investee (note 4) 12 165 161
Gain (loss) on disposition of assets 1,593 49 (10)
Other, net (65) (30) (17)
------- ------- -------
(92) (833) (606)
------- ------- -------
Earnings (loss) before income taxes 540 (291) 182
Income tax benefit (expense) (note 14) (262) 120 (120)
------- ------- -------
Net earnings (loss) (note 16) 278 (171) 62
Dividend requirements on preferred stocks (35) (34) (8)
------- ------- -------
Net earnings (loss) attributable to common
stockholders (note 6) $ 243 (205) 54
======= ======= =======
</TABLE>
(continued)
V-73
<PAGE> 295
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations, continued
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
amounts in millions,
except per share amounts
<S> <C> <C> <C>
Net earnings (loss) attributable to common stockholders (note 2):
TCI Class A and Class B common stock $ -- (71) 54
TCI Group Series A and Series B common stock (813) (107) --
Liberty Media Group Series A and Series B common stock 1,056 (27) --
------- ------- -------
$ 243 (205) 54
======= ======= =======
Primary net earnings (loss) attributable to
common stockholders per common and
common equivalent share (notes 2 and 6):
TCI Class A and Class B common stock $ -- (.11) .10
TCI Group Series A and Series B common stock $ (1.22) (.16) --
Liberty Media Group Series A and Series B common stock $ 3.97 (.11) --
Fully diluted net earnings (loss)
attributable to common stockholders per
common and common equivalent share (notes 2 and 6):
TCI Class A and Class B common stock $ -- (.11) .10
TCI Group Series A and Series B common stock $ (1.22) (.16) --
Liberty Media Group Series A and Series B common stock $ 3.88 (.11) --
</TABLE>
See accompanying notes to consolidated financial statements.
V-74
<PAGE> 296
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Common Stock
----------------------------------------------------------------------
Class B TCI TCI Group Liberty Media Group
Preferred --------------------- --------------------- -----------------------
Stock Class A Class B Series A Series B Series A Series B
---------- ---------- -------- -------- -------- -------- ---------
amounts in millions
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993* $ -- 482 47 -- -- -- --
Unrealized holding gains for
available-for-sale securities as of
January 1, 1994 -- -- -- -- -- -- --
Net earnings -- -- -- -- -- -- --
Conversion of redeemable preferred
stock (note 9) -- 1 -- -- -- -- --
Issuance of common stock upon
conversion of notes (note 8) -- 3 -- -- -- -- --
Issuance of common stock upon
exercise of stock option -- -- -- -- -- -- --
Acquisition and retirement of common
stock -- -- -- -- -- -- --
Issuance of common stock for
acquisition -- 85 42 -- -- -- --
Accreted dividends on all classes of
preferred stock -- -- -- -- -- -- --
Accreted dividends on all classes of
preferred stock not subject to
mandatory redemption requirements -- -- -- -- -- -- --
Foreign currency translation
adjustment -- -- -- -- -- -- --
Issuance of TCI Class A common stock
to subsidiaries of TCI in
Reorganization -- -- -- -- -- -- --
Issuance of Class A common stock for
investment -- 6 -- -- -- -- --
Repayment of note receivable from
related party -- -- -- -- -- -- --
Change in unrealized holding gains
for available-for-sale securities -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Balance at December 31, 1994 $ -- 577 89 -- -- -- --
------ ------- ------- ------- ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
Unrealized
holding
gains
Cumulative (losses) for Note
foreign available- receivable
Additional currency for-sale from
paid-in translation securities, related
capital adjustment net of taxes party
----------- ------------- ------------- -----------
amounts in millions
<S> <C> <C> <C> <C>
Balance at December 31, 1993* 2,293 (29) -- --
Unrealized holding gains for
available-for-sale securities as of
January 1, 1994 -- -- 297 --
Net earnings -- -- -- --
Conversion of redeemable preferred
stock (note 9) 17 -- -- --
Issuance of common stock upon
conversion of notes (note 8) -- -- -- --
Issuance of common stock upon
exercise of stock option 3 -- -- --
Acquisition and retirement of common
stock (2) -- -- --
Issuance of common stock for
acquisition 383 -- 4 (15)
Accreted dividends on all classes of
preferred stock (8) -- -- --
Accreted dividends on all classes of
preferred stock not subject to
mandatory redemption requirements 4 -- -- --
Foreign currency translation
adjustment -- 25 -- --
Issuance of TCI Class A common stock
to subsidiaries of TCI in
Reorganization (23) -- -- --
Issuance of Class A common stock for
investment 124 -- -- --
Repayment of note receivable from
related party -- -- -- 15
Change in unrealized holding gains
for available-for-sale securities -- -- (207) --
--------- -------- ------- --------
Balance at December 31, 1994 2,791 (4) 94 --
--------- -------- ------- --------
</TABLE>
<TABLE>
<CAPTION>
Accumulated Treasury stockholders'
deficit stock equity
------------- ------------- --------------
amounts in millions
<S> <C> <C> <C>
Balance at December 31, 1993* (344) (333) 2,116
Unrealized holding gains for
available-for-sale securities as of
January 1, 1994 -- -- 297
Net earnings 62 -- 62
Conversion of redeemable preferred
stock (note 9) -- -- 18
Issuance of common stock upon
conversion of notes (note 8) -- -- 3
Issuance of common stock upon
exercise of stock option -- -- 3
Acquisition and retirement of common
stock -- -- (2)
Issuance of common stock for
acquisition -- (285) 214
Accreted dividends on all classes of
preferred stock -- -- (8)
Accreted dividends on all classes of
preferred stock not subject to
mandatory redemption requirements
-- -- 4
Foreign currency translation
adjustment -- -- 25
Issuance of TCI Class A common stock
to subsidiaries of TCI in
Reorganization -- 23 --
Issuance of Class A common stock for
investment -- -- 130
Repayment of note receivable from
related party -- (15) --
Change in unrealized holding gains
for available-for-sale securities -- -- (207)
--------- --------- -----------
Balance at December 31, 1994 (282) (610) 2,655
--------- --------- -----------
(continued)
</TABLE>
V-75
<PAGE> 297
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity, continued
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Common Stock
-----------------------------------------------------------------------
Class B TCI TCI Group Liberty Media Group
Preferred ---------------------- -------------------- -----------------------
Stock Class A Class B Series A Series B Series A Series B
---------- ---------- ---------------------------------- --------- ---------
amounts in millions
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $ -- 577 89 -- -- -- --
Net loss -- -- -- -- -- -- --
Issuance of common stock in public
offering -- 20 -- -- -- -- --
Issuance of common stock in private
offering -- 1 -- -- -- -- --
Issuance of common stock for
acquisitions and investments (note 6) -- 59 -- -- -- -- --
Issuance of Class A common stock to
subsidiary of TCI in Reorganization -- -- -- -- -- -- --
Issuance of Class A common stock to
subsidiary in exchange for investment -- -- -- -- -- -- --
Retirement of Class A common stock
previously held by subsidiary -- -- -- -- -- -- --
Exchange of common stock held by
subsidiaries of TCI for Convertible
Redeemable Participating Preferred
Stock, Series F ("Series F Preferred
Stock") (note 9) -- (86) (4) -- -- -- --
Conversion of Series F Preferred Stock
held by subsidiary for Series A TCI
Group common stock -- -- -- 101 -- -- --
Distribution of Series A and Series B
Liberty Media Group common stock to
TCI common stockholders (note 1) -- -- -- -- -- 225 21
Costs associated with Distribution to
stockholders -- -- -- -- -- -- --
Redesignation of TCI common stock into
Series A and Series B TCI Group
common stock (note 1) -- (571) (85) 571 85 -- --
Accreted dividends on all classes of
preferred stock -- -- -- -- -- -- --
Accreted dividends on all classes of
preferred stock not subject to
mandatory redemption requirements -- -- -- -- -- -- --
Payment of preferred stock dividends -- -- -- -- -- -- --
Issuance of common stock by subsidiary
(note 13) -- -- -- -- -- -- --
Foreign currency translation adjustment -- -- -- -- -- -- --
Change in unrealized holding gains for
available-for-sale securities -- -- -- -- -- -- --
Adjustment to reflect elimination of
reporting delay with respect to
certain foreign subsidiaries -- -- -- -- -- -- --
--------- --------- -------- -------- ------- --------- ---------
Balance at December 31, 1995 $ -- -- -- 672 85 225 21
--------- --------- -------- -------- -------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
Unrealized
holding
gains
Cumulative (losses) for Note
foreign available- receivable
Additional currency for-sale from
paid-in translation securities, related
capital adjustment net of taxes party
------------ ------------ ------------ -----------
amounts in millions
<S> <C> <C> <C> <C>
Balance at December 31, 1994 2,791 (4) 94 --
Net loss -- -- -- --
Issuance of common stock in public
offering 381 -- -- --
Issuance of common stock in private
offering 29 -- -- --
Issuance of common stock for
acquisitions and investments (note 6) 1,329 -- -- --
Issuance of Class A common stock to
subsidiary of TCI in Reorganization (6) -- -- --
Issuance of Class A common stock to
subsidiary in exchange for investment (1) -- -- --
Retirement of Class A common stock
previously held by subsidiary 29 -- -- --
Exchange of common stock held by
subsidiaries of TCI for Convertible
Redeemable Participating Preferred
Stock, Series F ("Series F Preferred
Stock") (note 9) (542) -- -- --
Conversion of Series F Preferred Stock
held by subsidiary for Series A TCI
Group common stock 213 -- -- --
Distribution of Series A and Series B
Liberty Media Group common stock to
TCI common stockholders (note 1) (246) -- -- --
Costs associated with Distribution to
stockholders (8) -- -- --
Redesignation of TCI common stock into
Series A and Series B TCI Group
common stock (note 1) -- -- -- --
Accreted dividends on all classes of
preferred stock (34) -- -- --
Accreted dividends on all classes of
preferred stock not subject to
mandatory redemption requirements 10 -- -- --
Payment of preferred stock dividends (10) -- -- --
Issuance of common stock by subsidiary
(note 13) 51 -- -- --
Foreign currency translation adjustment -- (5) -- --
Change in unrealized holding gains for
available-for-sale securities -- -- 244 --
Adjustment to reflect elimination of
reporting delay with respect to
certain foreign subsidiaries -- -- -- --
----------- ---------- ---------- ----------
Balance at December 31, 1995 3,986 (9) 338 --
----------- ----------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
Total
Accumulated Treasury stockholders'
deficit stock equity
----------- ------------ -------------
amounts in millions
<S> <C> <C> <C>
Balance at December 31, 1994 (282) (610) 2,655
Net loss (171) -- (171)
Issuance of common stock in public
offering -- -- 401
Issuance of common stock in private
offering -- -- 30
Issuance of common stock for
acquisitions and investments (note 6) -- -- 1,388
Issuance of Class A common stock to
subsidiary of TCI in Reorganization -- 6 --
Issuance of Class A common stock to
subsidiary in exchange for investment -- 1 --
Retirement of Class A common stock
previously held by subsidiary -- (29) --
Exchange of common stock held by
subsidiaries of TCI for Convertible
Redeemable Participating Preferred
Stock, Series F ("Series F Preferred
Stock") (note 9) -- 632 --
Conversion of Series F Preferred Stock
held by subsidiary for Series A TCI
Group common stock -- (314) --
Distribution of Series A and Series B
Liberty Media Group common stock to
TCI common stockholders (note 1) -- -- --
Costs associated with Distribution to
stockholders -- -- (8)
Redesignation of TCI common stock into
Series A and Series B TCI Group
common stock (note 1) -- -- --
Accreted dividends on all classes of
preferred stock -- -- (34)
Accreted dividends on all classes of
preferred stock not subject to
mandatory redemption requirements -- -- 10
Payment of preferred stock dividends -- -- (10)
Issuance of common stock by subsidiary
(note 13) -- -- 51
Foreign currency translation adjustment -- -- (5)
Change in unrealized holding gains for
available-for-sale securities -- -- 244
Adjustment to reflect elimination of
reporting delay with respect to
certain foreign subsidiaries (1) -- (1)
------------ ----------- ----------
Balance at December 31, 1995 (454) (314) 4,550
------------ ------------ ----------
</TABLE>
(Continued)
V-76
<PAGE> 298
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity, continued
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Common Stock
-----------------------------------------------------------------------
Class B TCI TCI Group Liberty Media Group
Preferred ---------------------- ------------------- -----------------------
Stock Class A Class B Series A Series B Series A Series B
--------- -------- ------- -------- -------- -------- ---------
amounts in millions
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ -- -- -- 672 85 225 21
Net earnings -- -- -- -- -- -- --
Issuance of common stock for
acquisition (note 6) -- -- -- 11 -- 4 --
Issuance of common stock upon
conversion of notes -- -- -- 2 -- 1 --
Issuance of common stock upon
conversion of preferred stock -- -- -- 1 -- -- --
Exchange of cost investment for TCI
Group and Liberty Media Group common
stock -- -- -- (6) -- (2) --
Contribution of common stock to
subsidiary -- -- -- 16 -- -- --
Spin-off of TCI Satellite
Entertainment, Inc. (note 7) -- -- -- -- -- -- --
Accreted dividends on all classes of
preferred stock -- -- -- -- -- -- --
Accreted dividends on all classes of
preferred stock not subject to
mandatory redemption requirements -- -- -- -- -- -- --
Payment of preferred stock dividends -- -- -- -- -- -- --
Foreign currency translation adjustment -- -- -- -- -- -- --
Recognition of unrealized holding
gains on available-for-sale
securities (note 5) -- -- -- -- -- -- --
Recognition of unrealized holding
losses on available-for-sale -- -- -- -- -- -- --
securities
Change in unrealized holding gains for
available-for-sale securities -- -- -- -- -- -- --
--------- --------- -------- -------- -------- --------- ---------
Balance at December 31, 1996 $ -- -- -- 696 85 228 21
========= ========= ======== ======== ======== ========= =========
</TABLE>
<TABLE>
<CAPTION>
Unrealized
holding
gains
Cumulative (losses) for Note
foreign available- receivable
Additional currency for-sale from
paid-in translation securities, related
capital adjustment net of taxes party
------------ ------------ -------------- ----------
amounts in millions
<S> <C> <C> <C> <C>
Balance at December 31, 1995 3,986 (9) 338 --
Net earnings -- -- -- --
Issuance of common stock for
acquisition (note 6) 250 -- -- --
Issuance of common stock upon
conversion of notes (1) -- -- --
Issuance of common stock upon
conversion of preferred stock 15 -- -- --
Exchange of cost investment for TCI
Group and Liberty Media Group common
stock (122) -- -- --
Contribution of common stock to
subsidiary (16) -- -- --
Spin-off of TCI Satellite
Entertainment, Inc. (note 7) (405) -- -- --
Accreted dividends on all classes of
preferred stock (35) -- -- --
Accreted dividends on all classes of
preferred stock not subject to
mandatory redemption requirements 10 -- -- --
Payment of preferred stock dividends (10) -- -- --
Foreign currency translation adjustment -- 35 -- --
Recognition of unrealized holding
gains on available-for-sale
securities (note 5) -- -- (428) --
Recognition of unrealized holding
losses on available-for-sale -- -- 64 --
securities
Change in unrealized holding gains for
available-for-sale securities -- -- 41 --
----------- ---------- ---------- ----------
Balance at December 31, 1996 3,672 26 15 --
=========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Total
Accumulated Treasury stockholders'
deficit stock equity
----------- ------------ --------------
amounts in millions
<S> <C> <C> <C>
Balance at December 31, 1995 (454) (314) 4,550
Net earnings 278 -- 278
Issuance of common stock for
acquisition (note 6) -- -- 265
Issuance of common stock upon
conversion of notes -- -- 2
Issuance of common stock upon
conversion of preferred stock -- -- 16
Exchange of cost investment for TCI
Group and Liberty Media Group common
stock -- -- (130)
Contribution of common stock to
subsidiary -- -- --
Spin-off of TCI Satellite
Entertainment, Inc. (note 7) -- -- (405)
Accreted dividends on all classes of
preferred stock -- -- (35)
Accreted dividends on all classes of
preferred stock not subject to
mandatory redemption requirements -- -- 10
Payment of preferred stock dividends -- -- (10)
Foreign currency translation adjustment -- -- 35
Recognition of unrealized holding
gains on available-for-sale
securities (note 5) -- -- (428)
Recognition of unrealized holding
losses on available-for-sale -- -- 64
securities
Change in unrealized holding gains for
available-for-sale securities -- -- 41
----------- ----------- ----------
Balance at December 31, 1996 (176) (314) 4,253
=========== =========== ==========
(continued)
</TABLE>
See accompanying notes to consolidated financial statements.
V-77
<PAGE> 299
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
--------- ----------- ----------
amounts in millions
(see note 3)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 278 (171) 62
Adjustments to reconcile net earnings (loss) to net cash provided by
operating activities:
Depreciation and amortization 1,616 1,372 1,018
Compensation (adjustment to compensation) relating to options and
stock appreciation rights (13) 57 (8)
Payments of stock appreciation rights (3) (9) --
Restructuring charges 41 17 --
Payments of restructuring charges (8) (17) --
Share of losses of affiliates 473 193 112
Share of earnings of Liberty Media Corporation -- -- (128)
Loss on early extinguishment of debt 71 6 9
Minority interests in earnings (losses) 56 (17) (2)
Gain on sale of subsidiary stock -- (123) --
Gain on sale of stock by equity investee (12) (165) (161)
Loss (gain) on disposition of assets (1,593) (49) 10
Deferred income tax expense (benefit) 224 (153) 37
Other noncash charges (credits) 11 (28) (2)
Changes in operating assets and liabilities, net of the effect of
acquisitions:
Change in receivables (115) (70) 15
Change in inventories (8) 16 (26)
Change in prepaids (23) (86) (97)
Change in accrued interest 40 45 13
Change in other accruals and payables 193 139 56
--------- ----------- ----------
Net cash provided by operating activities 1,228 957 908
--------- ----------- ----------
Cash flows from investing activities:
Cash paid for acquisitions (598) (477) (358)
Capital expended for property and equipment (2,055) (1,782) (1,264)
Cash proceeds from disposition of assets 341 166 39
Additional investments in and loans to affiliates and others (798) (1,134) (445)
Repayments of loans to affiliates and others 679 18 148
Other investing activities (38) (135) (15)
--------- ----------- ----------
Net cash used in investing activities (2,469) (3,344) (1,895)
--------- ----------- ----------
Cash flows from financing activities:
Borrowings of debt 8,163 8,152 4,676
Repayments of debt (7,969) (6,567) (3,607)
Prepayment penalties (60) -- --
Proceeds from sale of subsidiary stock 223 445 --
Proceeds from issuances of common stock -- 431 1
Proceeds from issuance of Trust Securities 971 -- --
Contributions by minority shareholders of subsidiaries 319 -- --
Payment of dividends on subsidiary preferred stock and Trust Securities
(95) (6) (6)
Payment of preferred stock dividends (35) (24) (4)
Costs associated with Distribution to stockholders -- (8) --
Other financing activities -- 8 --
--------- ----------- ----------
Net cash provided by financing activities 1,517 2,431 1,060
--------- ----------- ----------
Net increase in cash and cash equivalents 276 44 73
Cash and cash equivalents at beginning of year 118 74 1
--------- ----------- ----------
Cash and cash equivalents at end of year $ 394 118 74
========= =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
V-78
<PAGE> 300
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
(1) Organization
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of Tele-Communications, Inc. and those of all majority-owned
subsidiaries ("TCI" or the "Company"). All significant intercompany
accounts and transactions have been eliminated in consolidation.
Preferred stock of TCI which is owned by subsidiaries of TCI
eliminates in consolidation. Common stock of the Company held by
subsidiaries is treated as treasury stock in consolidation.
Industry Segments
The Company currently has significant operations principally in two
industry segments: cable and communications services
("Communications") and programming services ("Programming").
Programming includes the production, acquisition and distribution of
globally branded entertainment, education and information programming
services and software for distribution through all available formats
and media; and home shopping via television and other interactive
media, direct marketing, advertising sales, infomercials and
transaction processing. Home Shopping is a programming service which
includes a retail function. The Company's cable and communications
segment is comprised of five lines of business: Domestic Cable and
Communications (the "Cable Unit"); International Cable and Programming
("TINTA"); Telephony; Internet; and Technology/Venture Capital. TINTA,
Telephony, Internet and Technology/Venture Capital are not separately
reportable segments due to their relative insignificance. The Company
has investments accounted for under the equity method and the cost
method, which also operate in the Communications and Programming
industries. See note 16 for additional segment information.
Targeted Stock
On August 3, 1995, the TCI stockholders authorized the TCI Board of
Directors (the "Board") to issue two new series of stock ("Liberty
Group Stock") which reflect the separate performance of TCI's business
which produces and distributes programming services ("Liberty Media
Group"). Additionally, the stockholders of TCI approved the
redesignation of the previously authorized TCI Class A and Class B
common stock into Series A TCI Group and Series B TCI Group common
stock ("TCI Group Stock"). The issuance of the Liberty Group Stock did
not result in any transfer of assets or liabilities of TCI or any of
its subsidiaries or affect the rights of holders of TCI's or any of
its subsidiaries' debt. On August 10, 1995, TCI distributed, in the
form of a dividend, one share of Liberty Group Stock for each four
shares of TCI Group Stock owned. Such distribution (the
"Distribution") represented one hundred percent of the equity value
attributable to the Liberty Media Group.
As of December 31, 1996, the TCI Group Stock reflects the separate
performance of TCI's subsidiaries and assets not attributed to Liberty
Media Group, including TCI's Cable Unit, TINTA, Telephony unit,
Internet unit and Technology/Venture Capital unit. Such subsidiaries
and assets are referred to as "TCI Group".
(continued)
V-79
<PAGE> 301
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Notwithstanding the attribution of assets and liabilities, equity and
items of income and expense to TCI Group or to Liberty Media Group for
purposes of preparing their combined financial statements, the change
in the capital structure of TCI does not affect the ownership or the
respective legal title to assets or responsibility for liabilities of
TCI or any of its subsidiaries. TCI and its subsidiaries each continue
to be responsible for their respective liabilities. Holders of TCI
Group Stock or Liberty Group Stock are holders of common stock of TCI
and continue to be subject to risks associated with an investment in
TCI and all of its businesses, assets and liabilities. The issuance of
Liberty Group Stock did not affect the rights of creditors of TCI.
Dividends on TCI Group Stock are payable at the sole discretion of the
Board out of the lesser of assets of TCI legally available for
dividends and the available dividend amount with respect to TCI Group,
as defined. Determinations to pay dividends on TCI Group Stock will be
based primarily upon the financial condition, results of operations
and business requirements of TCI Group and TCI as a whole.
Dividends on Liberty Group Stock are payable at the sole discretion of
the Board out of the lesser of all assets of TCI legally available for
dividends and the available dividend amount with respect to Liberty
Media Group, as defined. Determinations to pay dividends on Liberty
Group Stock will be based primarily upon the financial condition,
results of operations and business requirements of Liberty Media Group
and TCI as a whole.
After the Distribution, existing preferred stock and debt securities
of TCI that were convertible into or exchangeable for shares of TCI
Class A common stock were, as a result of the operation of
antidilution provisions, adjusted so that there will be delivered upon
their conversion or exchange (in addition to the same number of shares
of redesignated Series A TCI Group Stock as were theretofore issuable
thereunder) the number of shares of Series A Liberty Group Stock that
would have been issuable in the Distribution with respect to the TCI
Class A common stock issuable upon conversion or exchange had such
conversion or exchange occurred prior to the record date for the
Distribution. Options to purchase TCI Class A common stock outstanding
at the time of the Distribution were adjusted by issuing to the
holders of such options separate options to purchase that number of
shares of Series A Liberty Group Stock which the holder would have
been entitled to receive had the holder exercised such option to
purchase TCI Class A common stock prior to the record date for the
Distribution and reallocating a portion of the aggregate exercise
price of the previously outstanding options to the newly issued
options to purchase Series A Liberty Group Stock.
(continued)
V-80
<PAGE> 302
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
A number of wholly-owned subsidiaries of the Company which are part of
TCI Group owned shares of TCI Class A common stock and TCI preferred
stock ("Subsidiary Shares"). Because the Distribution was made as a
dividend to all holders of TCI's Class A common stock and Class B
common stock and, pursuant to the anti-dilution provisions set forth
therein, to the holders of securities convertible into TCI Class A
common stock and Class B common stock upon the conversion thereof,
shares of Liberty Group Stock would otherwise have been issued and
become issuable in respect of the Subsidiary Shares held by these
subsidiaries and would have been attributed to TCI Group. The Liberty
Group Stock issued in connection with the Distribution was intended to
constitute 100% of the equity value thereof to the holders of the TCI
Class A common stock and TCI Class B common stock, and TCI Group did
not initially have any interest in Liberty Media Group represented by
any outstanding shares of Liberty Group Stock (an "Inter-Group
Interest"). Therefore, TCI determined to exchange all of the
outstanding Subsidiary Shares for shares of Series F Preferred Stock.
See note 9. The rights, privileges and preferences of the Series F
Preferred Stock did not entitle its holders to receive Liberty Group
Stock in the Distribution or upon conversion of the Series F Preferred
Stock.
Stock Dividend
Effective January 13, 1997, the Company issued a stock dividend to
holders of Liberty Group Stock consisting of one share of Series A
Liberty Group Stock for every two shares of Series A Liberty Group
Stock owned and one share of Series A Liberty Group Stock for every
two shares of Series B Liberty Group Stock owned (the "Liberty Group
Stock Dividend"). The Liberty Group Stock Dividend has been treated as
a stock split, and accordingly, all share and per share amounts have
been retroactively restated to reflect the Liberty Group Stock
Dividend.
Telephony Group Stock Proposal
On March 12, 1997, the TCI stockholders authorized the Board to issue
two new series of the Company's common stock, par value $1.00 per
share, (and a corresponding increase in the total number of authorized
shares of common stock) to be designated Tele-Communications, Inc.
Series A Telephony Group common stock and Tele-Communications, Inc.
Series B Telephony Group common stock (collectively, the "Telephony
Group Stock"). The Telephony Group Stock, if issued, would be intended
to reflect the separate performance of Telephony Group, which
initially consists of the Company's investments in certain entities
engaged in the domestic wireline and wireless telephony businesses. A
total of 750 million shares of Series A Telephony Group Stock and 75
million shares of Series B Telephony Group Stock were authorized. As
of March 24, 1997, no shares of Telephony Group Stock have been
issued.
(continued)
V-81
<PAGE> 303
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Upon authorization of the Telephony Group Stock and until shares of
Telephony Group Stock are issued, the investments attributed to
Telephony Group will be included in TCI Group. The TCI Group Stock
will continue to reflect all of the assets, liabilities and common
stockholders' equity value of the Company attributable to Telephony
Group, in addition to the separate performance of the Company's
domestic cable distribution business; telephony distribution and
communications business (other than the investments attributed to
Telephony Group); international cable, telephony and programming
businesses; technology/venture capital business; and any other
business of the Company not attributed to either Liberty Media Group
or Telephony Group. As shares of Telephony Group Stock are issued and
distributed or sold, the percentage of the common stockholders' equity
value of the Company attributable to Telephony Group that is or is
intended to be reflected in the TCI Group Stock will be reduced
accordingly. The composition of Liberty Media Group was not affected
by the authorization, and will not be affected by the issuance, of
Telephony Group Stock.
(2) Summary of Significant Accounting Policies
Cash and Cash Equivalents
Cash and cash equivalents consist of investments which are readily
convertible into cash and have maturities of three months or less at
the time of acquisition.
Receivables
Receivables are reflected net of an allowance for doubtful accounts.
Such allowance at December 31, 1996 and 1995 was not material.
Program Rights
Prepaid program rights are amortized on a film-by-film basis over the
specific number of exhibitions. Committed film inventory and program
rights payable are recorded at the estimated costs of the programs
when the film is available for airing less prepayments. These amounts
are amortized on a film-by-film basis over the specific number of
exhibitions.
Investments
All marketable equity securities held by the Company are classified as
available-for-sale and are carried at fair value. Unrealized holding
gains and losses on securities classified as available-for-sale are
carried net of taxes as a separate component of stockholders' equity.
Realized gains and losses are determined on a specific-identification
basis.
(continued)
V-82
<PAGE> 304
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Other investments in which the ownership interest is less than 20% and
are not considered marketable securities are generally carried at
cost. For those investments in affiliates in which the Company's
voting interest is 20% to 50%, the equity method of accounting is
generally used. Under this method, the investment, originally recorded
at cost, is adjusted to recognize the Company's share of the net
earnings or losses of the affiliates as they occur rather than as
dividends or other distributions are received, limited to the extent
of the Company's investment in, advances to and commitments for the
investee. The Company's share of net earnings or losses of affiliates
includes the amortization of the difference between the Company's
investment and its share of the net assets of the investee.
Recognition of gains on sales of properties to affiliates accounted
for under the equity method is deferred in proportion to the Company's
ownership interest in such affiliates.
Changes in the Company's proportionate share of the underlying equity
of a subsidiary or equity method investee, which result from the
issuance of additional equity securities by such subsidiary or equity
investee, generally are recognized as gains or losses in the Company's
consolidated statements of operations.
Long-Lived Assets
(a) Property and Equipment
Property and equipment is stated at cost, including
acquisition costs allocated to tangible assets acquired.
Construction costs, including interest during construction
and applicable overhead, are capitalized. During 1996, 1995
and 1994, interest capitalized was not material.
Depreciation is computed on a straight-line basis using
estimated useful lives of 3 to 15 years for distribution
systems, 3 to 40 years for support equipment and buildings.
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 include the difference between the cost of
acquiring cable television systems and amounts allocated to
their tangible assets. Such amounts are generally amortized
on a straight-line basis over 40 years. Costs incurred by the
Company in negotiating and renewing franchise agreements are
amortized on a straight-line basis over the life of the
franchise, generally 10 to 20 years.
(continued)
V-83
<PAGE> 305
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In March of 1995, the Financial Accounting Standards Board (the
"FASB") 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. The Company adopted Statement No. 121 effective
January 1, 1996. Such adoption did not have a significant effect on
the financial position or results of operations of the Company.
Pursuant to Statement No. 121, the Company periodically reviews the
carrying amounts of its long-lived assets, franchise costs and certain
other assets to determine whether current events or circumstances
warrant adjustments to such carrying amounts. The Company 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"). The Company deems Assets to be impaired
if the Company 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. The Company 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.
Interest Rate Derivatives
Amounts receivable or payable under derivative financial instruments
used to manage interest rate risks arising from the Company's
financial liabilities are recognized as interest expense. Gains and
losses on early terminations of derivatives are included in the
carrying amount of the related debt and amortized as yield adjustments
over the remaining term of the derivative financial instruments. The
Company does not use such instruments for trading purposes.
Minority Interests
Recognition of minority interests' share of losses of consolidated
subsidiaries is limited to the amount of such minority interests'
allocable portion of the common equity of those consolidated
subsidiaries. Further, the minority interests' share of losses is not
recognized if the minority holders of common equity of consolidated
subsidiaries have the right to cause the Company to repurchase such
holders' common equity.
(continued)
V-84
<PAGE> 306
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Included in minority interests in equity of consolidated subsidiaries
is $902 million and $49 million in 1996 and 1995, respectively, of
preferred stocks (and accumulated dividends thereon) of certain
subsidiaries. The current dividend requirements on these preferred
stocks aggregate $47 million per annum and such dividend requirements
are reflected as minority interests in the accompanying consolidated
statements of operations.
Foreign Currency Translation
All balance sheet accounts of foreign investments are translated at
the current exchange rate as of the end of the accounting period.
Statement of operations items are translated at average currency
exchange rates. The resulting translation adjustment is recorded as a
separate component of stockholders' equity.
Net Sales from Electronic Retailing Services
Revenue includes merchandise sales reduced by incentive discounts and
sales returns to arrive at net sales from electronic retailing
services. Revenue is recorded for credit card sales upon transaction
authorization, and for check sales upon receipt of customer payment,
which does not vary significantly from the time goods are shipped. The
Company's sales policy allows merchandise to be returned at the
customer's discretion, generally up to 30 days.
Stock Based Compensation
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("Statement No. 123") was issued by the FASB
in October 1995. Statement No. 123 establishes financial accounting
and reporting standards for stock-based employee compensation plans
as well as transactions in which an entity issues its equity
instruments to acquire goods or services from non-employees. As
allowed by Statement No. 123, the Company continues to account for
stock-based employee compensation pursuant to APB Opinion No. 25. The
Company has included the disclosures required by Statement No. 123 in
note 11.
Earnings (Loss) Per Common and Common Equivalent Share
(a) TCI Class A and B Common Stock
Loss per common share attributable to common stockholders for
the period from January 1, 1995 through the Distribution was
computed by dividing net loss attributable to common
stockholders by the weighted average number of common shares
outstanding (648.2 million). Common stock equivalents were
not included in the computation of weighted average shares
outstanding because their inclusion would be anti-dilutive.
(continued)
V-85
<PAGE> 307
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Primary earnings per common and common equivalent share
attributable to common stockholders for the year ended
December 31, 1994 was computed by dividing net earnings
attributable to common stockholders by the weighted average
number of common and common equivalent shares outstanding
(540.8 million).
Fully diluted earnings per common and common equivalent share
attributable to common stockholders for the year ended
December 31, 1994 was computed by dividing earnings
attributable to common stockholders by the weighted average
number of common and common equivalent shares outstanding
(540.8 million). Shares issuable upon conversion of the
Convertible Preferred Stock, Series C ("Series C Preferred
Stock") (see note 9) have not been included in the
computation of weighted average shares because their effect
would be anti-dilutive.
(b) TCI Group Stock
The loss attributable to TCI Group stockholders per common
share for the year ended December 31, 1996 and for the period
from the Distribution to December 31, 1995 was computed by
dividing net loss attributable to TCI Group Series A and
Series B common stockholders by the weighted average number
of common shares outstanding of TCI Group Stock during the
period (664.8 million and 656.4 million, respectively).
Common stock equivalents were not included in the computation
of weighted average shares outstanding because their
inclusion would be anti-dilutive.
(c) Liberty Group Stock
Primary earnings attributable to Liberty Media Group
stockholders per common and common equivalent share for the
year ended December 31, 1996 was computed by dividing net
earnings attributable to Liberty Media Group Series A and
Series B common stockholders by the weighted average number
of common and common equivalent shares outstanding of Liberty
Media Group Series A and Series B common stock during the
period, as adjusted for the effect of the Liberty Group Stock
Dividend (266.3 million).
Fully diluted earnings attributable to Liberty Media Group
stockholders per common and common equivalent share for the
year ended December 31, 1996 was computed by dividing
earnings attributable to Liberty Media Group Series A and
Series B common stockholders by the weighted average number
of common and common equivalent shares outstanding of Liberty
Media Group Series A and Series B common stock during the
period, as adjusted for the effect of the Liberty Group Stock
Dividend (272.4 million). Shares issuable upon conversion of
the Series C Preferred Stock, the Convertible Preferred
Stock, Series D (the "Series D Preferred Stock"), and the
Redeemable Convertible Liberty Media Group Preferred Stock,
Series H have been included in the computation of weighted
average shares.
(continued)
V-86
<PAGE> 308
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The loss attributable to Liberty Media Group stockholders per
common share for the period from the Distribution to December
31, 1995 was computed by dividing net loss attributable to
Liberty Media Group Series A and Series B common stockholders
by the weighted average number of common shares outstanding
of Liberty Group Stock during the period, as adjusted for the
effect of the Liberty Group Stock Dividend (246.1 million).
Common stock equivalents were not included in the computation
of weighted average shares outstanding because their
inclusion would be anti-dilutive.
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.
(3) Supplemental Disclosures to Consolidated Statements of Cash Flows
Cash paid for interest was $1,056 million, $965 million and $758
million for the years ended December 31, 1996, 1995 and 1994,
respectively. Cash paid for income taxes was $25 million in 1996, $63
million in 1995 and was not material in 1994.
Significant noncash investing and financing activities are reflected
in the following table. See also note 7 for the impact of the spin-off
of TCI Satellite Entertainment, Inc.
<TABLE>
<CAPTION>
Years ended
December 31,
-----------------------------
1996 1995 1994
------- ------- -------
amounts in millions
<S> <C> <C> <C>
Cash paid for acquisitions:
Fair value of assets acquired $ 4,998 3,571 1,921
Liabilities assumed, net of current assets (1,811) (445) (648)
Deferred tax liability recorded in acquisitions (1,379) (1,083) (190)
Minority interests in equity of acquired entities (113) 49 (35)
Note receivable from related party assumed -- -- 15
Common stock and preferred stock issued in acquisitions (457) (1,615) (808)
Preferred stock of subsidiaries issued in acquisitions (640) -- --
Common stock issued to subsidiaries -- -- 285
Unrealized gains on available-for-sale securities of
acquired entities -- -- (182)
------- ------- -------
Cash paid for acquisitions $ 598 477 358
======= ======= =======
</TABLE>
(continued)
V-87
<PAGE> 309
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Years ended
December 31,
------------------------------------
1996 1995 1994
--------- ---------- ----------
amounts in millions
<S> <C> <C> <C>
Exchange of consolidated subsidiaries for note receivable and
equity investments $ 894 -- --
========= ========== ==========
Conversion of debt into additional minority interest in
consolidated subsidiary $ -- 14 --
========= ========== ==========
Assets contributed for interest in limited liability company
$ -- 3 --
========= ========== ==========
Issuance of subsidiary stock for equity investment
$ -- 11 --
========= ========== ==========
</TABLE>
(4) Investments in Affiliates
The Company has various investments accounted for under the equity
method. The following table includes the Company's carrying value and
percentage ownership of the more significant investments at December
31, 1996.
<TABLE>
<CAPTION>
December 31, 1996
-----------------------------------
Percentage Carrying
Ownership Value
----------- ----------
amounts in millions
<S> <C> <C>
Sprint Spectrum Holding Company, L.P., MinorCo, L.P.
and PhillieCo, L.P. 30% - 35.3% $ 830
Teleport Communications Group, Inc. ("TCG")
31.1% 276
Home Shopping Network, Inc. ("HSN") 19.9% 142
BDTV INC. and BDTV II, INC. 99% 200
Telewest Communications plc ("Telewest")
27% 488
Various foreign equity investments (other than Telewest)
var. 422
Discovery Communications, Inc. 49% 118
QVC, Inc. 43% 104
</TABLE>
(continued)
V-88
<PAGE> 310
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Summarized unaudited financial information for affiliates is as
follows:
<TABLE>
<CAPTION>
December 31,
--------------------
1996 1995
-------- --------
Combined Financial Position amounts in millions
---------------------------
<S> <C> <C>
Property and equipment, net $ 4,770 3,464
Franchise costs, net 3,392 1,302
Other assets, net 13,287 8,127
-------- --------
Total assets $ 21,449 12,893
======== ========
Debt $ 8,657 5,438
Due to TCI 42 47
Other liabilities 5,539 1,803
Owners' equity 7,211 5,605
-------- --------
Total liabilities and equity $ 21,449 12,893
======== ========
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------
1996 1995 1994
-------- -------- --------
Combined Operations amounts in millions
-------------------
<S> <C> <C> <C>
Revenue $ 5,996 4,540 3,033
Operating expenses (5,488) (3,956) (2,678)
Depreciation and
amortization (1,037) (542) (261)
-------- -------- --------
Operating income (loss) (529) 42 94
Interest expense (631) (349) (112)
Other, net (369) (151) 13
-------- -------- --------
Net loss $ (1,529) (458) (5)
======== ======== ========
</TABLE>
The Company is a partner in a series of partnerships formed to engage
in the business of providing wireless communications services, using
the radio spectrum for broadband personal communications services
("PCS"), to residential and business customers nationwide, using the
"Sprint" brand (the "PCS Ventures"). The PCS Ventures include Sprint
Spectrum and MinorCo, L.P. (collectively, the "Sprint PCS
Partnerships") and PhillieCo, L.P. ("PhillieCo"). The partners of each
of the Sprint PCS Partnerships are subsidiaries of Sprint Corporation
("Sprint"), Comcast Corporation, Cox Communications, Inc. ("Cox") and
the Company. The partners of PhillieCo are subsidiaries of Sprint, Cox
and the Company. The Company has a 30% partnership interest in each of
the Sprint PCS Partnerships and a 35.3% interest as a partner in
PhillieCo.
V-89
<PAGE> 311
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Sprint PCS Partnerships have licenses, and have affiliated with
other entities (including PhillieCo) that have licenses, to provide
PCS service to MTAs (or metropolitan trading areas) covering over 190
million "Pops" (or population equivalents), based on the Donnelley
Marketing Service estimate of the December 31, 1995 population of the
relevant geographic areas. The Sprint PCS Partnerships' licenses,
which cover 29 markets, were acquired in an auction conducted by the
Federal Communications Commission ("FCC") that ended in March 1995,
for an aggregate license cost of approximately $2.1 billion. The
Sprint PCS Partnerships have invested in (acquiring a 49% interest)
and affiliated with American PCS, L.P. ("APC"), which owns a PCS
license for and operates a PCS system in the Baltimore/Washington,
D.C. MTA, and Cox California PCS, L.P. ("Cox-California"), which holds
a PCS license for the Los Angeles/San Diego MTA and currently operates
a PCS system in San Diego, California. The Sprint PCS Partnerships may
invest in other entities that hold PCS Licenses. PhillieCo holds the
license for the Philadelphia MTA, which was acquired at a license cost
of $85 million. During December 1996, the Sprint PCS Partnerships
initiated the commercial launch of PCS service in seven markets.
From inception through 1996, the four partners have contributed
approximately $3.0 billion to the Sprint PCS Partnerships (of which
the Company contributed an aggregate of approximately $0.9 billion,
including approximately $0.2 billion during the year ended December
31, 1996.) The remaining capital that the Sprint PCS Partnerships will
require to fund the construction of the PCS systems and the
commitments made to APC and Cox-California will be substantial. The
partners had agreed in forming the Sprint PCS Partnerships to
contribute up to an aggregate of approximately $4.2 billion of equity
thereto, from inception through fiscal 1999, subject to certain
requirements. The Company expects that the remaining approximately
$1.2 billion of such amount (of which the Company's share is
approximately $0.4 billion) will be contributed by the end of the
second quarter of 1998 (although there can be no assurance that any
additional capital will be contributed). The Company expects that the
Sprint PCS Partnerships will require additional equity thereafter.
TCG, a competitive local exchange carrier, conducted an initial public
offering (the "TCG IPO") on July 2, 1996 in which it sold 27,025,000
shares of Class A common stock at $16.00 per share to the public for
aggregate net proceeds of approximately $410,000,000. As a result of
the TCG IPO, the Company's ownership interest in TCG was reduced from
approximately 35% to approximately 31%. Accordingly, the Company
recognized a gain amounting to $12 million (before deducting deferred
income tax expense of approximately $5 million).
As of April 29, 1996, Liberty Media Group, The News Corporation
Limited ("News Corp.") and TINTA formed two sports programming
ventures. In the United States, Liberty Media Group and News Corp.
formed Liberty/Fox U.S. Sports LLC ("Fox Sports") into which Liberty
Media Group contributed interests in its national and regional sports
networks and into which News Corp. contributed its fx cable network
and certain other assets. Liberty Media Group received a 50% interest
in Fox Sports and $350 million in cash.
(continued)
V-90
<PAGE> 312
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Internationally, News Corp. and a limited liability company
("Liberty/TINTA") formed by Liberty Sports, Inc., a wholly-owned
subsidiary of Liberty Media Group, and TINTA formed a venture ("Fox
Sports International") to operate previously existing sports services
in Latin America and Australia and a variety of new sports services
throughout the world, except in Asia and in the United Kingdom, Japan
and New Zealand where prior arrangements preclude an immediate
collaboration. Liberty/TINTA owns 50% of Fox Sports International with
News Corp. owning the other 50%. News Corp. contributed various
international sports rights and certain trademark rights.
Liberty/TINTA contributed Prime Deportiva, a Spanish language sports
service distributed in Latin American and in Hispanic markets in the
United States; an interest in Torneos y Competencias S.A., an
Argentinean sports programming and production business; various
international sports and satellite transponder rights and cash.
Liberty/TINTA also contributed its 50% interest in Premier Sports and
All-Star Sports. Both are Australian 24-hour sports services available
via multichannel, multipoint distribution systems or cable television.
Fox Sports International is accounted for using the equity method.
As part of the formation of Fox Sports International, Liberty/TINTA is
entitled to receive from News Corp. 7.5% of the outstanding stock of
Star Television Limited. Upon delivery of such stock to Liberty/TINTA,
News Corp. is entitled to receive from Liberty/TINTA $20 million and
rights under various Asian sports programming agreements. Star
Television Limited operates a satellite-delivered television platform
in Asia.
Pursuant to an agreement among Liberty Media Group, Barry Diller and
certain of their respective affiliates entered into in August 1995 and
amended in August 1996 (the "BDTV Agreement"), Liberty Media Group
contributed to BDTV INC. ("BDTV-I"), in August 1996, an option (the
"Option") to purchase 2 million shares of Class B common stock of
Silver King Communications, Inc. ("Silver King") (which shares
represented voting control of Silver King at such time) and $3,500,000
in cash, representing the exercise price of the Option. BDTV-I is a
corporation formed by Liberty Media Group and Mr. Diller pursuant to
the BDTV Agreement, in which Liberty Media Group owns over 99% of the
equity and none of the voting power (except for protective rights with
respect to certain fundamental corporate actions) and Mr. Diller owns
less than 1% of the equity and all of the voting power. BDTV-I
exercised the option shortly after its contribution, thereby becoming
the controlling stockholder of Silver King. Such change in control of
Silver King had been approved by the FCC in June 1996, subject,
however, to the condition that the equity interest of Liberty Media
Group in Silver King not exceed 21.37% without the prior approval of
the FCC (the "FCC Order").
(continued)
V-91
<PAGE> 313
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Pursuant to an Agreement and Plan of Exchange and Merger entered into
in August 1996, Silver King acquired Home Shopping Network, Inc.
("HSN") by merger of HSN with a subsidiary of Silver King in December
1996 (the "HSN Merger") where HSN is the surviving corporation and a
subsidiary of Silver King following the HSN Merger. Liberty Media
Group accounted for the HSN Merger as a sale of a portion of its
investment in HSN and accordingly, recorded a pre-tax gain of
approximately $47 million. In order to effect the HSN Merger in
compliance with the FCC Order, Liberty Media Group agreed to defer
receiving certain shares of Silver King that would otherwise have
become issuable to it in the HSN Merger until such time as it was
permitted to own such shares. As a result, the HSN Merger was
structured so that Liberty Media Group received (i) 7,809,111 shares
of Class B common stock of Silver King, all of which shares Liberty
Media Group contributed to BDTV II INC. ("BDTV-II"), (ii) the
contractual right (the "Contingent Right") to be issued up to an
additional 2,591,752 shares of Class B common stock of Silver King
from time to time upon the occurrence of certain events which would
allow Liberty Media Group to own additional shares in compliance with
the FCC Order (including events resulting in the dilution of Liberty
Media Group's percentage equity interest), and (iii) 739,141 shares of
Class B common stock and 17,566,702 shares of common stock of HSN
(representing approximately 19.9% of the equity of HSN). BDTV-II is a
corporation formed by Liberty Media Group and Barry Diller pursuant to
the BDTV Agreement, in which the relative equity ownership and voting
power of Liberty Media Group and Mr. Diller are substantially the same
as their respective equity ownership and voting power in BDTV-I.
As a result of the HSN Merger, HSN is no longer a subsidiary of
Liberty Media Group and therefore, the financial results of HSN will
no longer be consolidated with the financial results of Liberty Media
Group. Although Liberty Media Group no longer possesses voting control
over HSN, it continues to have an indirect equity interest in HSN
through its ownership of the equity securities of BDTV-I and BDTV-II
as well as a direct interest in HSN which would be exchangeable into
shares of Silver King. Accordingly, HSN, BDTV-I and BDTV-II are
accounted for using the equity method.
Telewest is a company that is currently operating and constructing
cable television and telephone systems in the United Kingdom ("UK").
Telewest was formed on October 3, 1995 upon the merger (the "TeleWest
Merger") of TeleWest Communications plc ("TeleWest Communications")
with SBC (CableComms) (UK). Prior to the TeleWest Merger, the Company
had an effective ownership interest of approximately 36% in TeleWest
Communications. As a result of the TeleWest Merger, the Company
recognized a gain of approximately $165 million (before deducting
deferred income taxes of $58 million), which gain represents the
difference between the Company's recorded cost for TeleWest
Communications and the Company's 27% effective proportionate share of
Telewest's net assets.
Telewest contributed $109 million, $70 million and $43 million of the
Company's share of its affiliates' losses during the years ended
December 31, 1996, 1995 and 1994, respectively. In addition, the
Company has other less significant equity method investments in video
distribution and programming businesses located in the UK, other parts
of Europe, Asia, Latin America and certain other foreign countries. In
the aggregate, such other equity method investments accounted for $79
million, $62 million and $50 million of the Company's share of its
affiliates' losses in 1996, 1995 and 1994, respectively.
(continued)
V-92
<PAGE> 314
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As a result of TeleWest Communications' November 1994 initial public
offering and the associated dilution of the Company's ownership
interest of TeleWest Communications, the Company recognized a gain
amounting to $161 million (before deducting the related tax expense of
$57 million).
Certain of the Company's affiliates are general partnerships and any
subsidiary of the Company that is a general partner in a general
partnership is, as such, liable as a matter of partnership law for all
debts (other than non-recourse debts) of that partnership in the event
liabilities of that partnership were to exceed its assets.
(5) Investment in Time Warner
At December 31, 1995, TCI owned shares of TBS common stock and shares
of TBS preferred stock that were convertible into TBS common stock.
The Company's total holdings represented an approximate 7.5% voting
interest for those matters which preferred and common voted as a
single class. On October 10, 1996, Time Warner and TBS consummated a
merger (the "TBS/Time Warner Merger") whereby TBS shareholders
received 0.75 of a Time Warner common share for each TBS Class A and
Class B common share held, and each holder of TBS Class C preferred
stock received 0.80 of a Time Warner common share for each of the 6
shares of TBS Class B common stock into which each share of Class C
preferred stock could have been converted.
Time Warner, TBS, TCI and Liberty Media Corporation ("Liberty")
entered into an Agreement Containing Consent Order with the Federal
Trade Commission ("FTC") dated August 14, 1996, as amended on
September 4, 1996 (the "FTC Consent Decree"). Pursuant to the FTC
Consent Decree, among other things, Liberty agreed to exchange the
shares of Time Warner common stock to be received in the TBS/Time
Warner Merger for shares of a separate series of Time Warner common
stock with limited voting rights (the "TW Exchange Stock"). Holders of
the TW Exchange Stock are entitled to one one-hundredth (l/100th) of a
vote for each share with respect to the election of directors. Holders
of the TW Exchange Stock will not have any other voting rights, except
as required by law or with respect to limited matters, including
amendments of the terms of the TW Exchange Stock adverse to such
holders. Subject to the federal communications laws, each share of the
TW Exchange Stock will be convertible at any time at the option of the
holder on a one-for-one basis for a share of Time Warner common stock.
Holders of TW Exchange Stock are entitled to receive dividends ratably
with the Time Warner common stock and to share ratably with the
holders of Time Warner common stock in assets remaining for common
stockholders upon dissolution, liquidation or winding up of Time
Warner.
In connection with the TBS/Time Warner Merger, the Company received
approximately 50.6 million shares of the TW Exchange Stock in exchange
for its TBS holdings. As a result of the TBS/Time Warner Merger, the
Company recognized a pre-tax gain of approximately $1.5 billion in the
fourth quarter of 1996.
At December 31, 1996, the Company's investment in Time Warner, carried
at cost, had an aggregate fair value of approximately $2 billion based
upon the market value of the marketable common stock into which it is
convertible.
(continued)
V-93
<PAGE> 315
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Subject to a number of conditions, including receipt of a ruling from
the Internal Revenue Service ("IRS") that such dividend would be tax
free to the Liberty Media Group stockholders, TCI agreed that it would
distribute in the form of a stock dividend (the "Spin-Off") to the
Liberty Media Group stockholders the stock of a new company ("Spinco")
which would hold the TW Exchange Stock and the business of Southern
Satellite Systems, Inc. ("Southern"), a wholly owned subsidiary of
Liberty Media Group which distributes the TBS SuperStation signal in
the United States and Canada. The level of Liberty Media Group's
ownership interest in Time Warner will be restricted until the
Spin-Off occurs, at which time, such restriction would be eased for
Spinco.
If the Spin-Off occurs, certain control stockholders of TCI would
exchange the Spinco common stock they receive for a Spinco convertible
preferred security which would only be entitled to vote on major
corporate transactions involving Spinco.
In connection with the TBS/Time Warner Merger, Liberty and Time Warner
entered into, among other agreements, an agreement providing for the
grant to Time Warner of an option (the "Contract Option") to enter
into a contract with Southern (the "Distribution Contract") pursuant
to which Southern would provide Time Warner with certain uplinking and
distribution services relating to WTBS and would assist Time Warner in
converting WTBS from a superstation into a copyright paid cable
programming service. The Contract Option will be granted no later than
the fifth business day following the earlier of May 31, 1997, the
receipt of a favorable IRS ruling and the determination that the IRS
ruling will not be obtained. On the date of grant, Time Warner will
issue to Southern, in consideration for the Contract Option and
certain noncompetition covenants, an aggregate of 5.0 million shares
of TW Exchange Stock and $66,666,700, payable to Time Warner's option
in cash or TW Exchange Stock. If Time Warner exercises the Contract
Option and enters into the Distribution Contract, Time Warner will be
obligated to make quarterly payments to Southern in an amount which,
when added to Southern's net cash flow, would aggregate approximately
$213.3 million on a present value basis discounted to the effective
date of the Distribution Contract.
(6) Acquisitions
On July 31, 1996, pursuant to certain agreements entered into among
TCIC, a subsidiary of TCI, TCI, Viacom International, Inc. and Viacom,
Inc. ("Viacom"), TCIC acquired all of the common stock of a subsidiary
of Viacom ("Cable Sub") which owned Viacom's cable systems and related
assets (the "Viacom Acquisition").
The transaction was structured as a tax-free reorganization in which
Cable Sub transferred all of its non-cable assets, as well as all of
its liabilities other than current liabilities, to a new subsidiary of
Viacom ("New Viacom Sub"). Cable Sub also transferred to New Viacom
Sub the proceeds (the "Loan Proceeds") of a $1.7 billion loan facility
(the "Loan Facility") arranged by TCIC, TCI and Cable Sub. Following
these transfers, Cable Sub retained cable assets with a value at
closing of approximately $2.326 billion and the obligation to repay
the Loan Proceeds. Neither Viacom nor New Viacom Sub has any
obligation with respect to repayment of the Loan Proceeds.
(continued)
V-94
<PAGE> 316
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Prior to the consummation of the Viacom Acquisition, Viacom offered to
the holders of shares of Viacom Class A Common Stock and Viacom Class
B Common Stock (collectively, "Viacom Common Stock") the opportunity
to exchange (the "Exchange Offer") a portion of their shares of Viacom
Common Stock for shares of Class A Common Stock, par value $100 per
share, of Cable Sub ("Cable Sub Class A Stock"). Immediately following
the completion of the Exchange Offer, TCIC acquired from Cable Sub
shares of Cable Sub Class B Common Stock (the "Share Issuance") for
$350 million (which was used to reduce Cable Sub's obligations under
the Loan Facility). At the time of the Share Issuance, the Cable Sub
Class A Stock received by Viacom stockholders pursuant to the Exchange
Offer automatically converted into 5% Class A Senior Cumulative
Exchangeable Preferred Stock (the "Exchangeable Preferred Stock") of
Cable Sub with a stated value of $100 per share (the "Stated Value").
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 Cable Sub, after 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 at a price equal to
the Stated Value per share plus accrued and unpaid dividends. Amounts
payable by Cable Sub in satisfaction of its optional or mandatory
redemption obligations with respect to the Exchangeable Preferred
Stock may be made in cash or, at the election of Cable Sub, in shares
of Series A TCI Group Stock, or in any combination of the foregoing.
The Viacom Acquisition has been accounted for by the purchase method.
Accordingly, the results of operations of Cable Sub have been
consolidated with those of the Company since the date of acquisition,
and the Company recorded Cable Sub's assets and liabilities at fair
value. On a pro forma basis, the Company's revenue, net loss, and net
loss per share of TCI Group Stock would have been increased by $280
million, $55 million and $.08, respectively, for the year ended
December 31, 1996; and revenue, net loss, net loss per share of TCI
Group Stock and net loss per share of TCI Class A Common Stock would
have been increased by $446 million, $115 million, $.07 and $.10,
respectively, for the year ended December 31, 1995 had Cable Sub been
consolidated with the Company on January 1, 1995. The foregoing
unaudited pro forma financial information is based upon historical
results of operations adjusted for acquisition costs and, in the
opinion of management, is not necessarily indicative of the results
had the Company operated Cable Sub since January 1, 1995.
As of January 26, 1995, TCI, TCIC and TeleCable Corporation
("TeleCable") consummated a transaction, whereby TeleCable was merged
into TCIC. The aggregate $1.6 billion purchase price was satisfied by
TCIC's assumption of approximately $300 million of TeleCable's net
liabilities and the issuance to TeleCable's shareholders of
approximately 42 million shares of TCI Class A common stock and 1
million shares of Series D Preferred Stock with an aggregate initial
liquidation value of $300 million (see note 9).
(continued)
V-95
<PAGE> 317
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
On April 25, 1995, TINTA acquired a 51% ownership interest in
Cablevision for a purchase price of $282 million, before liabilities
assumed. The purchase price was paid with cash consideration of $195
million and TINTA's issuance of $87 million principal amount of
secured negotiable promissory notes payable to the selling
shareholders. TINTA has an option during the two-year period ended
April 25, 1997 to increase its ownership interest in Cablevision up to
80% at a cost per subscriber similar to the initial purchase price,
adjusted however for certain fluctuations in applicable foreign
currency exchange rates.
(7) Spin-Off of TCI Satellite Entertainment, Inc.
Through December 4, 1996, the Company had an investment in a direct
broadcast satellite partnership, PRIMESTAR Partners L.P.
("Primestar"), which the Company accounted for under the equity
method. Primestar provides programming and marketing support to each
of its cable partners who provide satellite television service to
their customers. On December 4, 1996, the Company distributed (the
"Satellite Spin-off") to the holders of shares of TCI Group Stock all
of the issued and outstanding common stock of TCI Satellite
Entertainment, Inc. ("Satellite"). At the time of the Satellite
Spin-off, Satellite's assets and operations included the Company's
interest in Primestar, the Company's business of distributing
Primestar programming and two communications satellites. As a result
of the Satellite Spin-off, Satellite's operations are no longer
consolidated with the Company's. In addition, the Satellite Spin-off
effected a change in the conversion rate for each of the Company's
equity and debt securities that are convertible into Series A TCI
Group Stock. See notes 8, 9 and 11.
Summarized financial information of Satellite as of and through the
date of the Satellite Spin-off is as follows (amounts in millions):
<TABLE>
<CAPTION>
Financial Position
------------------
<S> <C>
Cash, receivables and other assets $ 104
Investment in PRIMESTAR Partners L.P. 32
Property and equipment, net 1,111
-------
$ 1,247
=======
Accounts payable and accrued liabilities $ 60
Due to PRIMESTAR Partners L.P. 458
Due to TCI 324
Equity 405
-------
$ 1,247
=======
Operations
Revenue $ 377
Operating expenses (373)
Depreciation (166)
-------
Loss before income tax benefit (162)
Income tax benefit 53
-------
Net loss $ (109)
=======
</TABLE>
(continued)
V-96
<PAGE> 318
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(8) Debt
Debt is summarized as follows:
<TABLE>
<CAPTION>
Weighted average December 31,
interest rate at ------------------------------
December 31, 1996 1996 1995
----------------- ------------ ------------
amounts in millions
<S> <C> <C> <C>
Debt of subsidiaries:
Notes payable 8.3% $ 9,308 7,713
Bank credit facilities 6.6% 4,813 3,854
Commercial paper 6.1% 638 1,469
Convertible notes (a) 9.5% 43 45
Other debt 124 130
------------ ------------
$ 14,926 13,211
============ ============
</TABLE>
(a) These convertible notes, which are stated net of unamortized
discount of $178 million and $186 million at December 31,
1996 and 1995, respectively, mature on December 18, 2021. The
notes require (so long as conversion of the notes has not
occurred) an annual interest payment through 2003 equal to
1.85% of the face amount of the notes. During 1996, certain
of these notes were converted into 1,623,800 shares of Series
A TCI Group Stock and 608,925 shares of Series A Liberty
Group Stock. During 1995 and 1994, certain of these notes
were converted into 3,416 shares and 2,350,000 shares of TCI
Class A common stock, respectively. At December 31, 1996, the
notes were convertible, at the option of the holders, into an
aggregate of 37,083,773 shares of Series A TCI Group Stock
and 13,906,404 shares of Series A Liberty Group Stock (as
adjusted to give effect to the Liberty Group Stock Dividend).
During the year ended December 31, 1996, in order to reduce future
interest costs, the Company redeemed certain notes payable which had
an aggregate principle balance of $904 million and fixed interest
rates ranging from 7.88% to 10.44% (the "Redemption"). In connection
with the Redemption, the Company recognized a loss on early
extinguishment of debt of $62 million. Such loss related to prepayment
penalties amounting to $60 million and the retirement of deferred loan
costs.
Also, during the year ended December 31, 1996, certain subsidiaries of
the Company terminated, at such subsidiaries' option, certain
revolving bank credit facilities with aggregate commitments of
approximately $2 billion and refinanced certain other bank credit
facilities. In connection with such termination and refinancings, the
Company recognized a loss on early extinguishment of debt of $9
million related to the retirement of deferred loan costs. At December
31, 1996, subsidiaries of the Company had approximately $1.8 billion
in unused lines of credit, excluding amounts related to lines of
credit which provide availability to support commercial paper.
The bank credit facilities and various other debt instruments of the
Company's subsidiaries generally contain restrictive covenants which
require, among other things, the maintenance of certain earnings,
specified cash flow and financial ratios (primarily the ratios of cash
flow to total debt and cash flow to debt service, as defined), and
include certain limitations on indebtedness, investments, guarantees,
dispositions, stock repurchases and/or dividend payments.
(continued)
V-97
<PAGE> 319
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As security for borrowings under one of its bank credit facilities,
the Company has pledged 116,853,195 shares of Series A TCI Group Stock
held by a subsidiary of the Company. As security for borrowings under
another of its credit facilities, TCI has pledged a portion of its
Time Warner common stock.
The fair value of the debt of the Company's subsidiaries is estimated
based on the quoted market prices for the same or similar issues or on
the current rates offered to the Company for debt of the same
remaining maturities. The fair value of debt, which has a carrying
value of $14,926 million, was $15,523 million at December 31, 1996.
In order to achieve the desired balance between variable and fixed
rate indebtedness, the Company has entered into various interest rate
exchange agreements pursuant to which it (i) pays fixed interest rates
(the "Fixed Rate Agreements") ranging from 7.2% to 9.3% and receives
variable interest rates on notional amounts of $310 million at
December 31, 1996 and (ii) pays variable interest rates (the "Variable
Rate Agreements") and receives fixed interest rates ranging from 4.8%
to 7.4% on notional amounts of $1,750 million at December 31, 1996.
During the years ended December 31, 1996, 1995 and 1994, the Company's
net payments pursuant to the Fixed Rate Agreements were $14 million,
$13 million and $26 million, respectively; and the Company's net
receipts (payments) pursuant to the Variable Rate Agreements were $15
million, (less than $1 million), and $36 million, respectively. During
the year ended December 31, 1996, the Company terminated certain
Variable Rate Agreements with an aggregate notional amount of $700
million. The Company received $16 million upon such terminations.
After giving effect to the Company's interest rate exchange
agreements, approximately 49% of the Company's indebtedness bears
interest at fixed rates.
The Company's Fixed Rate Agreements and Variable Rate Agreements
expire as follows (amounts in millions, except percentages):
<TABLE>
<CAPTION>
Fixed Rate Agreements Variable Rate Agreements
--------------------- ------------------------
Expiration Interest Rate Notional Expiration Interest Rate Notional
Date To Be Paid Amount Date To Be Received Amount
---------- ------------- -------- ---------- -------------- --------
<S> <C> <C> <C> <C> <C>
October 1997 7.2%-9.3% $ 80 April 1997 7.0% $ 200
December 1997 8.7% 230 September 1998 4.8%-5.4% 450
------
April 1999 7.4% 50
$ 310 February 2000 5.8%-6.6% 300
======
March 2000 5.8%-6.0% 675
September 2000 5.1% 75
---------
$ 1,750
=========
</TABLE>
The Company is exposed to credit losses for the periodic settlements
of amounts due under these interest rate exchange agreements in the
event of nonperformance by the other parties to the agreements.
However, the Company does not anticipate that it will incur any
material credit losses because it does not anticipate nonperformance
by the counterparties.
(continued)
V-98
<PAGE> 320
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The fair value of the interest rate exchange agreements is the
estimated amount that the Company would pay or receive to terminate
the agreements at December 31, 1996, taking into consideration current
interest rates and assuming the current creditworthiness of the
counterparties. At December 31, 1996, the Company would be required to
pay an estimated $15 million to terminate the Variable Rate Agreements
and an estimated $7 million to terminate the Fixed Rate Agreements.
Certain of TCI's subsidiaries are required to maintain unused
availability under bank credit facilities to the extent of outstanding
commercial paper. Also, certain of TCI's subsidiaries pay fees ranging
from 1/4% to 1/2% per annum on the average unborrowed portion of the
total amount available for borrowings under bank credit facilities.
Annual maturities of debt for each of the next five years are as
follows (amounts in millions):
<TABLE>
<S> <C>
1997 $ 1,418*
1998 490
1999 721
2000 766
2001 1,079
</TABLE>
* Includes $638 million of commercial paper.
(9) Redeemable Preferred Stocks
The conversion rates identified below for the redeemable preferred
stocks that are convertible into Series A TCI Group Stock were
adjusted, as applicable, on December 4, 1996 as a result of the
Satellite Spin-off. See note 7. The conversion rates for the
redeemable preferred stocks that are convertible into Series A Liberty
Group Stock have been adjusted to give effect to the Liberty Group
Stock Dividend. See note 1.
Convertible Preferred Stock, Series C. TCI issued 70,575 shares of a
series of TCI Series Preferred Stock designated "Convertible Preferred
Stock, Series C," par value $.01 per share, as partial consideration
for an acquisition by TCI. There were 80,000 shares of Series C
Preferred Stock authorized and 70,575 shares outstanding at December
31, 1996.
Each share of Series C Preferred Stock is convertible, at the option
of the holders, into 116.24 shares of Series A TCI Group Stock and 37
shares of Series A Liberty Group Stock, subject to anti-dilution
adjustments. The dividend, liquidation and redemption features of the
Series C Preferred Stock will be determined by reference to the
liquidation value of the Series C Preferred Stock, which as of any
date of determination is equal, on a per share basis, to the sum of
(i) $2,375, plus (ii) all dividends accrued on such share through the
dividend payment date on or immediately preceding such date of
determination to the extent not paid on or before such date, plus
(iii), for purposes of determining liquidation and redemption
payments, all unpaid dividends accrued on the sum of clauses (i) and
(ii) above, to such date of determination.
(continued)
V-99
<PAGE> 321
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Subject to the prior preferences and other rights of any class or
series of TCI preferred stock ranking pari passu with the Series C
Preferred Stock, the holders of Series C Preferred Stock are entitled
to receive and, subject to any prohibition or restriction contained in
any instrument evidencing indebtedness of TCI, TCI is obligated to pay
preferential cumulative cash dividends out of funds legally available
therefor. Dividends accrue cumulatively at an annual rate of 5-1/2% of
the liquidation value per share, whether or not such dividends are
declared or funds are legally or contractually available for payment
of dividends, except that if TCI fails to redeem shares of Series C
Preferred Stock required to be redeemed on a redemption date,
dividends will thereafter accrue cumulatively at an annual rate of 15%
of the liquidation value per share. Accrued dividends are payable
quarterly on January 1, April 1, July 1 and October 1 of each year,
commencing on the first dividend payment date after the issuance of
the Series C Preferred Stock. Dividends not paid on any dividend
payment date will be added to the liquidation value on such date and
remain a part thereof until such dividends and all dividends accrued
thereon are paid in full. Dividends accrue on unpaid dividends at the
rate of 5-1/2% per annum, unless such dividends remain unpaid for two
consecutive quarters in which event such rate will increase to 15% per
annum. The Series C Preferred Stock ranks prior to the Series A TCI
Group Stock, Series A Liberty Group Stock and Class B Preferred Stock
and pari passu with the Series F Preferred Stock with respect to the
declaration and payment of dividends.
Upon the dissolution, liquidation or winding up of TCI, holders of the
Series C Preferred Stock will be entitled to receive from the assets
of TCI available for distribution to stockholders an amount in cash,
per share, equal to the liquidation value. The Series C Preferred
Stock will rank prior to the TCI common stock and Class B Preferred
Stock and pari passu with the Series F Preferred Stock as to any such
distributions.
The Series C Preferred Stock is subject to optional redemption at any
time after the seventh anniversary of its issuance, in whole or in
part, by TCI at a redemption price, per share, equal to the then
liquidation value of the Series C Preferred Stock. Subject to the
rights of any other class or series of the Company's preferred stock
ranking pari passu with the Series C Preferred Stock, the Series C
Preferred Stock is required to be redeemed by the Company at any time
after such seventh anniversary at the option of the holder, in whole
or in part (provided that the aggregate liquidation value of the
shares to be redeemed is in excess of $1 million), in each case at a
redemption price, per share, equal to the liquidation value.
(continued)
V-100
<PAGE> 322
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For so long as any dividends are in arrears on the Series C Preferred
Stock or any class or series of TCI preferred stock ranking pari passu
with the Series C Preferred Stock and until all dividends accrued up to
the immediately preceding dividend payment date on the Series C Preferred
Stock and such parity stock shall have been paid or declared and set apart
so as to be available for payment in full thereof and for no other
purpose, TCI may not redeem or otherwise acquire any shares of Series C
Preferred Stock, any such parity stock or any class or series of its
preferred stock ranking junior (including the TCI common stock and the
Series C Preferred Stock) unless all then outstanding shares of Series C
Preferred Stock and such parity stock are redeemed. If TCI fails to redeem
shares of Series C Preferred Stock required to be redeemed on a redemption
date, and until all such shares are redeemed in full, TCI may not redeem
any such parity stock or junior stock, or otherwise acquire any shares of
such stock or Series C Preferred Stock. Nothing contained in the two
immediately preceding sentences shall prevent TCI from acquiring (i)
shares of Series C Preferred Stock and any such parity stock pursuant to a
purchase or exchange offer made to holders of all outstanding shares of
Series C Preferred Stock and such parity stock, if (a) as to holders of
all outstanding shares of Series C Preferred Stock, the terms of the
purchase or exchange offer for all such shares are identical, (b) as to
holders for all outstanding shares of a particular series or class of
parity stock, the terms of the purchase or exchange offer for all such
shares are identical and (c) as among holders of all outstanding shares of
Series C Preferred Stock and parity stock, the terms of each purchase or
exchange offer are substantially identical relative to the respective
liquidation prices of the shares of Series C Preferred Stock and each
series or class of such parity stock, or (ii) shares of Series C Preferred
Stock, parity stock or junior stock in exchange for, or through the
application of the proceeds of the sale of, shares of junior stock.
The Series C Preferred Stock is subject to restrictions on transfer
although it has certain customary registration rights with respect to the
underlying shares of TCI Group and Liberty Group Stock. The Series C
Preferred Stock may vote on all matters submitted to a vote of the holders
of the TCI common stock, has one vote for each share of TCI Group and
Liberty Group Stock into which the shares of Series C Preferred Stock are
converted for such purpose, and may vote as a single class with the TCI
common stock. The Series C Preferred Stock has no other voting rights
except as required by the Delaware General Corporation Law ("DGCL") and
except that the consent of the holders of record of shares representing at
least two-thirds of the liquidation value of the outstanding shares of the
Series C Preferred Stock is necessary to (i) amend the designation,
rights, preferences and limitations of the Series C Preferred Stock as set
forth in the TCI Charter and (ii) to create or designate any class or
series of TCI preferred stock that would rank prior to the Series C
Preferred Stock.
Convertible Preferred Stock, Series D. The Company issued 1,000,000 shares
of a series of TCI Series Preferred Stock designated "Convertible
Preferred Stock, Series D", par value $.01 per share, as partial
consideration for the merger between TCIC and TeleCable (see note 6). At
December 31, 1996, there were 997,222 shares of Series D Preferred Stock
outstanding.
(continued)
V-101
<PAGE> 323
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The holders of the Series D Preferred Stock shall be entitled to receive,
when and as declared by the Board out of unrestricted funds legally
available therefor, cumulative dividends, in preference to dividends on
any stock that ranks junior to the Series D Preferred Stock (currently the
TCI Group Stock, the Liberty Group Stock and the Class B Preferred Stock),
that shall accrue on each share of Series D Preferred stock at the rate of
5-1/2% per annum of the liquidation value ($300 per share). Dividends are
cumulative, and in the event that dividends are not paid in full on two
consecutive dividend payment dates or in the event that TCI fails to
effect any required redemption of Series D Preferred Stock, accrue at the
rate of 10% per annum of the liquidation value. The Series D Preferred
Stock ranks on parity with the Series C Preferred Stock and the Series F
Preferred Stock.
Each share of Series D Preferred Stock is convertible into 10 shares of
Series A TCI Group Stock and 3.5 shares of Series A Liberty Group Stock,
subject to adjustment upon certain events specified in the certificate of
designation establishing Series D Preferred Stock. In addition to the
aforementioned shares of TCI common stock, holders of Series D Preferred
Stock are entitled to one share of Satellite common stock for each share
of Series D Preferred Stock converted. Such shares of Satellite common
stock represent the number of shares of Satellite common stock that they
would have received had they converted their Series D Preferred Stock into
TCI Group Stock prior to the Satellite Spin-off. To the extent any cash
dividends are not paid on any dividend payment date, the amount of such
dividends will be deemed converted into shares of TCI common stock at a
conversion rate equal to 95% of the then current market price of common
stock, and upon issuance of common stock to holders of Series D Preferred
Stock in respect of such deemed conversion, such dividend will be deemed
paid for all purposes.
Shares of Series D Preferred Stock are redeemable for cash at the option
of the holder at any time after the tenth anniversary of the issue date at
a price equal to the liquidation value in effect as of the date of the
redemption. Shares of Series D Preferred Stock may also be redeemed for
cash at the option of TCI after the fifth anniversary of the issue date at
such redemption price or after the third anniversary of the issue date if
the market value per share exceeds certain defined levels for periods
specified in the certificate of designation.
If TCI fails to effect any required redemption of Series D Preferred
Stock, the holders thereof will have the option to convert their shares of
Series D Preferred Stock into common stock at a conversion rate of 95% of
the then current market value of common stock, provided that such option
may not be exercised unless the failure to redeem continues for more than
a year.
Except as required by law, holders of Series D Preferred Stock are not
entitled to vote on any matters submitted to a vote of the stockholders of
TCI.
(continued)
V-102
<PAGE> 324
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Convertible Redeemable Participating Preferred Stock, Series F. The
Company is authorized to issue 500,000 shares of Series F Preferred Stock,
par value $.01 per share. Subsidiaries of TCI hold all the issued and
outstanding shares (278,307 shares). Immediately prior to the record date
for the Distribution, the Company caused each of its subsidiaries holding
Subsidiary Shares to exchange such shares for shares of Series F Preferred
Stock having an aggregate value of not less than that of the Subsidiary
Shares so exchanged. Subsidiaries of TCI exchanged all of the Subsidiary
Shares for 355,141 shares of Series F Preferred Stock. Subsequent to such
exchange, a holder of 78,077 shares of Series F Preferred Stock converted
its holdings into 100,524,364 shares of Series A TCI Group Stock.
Each holder of Series F Preferred Stock has the right to receive upon
conversion 1,496.65 shares of Series A TCI Group Stock. The anti-dilution
provisions of the Series F Preferred Stock provide that the conversion
rate of the Series F Preferred Stock will be adjusted by increasing the
number of shares of Series A TCI Group Stock issuable upon conversion in
the event of any non-cash dividend or distribution of the Series A TCI
Group Stock to give effect to the value of the securities, assets or other
property so distributed; however, no such adjustment shall entitle the
holder to receive the actual security, asset or other property so
distributed upon the conversion of shares of Series F Preferred Stock.
The holders of the Series F Preferred Stock are entitled to participate,
on an as-converted basis, with the holders of the Series A TCI Group
Stock, with respect to any cash dividends or distribution declared and
paid on the Series A TCI Group Stock. Dividends or distribution on the
Series A TCI Group Stock which are not paid in cash would result in the
adjustment of the applicable conversion rate as described above.
Upon the dissolution, liquidation or winding up of the Company, holders of
the Series F Preferred Stock will be entitled to receive from the assets
of the Company available for distribution to stockholders an amount, in
cash or property or a combination thereof, per share of Series F Preferred
Stock, equal to the sum of (x) $.01 and (y) the amount to be distributed
per share of Series A TCI Group Stock in such liquidation, dissolution or
winding up multiplied by the applicable conversion rate of a share of
Series F Preferred Stock.
The Series F Preferred Stock is subject to optional redemption by the
Company at any time after its issuance, in whole or in party, at a
redemption price, per share, equal to the issue price of a share of Series
F Preferred Stock (as adjusted in respect of stock splits, reverse splits
and other events affecting the shares of Series F Preferred Stock), plus
any dividends which have been declared but are unpaid as of the date fixed
for such redemption. The Company may elect to pay the redemption price (or
designated portion thereof) of the shares of Series F Preferred Stock
called for redemption by issuing to the holder thereof, in respect of its
shares to be redeemed, a number of shares of Series A TCI Group Stock
equal to the aggregate redemption price (or designated portion thereof) of
such shares divided by the average of the last sales prices of the Series
A TCI Group Stock for a period specified, and subject to the adjustments
described, in the certificate of designation establishing the Series F
Preferred Stock.
(continued)
V-103
<PAGE> 325
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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"). In January, 1996, TCI issued
7,259,380 shares of a series of TCI Series Preferred Stock designated
"Redeemable Convertible TCI Group Preferred Stock, Series G" and 7,259,380
shares of a series of TCI Series Preferred Stock designated "Redeemable
Convertible Liberty Media Group Preferred Stock, Series H" as
consideration for an acquisition. At December 31, 1996, there were
6,695,427 shares of each of Series G Preferred Stock and Series H
Preferred Stock outstanding.
The initial liquidation value for the Series G Preferred Stock and Series
H Preferred Stock is $21.60 per share and $5.40 per share, respectively,
subject in both cases, to increase in an amount equal to aggregate accrued
but unpaid dividends, if any. Dividends will begin to accrue on the Series
G and Series H Preferred Stock on the first anniversary of issuance of the
Series G and Series H Preferred Stock, and will thereafter be payable
semi-annually commencing August 1, 1997, at the rate of 4% per annum on
the liquidation value. Any dividends paid on the Series G and Series H
Preferred Stock may be paid, at TCI's election, in cash or shares of TCI
Group Stock. Additional dividends will accrue on unpaid dividends
initially at a rate of 4% per annum. The dividend rate on dividends that
remain unpaid for six months will increase to 8.625% per annum.
Each share of Series G Preferred Stock is convertible at the option of the
holder at any time prior to the close of business on the last business day
prior to redemption into 1.19 shares of Series A TCI Group Stock and each
share of Series H Preferred Stock is convertible at any time prior to the
close of business on the last business day prior to redemption into .2625
shares of Series A Liberty Group Stock. However, the shares of Series A
Liberty Group Stock issuable upon conversion of the Series H Preferred
Stock shall be adjusted to provide for the Liberty Group Stock Dividend.
The conversion rights of Series G and Series H Preferred Stock are subject
to adjustment in certain circumstances.
Among other such adjustments, if the Liberty Group Stock, or any other
redeemable capital stock of TCI into which either series of Preferred
Stock may be convertible ("Redeemable Capital Stock"), is redeemed in full
by TCI (the "Redemption Event"), then, except as otherwise described
below, the shares of such Series G and Series H Preferred Stock will
thereafter be convertible into the kind and amount of consideration that
would have been received in such Redemption Event by a holder of the
number of shares of Redeemable Capital Stock that would have been issuable
upon conversion of such shares of Series G and Series H Preferred Stock,
if they had been converted in full immediately prior to such Redemption
Event.
(continued)
V-104
<PAGE> 326
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
However, if any series of Redeemable Capital Stock into which a series of
Series G or Series H Preferred Stock is then convertible is redeemed in
full by TCI in exchange for securities of another issuer ("Redemption
Securities"), TCI may elect to provide the holders of such Series G or
Series H Preferred Stock with the right to exchange such Series G or
Series H Preferred Stock, concurrently with the Redemption Event, for
preferred stock of such other issuer ("Mirror Preferred Stock"). Such
Mirror Preferred Stock shall be convertible into Redemption Securities and
shall otherwise have terms and conditions comparable to the Series G or
Series H Preferred Stock exchanged. If TCI provides such an exchange
right, any holder that does not then choose to participate in such
exchange will continue to hold such Series G or Series H Preferred Stock
but such holder will lose the conversion right with respect to the
Redeemable Capital Stock redeemed in the Redemption Event and will not
have any right to receive Redemption Securities in lieu thereof. A holder
that participates in such exchange will receive Mirror Preferred Stock
convertible into Redemption Securities, but will no longer hold the Series
G or Series H Preferred Stock so exchanged.
An alternative provision will apply if, at the time of exercise of any
such exchange right provided by TCI, the holder of the applicable series
of Series G or Series H Preferred Stock would be entitled to receive on
conversion any property in addition to the Redeemable Capital Stock being
redeemed. In that case, holders that choose to participate in the exchange
will receive both Mirror Preferred Stock issued by the issuer of the
Redemption Securities of the other issuer and a new preferred stock of TCI
convertible into such additional property. In such event, the Mirror
Preferred Stock and such new TCI preferred stock will have a combined
liquidation value equal to the liquidation value of the Series G or Series
H Preferred Stock exchanged and will otherwise have terms and conditions
comparable to such Series G or Series H Preferred Stock.
The Series G and Series H Preferred Stock are redeemable at TCI's option,
in whole or in part, any time on or after February 1, 2001. The Series G
and Series H Preferred Stock will be redeemable in full on February 1,
2016, to the extent then outstanding. In all cases, the redemption price
per share will be the liquidation value thereof, including the amount of
any accrued but unpaid dividends thereon, to and including the redemption
date.
The Series G and Series H Preferred Stock will rank prior to TCI common
stock and the TCI Class B Preferred Stock and pari passu with all other
currently outstanding classes and series of TCI preferred stock with
respect to the declaration and payment of dividends and in liquidation.
The Series G and Series H Preferred Stock will vote in any general
election of directors of TCI and will have one vote per share for such
purposes and will vote as a single class with the TCI common stock, the
TCI Class B Preferred Stock and any other class or series of TCI Preferred
Stock entitled to vote in any general election of directors. The Series G
and Series H Preferred Stock will have no other voting rights except as
required by the DGCL.
V-105
<PAGE> 327
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(10) Company-Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trusts Holding Solely Subordinated Debt Securities of TCIC
In January 1996, TCI Communications Financing I ("Trust I"), an indirect
wholly-owned subsidiary of the Company, issued $16 million in common
securities to TCIC, and issued $500 million of 8.72% Trust Originated
Preferred Securities(SM) (the "Trust I Preferred Securities" and together
with the common securities, the "Trust I Securities") to the public. Trust
I exists for the exclusive purposes of issuing Trust I Securities and
investing the proceeds thereof into an aggregate principal amount of $516
million of 8.72% Subordinated Deferrable Interest Notes due January 31,
2045 (the "8.72% Subordinated Debt Securities") of TCIC. The 8.72%
Subordinated Debt Securities are unsecured obligations of TCIC and are
subordinate and junior in right of payment to certain other indebtedness
of the Company. Upon redemption of the 8.72% Subordinated Debt Securities,
the Trust I Preferred Securities will be mandatorily redeemable. TCIC
effectively provides a full and unconditional guarantee of Trust I's
obligations under the Trust I Preferred Securities.
In May 1996, TCI Communications Financing II ("Trust II"), an indirect
wholly-owned subsidiary of the Company, issued $16 million in common
securities to TCIC, and issued $500 million of 10% Trust Preferred
Securities (the "Trust II Preferred Securities" and together with the
common securities, the "Trust II Securities") to the public. Trust II
exists for the exclusive purposes of issuing Trust II Securities and
investing the proceeds thereof into an aggregate principal amount of $516
million of 10% Subordinated Deferrable Interest Notes due May 31, 2045
(the "10% Subordinated Debt Securities") of TCIC. The 10% Subordinated
Debt Securities are unsecured obligations of TCIC and are subordinate and
junior in right of payment to certain other indebtedness of the Company.
Upon redemption of the 10% Subordinated Debt Securities, the Trust II
Preferred Securities will be mandatorily redeemable. TCIC effectively
provides a full and unconditional guarantee of Trust II's obligations
under the Trust II Preferred Securities.
The Trust I and Trust II Preferred Securities are presented together in a
separate line item in the accompanying consolidated balance sheet
captioned "Company-obligated mandatorily redeemable preferred securities
of subsidiary trusts holding solely subordinated debt securities of TCI
Communications, Inc." Dividends accrued on the Trust I and Trust II
Preferred Securities are included in minority interests in losses
(earnings) of consolidated subsidiaries in the accompanying consolidated
statements of operations.
(11) Stockholders' Equity
Common Stock
The Series A TCI Group Stock and Series A Liberty Group Stock each have
one vote per share, and the Series B TCI Group Stock and Series B Liberty
Group Stock each have ten votes per share. Each share of Series B TCI
Group Stock is convertible, at the option of the holder, into one share of
Series A TCI Group Stock, and each share of Series B Liberty Group Stock
is convertible, at the option of the holder, into one share of Series A
Liberty Group Stock. See note 1.
(continued)
V-106
<PAGE> 328
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The rights of holders of the TCI Group Stock upon liquidation of TCI are
based upon the ratio of the aggregate market capitalization, as defined,
of the TCI Group Stock to the aggregate market capitalization, as defined,
of the TCI Group Stock and the Liberty Group Stock.
Similarly, the rights of holders of the Liberty Group Stock upon
liquidation of TCI are based upon the ratio of the aggregate market
capitalization, as defined, of the Liberty Group Stock to the aggregate
market capitalization, as defined, of the Liberty Group Stock and the TCI
Group Stock.
Employee Benefit Plans
The Company has several employee stock purchase plans (the "Plans") to
provide employees an opportunity for ownership in the Company 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 Group Stock and Liberty Media Group Stock. The Company,
by annual resolution of the Board, generally contributes up to 100% of the
amount contributed by employees. Certain of the Company's subsidiaries
have their own employee benefit plans. Contributions to all plans
aggregated $35 million, $28 million and $21 million for 1996, 1995 and
1994, respectively.
Preferred Stock
Class A Preferred Stock. The Company is authorized to issue 700,000 shares
of Class A Preferred Stock, par value $.01 per share. Subsidiaries of TCI
held all of the issued and outstanding shares of such stock, amounting to
592,797 shares. The holders of the Class A Preferred Stock exchanged such
Subsidiary Shares for shares of Series F Preferred Stock immediately prior
to the record date of the Distribution. See note 1.
Class B 6% Cumulative Redeemable Exchangeable Junior Preferred Stock. The
Company is authorized to issue 1,675,096 shares of Class B Preferred Stock
and 1,620,026 of such shares are issued and outstanding.
Dividends accrue cumulatively (but without compounding) at an annual rate
of 6% of the stated liquidation value of $100 per share (the "Stated
Liquidation Value"), whether or not such dividends are declared or funds
are legally available for payment of dividends. Accrued dividends will be
payable annually on March 1 of each year (or the next succeeding business
day if March 1 does not fall on a business day), and, in the sole
discretion of the Board, may be declared and paid in cash, in shares of
Series A TCI Group Stock or in any combination of the foregoing. Accrued
dividends not paid as provided above on any dividend payment date will
accumulate and such accumulated unpaid dividends may be declared and paid
in cash, shares of Series A TCI Group Stock or any combination thereof at
any time (subject to the rights of any senior stock and, if applicable, to
the concurrent satisfaction of any dividend arrearages on any class or
series of TCI preferred stock ranking on a parity with the Class B
Preferred Stock with respect to dividend rights) with reference to any
regular dividend payment date, to holders of record of Class B Preferred
Stock as of a special record date fixed by the Board (which date may not
be more than 45 days nor less than 10 days prior to the date fixed for the
payment of such accumulated unpaid dividends). The Class B Preferred Stock
ranks junior to the Series F Preferred Stock with respect to the
declaration and payment of dividends.
(continued)
V-107
<PAGE> 329
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
If all or any portion of a dividend payment is to be paid through the
issuance and delivery of shares of Series A TCI Group Stock, the number of
such shares to be issued and delivered will be determined by dividing the
amount of the dividend to be paid in shares of Series A TCI Group Stock by
the Average Market Price of the Series A TCI Group Stock. For this
purpose, "Average Market Price" means the average of the daily last
reported sale prices (or, if no sale price is reported on any day, the
average of the high and low bid prices on such day) of a share of Series A
TCI Group Stock for the period of 20 consecutive trading days ending on
the tenth trading day prior to the regular record date or special record
date, as the case may be, for the applicable dividend payment.
In the event of any liquidation, dissolution or winding up of TCI, the
holders of Class B Preferred Stock will be entitled, after payment of
preferential amounts on any class or series of stock ranking prior to the
Class B Preferred Stock with respect to liquidating distributions, to
receive from the assets of TCI available for distribution to stockholders
an amount in cash or property or a combination thereof, per share, equal
to the Stated Liquidation Value thereof, plus all accumulated and accrued
but unpaid dividends thereon to and including the redemption date. TCI
does not have any mandatory obligation to redeem the Class B Preferred
Stock as of any fixed date, at the option of the holders or otherwise.
Subject to the prior preferences and other rights of any class or series
of TCI preferred stock, the Class B Preferred Stock will be exchangeable
at the option of TCI in whole but not in part at any time for junior
subordinated debt securities of TCI ("Junior Exchange Notes"). The Junior
Exchange Notes will be issued pursuant to an indenture (the "Indenture"),
to be executed by TCI and a qualified trustee to be chosen by TCI.
If TCI exercises its optional exchange right, each holder of outstanding
shares of Class B Preferred Stock will be entitled to receive in exchange
therefor newly issued Junior Exchange Notes of a series authorized and
established for the purpose of such exchange, the aggregate principal
amount of which will be equal to the aggregate Stated Liquidation Value of
the shares of Class B Preferred Stock so exchanged by such holder, plus
all accumulated and accrued but unpaid dividends thereon to and including
the exchange date. The Junior Exchange Notes will be issuable only in
principal amounts of $100 or any integral multiple thereof and a cash
adjustment will be paid to the holder for any excess principal that would
otherwise be issuable. The Junior Exchange Notes will mature on the
fifteenth anniversary of the date of issuance and will be subject to
earlier redemption at the option of TCI, in whole or in part, for a
redemption price equal to the principal amount thereof plus accrued but
unpaid interest. Interest will accrue, and be payable annually, on the
principal amount of the Junior Exchange Notes at a rate per annum to be
determined prior to issuance by adding a spread of 215 basis points to the
"Fifteen Year Treasury Rate" (as defined in the Indenture). Interest will
accrue on overdue principal at the same rate, but will not accrue on
overdue interest.
The Junior Exchange Notes will represent unsecured general obligations of
TCI and will be subordinated in right of payment to all Senior Debt (as
defined in the Indenture). Accordingly, holders of Class B Preferred Stock
who receive Junior Exchange Notes in exchange therefor may have difficulty
selling such Notes.
(continued)
V-108
<PAGE> 330
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For so long as any dividends are in arrears on the Class B Preferred Stock
or any class or series of TCI preferred stock ranking pari passu with the
Class B Preferred Stock which is entitled to payment of cumulative
dividends prior to the redemption, exchange, purchase or other acquisition
of the Class B Preferred Stock, and until all dividends accrued up to the
immediately preceding dividend payment date on the Class B Preferred Stock
and such parity stock shall have been paid or declared and set apart so as
to be available for payment in full thereof and for no other purpose,
neither TCI nor any subsidiary thereof may redeem, exchange, purchase or
otherwise acquire any shares of Class B Preferred Stock, any such parity
stock or any class or series of its capital stock ranking junior to the
Class B Preferred Stock (including the TCI common stock), or set aside any
money or assets for such purpose, unless all of the outstanding shares of
Class B Preferred Stock and such parity stock are redeemed. If TCI fails
to redeem or exchange shares of Class B Preferred Stock on a date fixed
for redemption or exchange, and until such shares are redeemed or
exchanged in full, TCI may not redeem or exchange any parity stock or
junior stock, declare or pay any dividend on or make any distribution with
respect to any junior stock or set aside money or assets for such purpose
and neither TCI nor any subsidiary thereof may purchase or otherwise
acquire any Class B Preferred Stock, parity stock or junior stock or set
aside money or assets for any such purpose. The failure of TCI to pay any
dividends on any class or series of parity stock or to redeem or exchange
on any date fixed for redemption or exchange any shares of Class B
Preferred Stock shall not prevent TCI from (i) paying any dividends on
junior stock solely in shares of junior stock or the redemption purchase
or other acquisition of junior stock solely in exchange for (together with
cash adjustment for fractional shares, if any) or (but only in the case of
a failure to pay dividends on any parity stock) through the application of
the proceeds from the sale of, shares of junior stock; or (ii) the payment
of dividends on any parity stock solely in shares of parity stock and/or
junior stock or the redemption, exchange, purchase or other acquisition of
Class B Preferred Stock or parity stock solely in exchange for (together
with a cash adjustment for fractional shares, if any), or (but only in the
case of failure to pay dividends on any parity stock) through the
application of the proceeds from the sale of, parity stock and/or junior
stock.
The Class B Preferred Stock will vote in any general election of
directors, will have one vote per share for such purpose and will vote as
a single class with the TCI common stock and any class or series of TCI
preferred stock entitled to vote in any general election of directors. The
Class B Preferred Stock will have no other voting rights except as
required by the DGCL.
Series Preferred Stock. The TCI Series Preferred Stock is issuable, from
time to time, in one or more series, with such designations, preferences
and relative participating, option or other special rights,
qualifications, limitations or restrictions thereof, as shall be stated
and expressed in a resolution or resolutions providing for the issue of
such series adopted by the Board. The Company is authorized to issue
50,000,000 shares of Series Preferred Stock.
All shares of any one series of the TCI Series Preferred Stock are
required to be alike for every particular and all shares are required to
rank equally and be identical in all respects, except insofar as they may
vary with respect to matters which the Board is expressly authorized by
the TCI Charter to determine in the resolution or resolutions proving for
the issue of any series of the TCI Series Preferred Stock.
(continued)
V-109
<PAGE> 331
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Redeemable Convertible Preferred Stock, Series E. The Company is
authorized to issue 400,000 shares of Redeemable Convertible Preferred
Stock, Series E, par value $.01. Subsidiaries of TCI held all of the
issued and outstanding shares of such stock, amounting to 246,402 shares.
The holders of the Series E Preferred Stock exchanged such Subsidiary
Shares for shares of Series F Preferred Stock immediately prior to the
record date of the Distribution.
Stock Options
In 1994, the Company adopted the Tele-Communications, Inc. 1994 Stock
Incentive Plan (the "1994 Plan"). The Plan provided for awards to be made
in respect of a maximum of 16 million shares of TCI Class A common stock.
Awards may be made as grants of stock options, stock appreciation rights,
restricted shares, stock units or any combination thereof.
The 1994 Plan was adjusted to provide that the number and type of shares
subject to future awards consists of a number of shares of Series A TCI
Group Stock equal to the number of shares of Class A common stock subject
to future awards immediately prior to the Distribution and a number of
shares of Series A Liberty Group Stock equal to one-fourth of the number
of shares of Class A common stock subject to future awards immediately
prior to Distribution. Following the Distribution, the Compensation
Committee of TCI may in its discretion grant awards, including awards of
options on, or stock appreciation rights respecting, shares of Series A
TCI Group Stock, Series A Liberty Group Stock, or combinations thereof, in
such amounts and types as it determines in accordance with the terms of
the 1994 Plan, as adjusted.
In 1995, the Company adopted the Tele-Communications, Inc. 1995 Employee
Stock Incentive Plan (the "1995 Plan"). In addition, the Company has
established the Tele-Communications, Inc. 1996 Stock Incentive Plan (the
"1996 Plan" and together with the 1994 Plan and the 1995 Plan, the
"Incentive Plans") which was approved by stockholders at the TCI 1996
annual meeting. The 1996 Plan provides (i) for stock-based awards to be
made in respect of a maximum of 16 million shares of Series A TCI Group
Stock and a maximum of 6 million shares of Series A Liberty Group Stock
(subject to certain adjustments described below) and (ii) for cash awards
in amounts determined by the TCI compensation committee. Series A TCI
Group Stock and Series A Liberty Group Stock shall be hereinafter
collectively referred to as the "Common Stock".
Awards may be made as grants of stock options ("Options"), stock
appreciation rights ("SARs"), restricted shares ("Restricted Shares"),
stock units ("Stock Units"), performance awards ("Performance Awards"), or
any combination thereof (collectively, "Awards"). Shares in respect of
which Awards are made may be either authorized but unissued shares of
Common Stock or issued shares reacquired by the Company, including shares
purchased in the open market. Shares of Common Stock that are subject to
Awards that expire, terminate or are annulled for any reason without
having been exercised (or, with respect to Tandem SARs deemed exercised,
by virtue of the exercise of a related Option), or are Restricted Shares
or Stock Units that are forfeited prior to becoming vested, or are subject
to Awards of SAR's that are exercised for cash, will return to the pool of
such shares available for grant under the 1996 Plan.
(continued)
V-110
<PAGE> 332
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In connection with the Distribution, each holder of an outstanding option
or stock appreciation right received an additional option or stock
appreciation right, as applicable, covering a number of shares of Series A
Liberty Group Stock equal to one-fourth of the number of shares of Class A
common stock theretofore subject to the outstanding option or stock
appreciation right, and the outstanding option or stock appreciation right
would continue in effect as an option or stock appreciation right covering
the same number of shares of Series A TCI Group Stock (as redesignated)
that were theretofore subject to the option or stock appreciation right.
The aggregate pre-adjustment strike price of the outstanding options or
stock appreciation rights was allocated between the outstanding options or
stock appreciation rights and the newly issued options or stock
appreciation rights in a ratio determined by the Compensation Committee.
The following descriptions of stock options and/or stock appreciation
rights have been adjusted to reflect such change.
Awards of Series A TCI Group Stock made under the Incentive Plans were
adjusted in connection with the Satellite Spin-off such that immediately
prior to the Satellite Spin-off, each option was divided into two
separately exercisable options: (i) an option to purchase Satellite Series
A common stock (an "Add-on Satellite Option"), exercisable for the number
of shares of Satellite Series A common stock that would have been issued
in the Satellite Spin-off in respect of the shares of Series A TCI Group
Stock subject to the applicable TCI option, if such TCI option had been
exercised in full immediately prior to the record date of the Satellite
Spin-off, and containing substantially equivalent terms as the existing
TCI option, and (ii) an option to purchase Series A TCI Group Stock (an
"Adjusted TCI Option"), exercisable for the same number of shares of
Series A TCI Group Stock as the corresponding TCI option had been. The
aggregate exercise price of each TCI option was allocated between the
Add-on Satellite Option and the Adjusted TCI Option into which it is
divided, and all other terms of the Add-on Satellite Option and Adjusted
TCI Option will in all material respects be the same as such TCI option.
Similar adjustments were made to the outstanding TCI SARs, resulting in
the holders thereof holding Adjusted TCI SARs and Add-on Satellite SARs
instead of TCI SARs, effective immediately prior to the Satellite
Spin-off.
As a result of the foregoing, certain persons who remain TCI employees or
non-employee directors after the Satellite Spin-off and certain persons
who were TCI employees prior to the Satellite Spin-off but became
Satellite employees after the Satellite Spin-off hold both Adjusted TCI
Options and separate Add-on Satellite Options and/or hold both Adjusted
TCI SARs and separate Add-on Satellite SARs. The obligations with respect
to the Adjusted TCI Options, Add-on Satellite Options, Adjusted TCI SARs
and Add-on Satellite SARs held by TCI employees and non-employee directors
following the Satellite Spin-off are obligations solely of TCI. The
obligations with respect to the Adjusted TCI Options, Add-on Satellite
Options, Adjusted TCI SARs and Add-on Satellite SARs held by persons who
are Satellite employees at the time of the Satellite Spin-off and
following the Satellite Spin-off are no longer TCI employees are
obligations solely of Satellite. Prior to the Satellite Spin-off, TCI and
Satellite entered into an agreement to sell to each other from time to
time at the then current market price shares of Series A TCI Group Stock
and Satellite Series A common stock, respectively, as necessary to satisfy
their respective obligations under such securities.
(continued)
V-111
<PAGE> 333
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As a result of the Liberty Stock Dividend, options to purchase shares of
Liberty Group Stock were increased by one option for each two options
previously granted, and the exercise price was also adjusted accordingly.
The following Liberty Group Stock option disclosures have been adjusted to
reflect such changes.
The following table presents the number and weighted average exercise
price ("WAEP") of certain options in tandem with SARs to purchase Class A
common stock, Series A TCI Group Stock and Series A Liberty Group Stock
pursuant to the Incentive Plans:
<TABLE>
<CAPTION>
Series A
Class A Series A Liberty
common TCI Group Group
stock WAEP Stock WAEP Stock WAEP
------- ------- --------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
January 1, 1994 8,309,336 $16.61 -- --
Granted 3,220,000 22.00 -- --
Assumed 54,600 19.56 -- --
Exercised (217,483) 17.26 -- --
Canceled (45,625) 20.13 -- --
------------ ------------ ------------
Outstanding at
December 31, 1994 11,320,828 18.13 -- --
Converted from
Class A options (11,218,866) 18.15 11,218,866 $13.58 --
Adjustment for
Distribution -- -- 4,207,056 $12.10
Granted -- 7,507,500 16.99 3,879,000 15.95
Exercised (91,962) 16.07 (933,516) 12.45 (340,504) 11.11
Canceled (10,000) 17.25 (90,500) 13.07 (33,936) 11.66
------------- ------------- -------------
Outstanding at
December 31, 1995 -- 17,702,350 15.08 7,711,616 14.08
Exercised -- (196,300) 12.70 (87,730) 11.89
Canceled -- (132,200) 15.35 (27,900) 12.68
------------ ------------ -------------
Outstanding at
December 31, 1996 -- 17,373,850 12.97 7,595,986 14.11
============ ============ =============
Exercisable at
December 31, 1994 3,053,348 16.35 -- --
============ =========== =============
Exercisable at
December 31, 1995 -- 4,717,230 12.87 1,774,222 11.48
============ ============ =============
Exercisable at
December 31, 1996 -- 8,189,828 11.89 3,290,718 12.71
============ ============ =============
Vesting Period 4-5 yrs 4-5 yrs
============ =============
</TABLE>
On December 13, 1995, pursuant to the 1994 Plan, the Company awarded
330,000 restricted shares of Series A TCI Group common stock and 45,000
restricted shares of Series A Liberty Group Stock to certain officers and
other key employees of the Company. Such restricted shares vest as to 50%
on December 13, 2000 and as to the remaining 50% on December 13, 2001.
SARs with respect to 1,357,875 shares of Series A TCI Group Stock and
533,811 shares of Series A Liberty Group Stock were outstanding at
December 31, 1996. These rights have an adjusted strike price of $0.52 and
$0.54 per share, respectively, and become exercisable and vest evenly over
seven years, beginning March 28, 1991. The SARs expire on March 28, 2001.
The Company has the option of paying the holder in stock or cash. During
the year ended December 31, 1996, SARs with respect to 65,625 shares of
Series A TCI Group Stock were exercised.
(continued)
V-112
<PAGE> 334
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
On August 3, 1995, stockholders of the Company approved the Director Stock
Option Plan (the "DSOP") including the grant, effective as of November 16,
1994, to each person that as of that date was a member of the Board and
was not an employee of the Company or any of its subsidiaries, of options
to purchase 50,000 shares of TCI Class A common stock. Pursuant to the
DSOP, options to purchase 300,000 shares of TCI Class A common stock were
granted at an exercise price of $22.00 per share. Such options had a
weighted average fair value of $16.49 on the date of grant. Options issued
pursuant to the DSOP vest and become exercisable over a five-year period
from the date of grant and expire 10 years from the date of grant. During
the year ended December 31, 1995, options to purchase 50,000 shares of
Series A TCI Group Stock and options to purchase 18,750 shares of Series A
Liberty Group Stock were canceled. During the year ended December 31,
1996, options to purchase 150,000 shares of Series A TCI Group Stock and
options to purchase 56,250 shares of Series A Liberty Group stock with a
WAEP of $14.75 and $17.28, respectively, were issued pursuant to the DSOP.
Such options had a weighted average fair value of $9.83 and $11.51,
respectively, on the date of grant.
At December 31, 1996, 400,000 options with respect to TCI Group Stock
granted pursuant to the DSOP were outstanding, 100,000 of which were
exercisable. Such options had a range of exercise prices of $12.25 to
$16.99, with a WAEP of $14.06, and a weighted average remaining
contractual life of 8.63 years.
At December 31, 1996, 150,000 options with respect to Liberty Group Stock
granted pursuant to the DSOP were outstanding, 37,500 of which were
exercisable. Such options had a range of exercise prices of $14.67 to
$17.50, with a WAEP of $15.65, and a weighted average remaining
contractual life of 8.63 years.
The estimated fair values noted above are based on the Black-Scholes model
and are stated in current annualized dollars on a present value basis. The
key assumptions used in the model for purposes of these calculations
include the following: (a) a discount rate equal to the 10-year Treasury
rate on the date of grant; (b) a 35% volatility factor, (c) the 10-year
option term; (d) the closing price of the respective common stock on the
date of grant; and (e) an expected dividend rate of zero. The actual value
that the subject directors may realize will depend upon the extent to
which the stock price exceeds the exercise price on the date the options
are exercised. Accordingly, the value realized by such directors will not
necessarily be the value determined by the model.
Estimated compensation relating to restricted stock awards, options with
tandem SARs and SARs has been recorded through December 31, 1996 pursuant
to APB Opinion No. 25. Such estimate is subject to future adjustment based
upon market value, and ultimately, on the final determination of market
value when the rights are exercised or the restricted stock awards are
vested. Had the Company accounted for its stock based compensation
pursuant to the fair value based accounting method in Statement No. 123,
the amount of compensation would not have been materially different from
what has been reflected in the accompanying consolidated financial
statements.
(continued)
V-113
<PAGE> 335
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Other
In connection with the exercise of a stock option by an officer/director
of Liberty, a note was given to Liberty as partial payment of the exercise
price. This note bore interest at 7.54% per annum. The Company recorded
the net assumed note receivable, amounting to $15 million, from such
officer as a reduction of stockholders' equity. On October 27, 1994, such
officer tendered to the Company 634,917 shares of TCI Class B common stock
in full payment of principal and interest amounting to $15 million.
The excess of consideration received on debentures converted or options
exercised over the par value of the stock issued is credited to additional
paid-in capital.
At December 31, 1996, there were 127,607,438 shares of Series A TCI Group
Stock and 30,090,303 shares of Series A Liberty Group Stock (as adjusted
to give effect to the Liberty Group Stock Dividend) reserved for issuance
under exercise privileges related to options, convertible debt securities
and convertible preferred stock and upon vesting of the restricted stock
awards described in this note 11 and in notes 8 and 9. In addition, one
share of Series A TCI Group Stock is reserved for each outstanding share
of Series B TCI Group Stock and one share of Series A Liberty Group Stock
is reserved for each outstanding share of Series B Liberty Group Stock.
See note 1 for the effect of the Distribution on the conversion rights of
holders of convertible securities.
(12) Transactions with Officers and Directors
Effective January 31, 1996, a director of the Company purchased one-third
of the Company's interest in two limited partnerships and obtained two
ten-year options to purchase the Company's remaining partnership
interests. The purchase price for the one-third partnership interests was
37.209 shares of WestMarc Communications, Inc. ("WestMarc", a wholly-owned
subsidiary of the Company) Series C Cumulative Compounding Preferred Stock
owned by such director, and the purchase price for the ten-year options
was $100 for each option. All options are exercisable for cash in the
aggregate amount of $3,000,000.
On July 1, 1996, pursuant to a Restricted Stock Award Agreement, an
executive officer of TCI was transferred all of TCI's right title and
interest in and to 62 shares of the 12% Series C Cumulative Compounding
Preferred Stock of WestMarc owned by TCI. Such preferred stock has a
liquidation value of $1,999,500 and is subject to forfeiture by such
officer in the event of certain circumstances from the date of grant
through December 13, 2005.
(continued)
V-114
<PAGE> 336
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Effective December 1, 1996, an executive officer of the Company and an
executive officer of TCIC were each granted options representing 1.0% of
the Company's common equity in TCI Telephony Services, Inc., a
consolidated subsidiary of the Company, ("Telephony Services"). The
aggregate exercise price for each such option is equal to 1.0% of (i) the
Company's cumulative investment in Telephony Services as of December 1,
1996, adjusted for a 6% per annum interest factor from the date each such
investment was made to the date of such exercise, less (ii) the sum of (x)
$500 million and (y) the amount of the tax benefits generated by Telephony
Services (up to $500 million) as and when used by TCI. Each such executive
officer was also granted a similar option representing 1.0% of the
Company's common equity in TCI Wireline, Inc., another consolidated
subsidiary of the Company, ("Wireline"). The aggregate exercise price for
each such Wireline option is equal to 1.0% of the Company's cumulative
investment in Wireline as of December 1, 1996, adjusted for a 6% per annum
interest factor from the date each such investment was made to the date of
such exercise. Any exercise by one of such executive officers of all or
part of one of such options (as to either the Telephony Services option or
the Wireline option) would need to be accompanied by the exercise by such
executive officer of a pro rata portion of the other such option. All of
such options vest 20% per annum beginning February 1, 1997, and will
expire on February 1, 2006.
Effective December 1, 1996, two executive officers of the Company and an
executive officer of TCIC were each granted options representing 1.0% of
the Company's common equity in TCI.NET, Inc., a consolidated subsidiary of
the Company. The aggregate exercise price for each such TCI.NET, Inc.
option is equal to 1.0% of the Company's cumulative investment in TCI.NET,
Inc. as of December 31, 1996, adjusted for a 6% per annum interest factor
from the date each such investment was made to the date of such exercise
price. Such options vest 20% per annum beginning February 1, 1997 and
expire on February 1, 2006.
On the date of the Satellite Spin-off, the Company granted options to two
of its executive officers to purchase 1.0% and an option to an employee of
TCIC to acquire 0.5% of Satellite's issued and outstanding common stock.
The exercise price for each such option is equal to 1.0% or 0.5%, as
applicable, of the Company's net investment in Satellite on the date of
the Satellite Spin-off. Such options vest 20% per annum beginning February
1, 1997 and expire on February 1, 2006.
Estimated compensation relating to the aforementioned restricted stock
award and options has been recorded through December 31, 1996 pursuant to
APB Opinion No. 25. Such estimate is subject to future adjustment based
upon market value, and ultimately, on the final determination of market
value when the rights are exercised or the restricted stock awards are
vested. Had the Company accounted for its stock based compensation
pursuant to the fair value based accounting method in Statement No. 123,
the amount of compensation would not have been materially different from
what has been reflected in the accompanying consolidated financial
statements.
(continued)
V-115
<PAGE> 337
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(13) Sale of Subsidiary Stock
On July 18, 1995, TINTA completed an initial public offering (the "IPO")
in which it sold 20 million shares of TINTA Series A common stock to the
public for consideration of $16.00 per share aggregating $320 million,
before deducting related expenses (approximately $19 million). The shares
sold to the public represented 17% of TINTA's total issued and outstanding
common stock. Also in July 1995, TINTA issued 687,500 shares of TINTA
Series A common stock as partial consideration for a 35% ownership
interest in Torneos Y Competencias S.A., an Argentine sports programming
company (the "TYC Acquisition"). As a result of the IPO and the TYC
Acquisition, the Company recognized a gain amounting to $123 million.
In June 1995, Flextech issued share capital for cash and preferred shares
of Thomson Directories Limited. In connection with such issuance, the
Company recorded a $51 million increase to stockholders' equity and a $93
million increase to minority interests in equity of consolidated
subsidiaries. No gain was recognized in the Company's consolidated
statement of operations due primarily to the existence of the Company's
contingent obligations to repurchase certain of the Flextech share
capital.
(14) Income Taxes
TCI files a consolidated Federal income tax return with all of its 80% or
more owned subsidiaries. Consolidated subsidiaries in which the Company
owns less than 80% each file a separate income tax return. TCI and such
subsidiaries calculate their respective tax liabilities on a separate
return basis which are combined in the accompanying consolidated financial
statements.
Income tax benefit (expense) for the years ended December 31, 1996,
1995 and 1994 consists of:
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -----
amounts in millions
<S> <C> <C> <C>
Year ended December 31, 1996:
Federal $ (25) (175) (200)
State and local (13) (49) (62)
-------- ---- ----
$ (38) (224) (262)
======== ==== ====
Year ended December 31, 1995:
Federal $ (23) 130 107
State and local (10) 23 13
-------- ---- ----
$ (33) 153 120
======== ==== ====
Year ended December 31, 1994:
Federal $ (69) (29) (98)
State and local (14) (8) (22)
-------- ---- ----
$ (83) (37) (120)
======== ==== ====
</TABLE>
(continued)
V-116
<PAGE> 338
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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>
Years ended
December 31,
-----------------------------------------------
1996 1995 1994
------------- -------------- -------------
amounts in millions
<S> <C> <C> <C>
Computed "expected" tax benefit (expense) $ (189) 102 (64)
Amortization not deductible for tax purposes (22) (25) (13)
Minority interest in losses (earnings)of
consolidated subsidiaries (3) 9 (3)
Gain on sale of subsidiary stock -- 43 --
Recognition of losses of consolidated partnership -- -- (10)
State and local income taxes, net of federal
income tax benefit (49) (4) (20)
Valuation allowance on foreign corporation -- -- (10)
Other 1 (5) --
---------- --------- --------
$ (262) 120 (120)
========== ========= ========
</TABLE>
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>
December 31,
--------------------
1996 1995
------- -------
amounts in millions
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 679 583
Less - valuation allowance (121) (121)
Investment tax credit carryforwards 118 118
Less - valuation allowance (41) (41)
Alternative minimum tax credit carryforwards 95 95
Investments in affiliates, due principally to losses of
affiliates recognized for financial statement purposes in
excess of losses recognized for income tax purposes
232 176
Future deductible amounts principally due to
non-deductible accruals 79 90
Other 11 10
------- -------
Net deferred tax assets 1,052 910
------- -------
Deferred tax liabilities:
Property and equipment, principally due to
differences in depreciation 1,193 1,111
Franchise costs, principally due to differences in
amortization 4,676 3,569
Investment in affiliates, due principally to
undistributed earnings of affiliates 917 499
Intangible assets, principally due to differences in
amortization 36 42
Leases capitalized for tax purposes 90 53
Other 152 220
------- -------
Total gross deferred tax liabilities 7,064 5,494
------- -------
Net deferred tax liability $ 6,012 $ 4,584
======= =======
</TABLE>
(continued)
V-117
<PAGE> 339
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The valuation allowance for deferred tax assets as of December 31, 1996
was $162 million. Such balance did not change from December 31, 1995.
At December 31, 1996, the Company had net operating loss carryforwards for
income tax purposes aggregating approximately $1,499 million of which, if
not utilized to reduce taxable income in future periods, $136 million
expires in 2003, $117 million in 2004, $355 million in 2005, $288 million
in 2006, $138 million in 2009, $167 million in 2010 and $298 million in
2011. Certain subsidiaries of the Company had additional net operating
loss carryforwards for income tax purposes aggregating approximately $236
million and these net operating losses are subject to certain rules
limiting their usage.
At December 31, 1996, the Company had remaining available investment tax
credits of approximately $63 million which, if not utilized to offset
future Federal income taxes payable, expire at various dates through 2005.
Certain subsidiaries of the Company had additional investment tax credit
carryforwards aggregating approximately $55 million and these investment
tax credit carryforwards are subject to certain rules limiting their
usage.
Certain of the Federal income tax returns of TCI and its subsidiaries
which filed separate income tax returns are presently under examination by
the IRS for the years 1992 through 1995 (the "IRS Examinations"). Certain
income tax issues related to the years 1981-1991 have been resolved in the
Company's favor. The IRS has until April 1997 to appeal such decisions
(the "IRS Appeals"). In the opinion of management, any additional tax
liability, not previously provided for, resulting from the IRS
Examinations or the IRS Appeals, ultimately determined to be payable,
should not have a material adverse effect on the consolidated financial
position of the Company.
(15) Commitments and Contingencies
On October 5, 1992, Congress enacted the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act"). In 1993 and
1994, the FCC adopted certain rate regulations required by the 1992 Cable
Act and imposed a moratorium on certain rate increases. As a result of
such actions, the Company's basic and tier service rates and its equipment
and installation charges (the "Regulated Services") are subject to the
jurisdiction of local franchising authorities and the FCC. Basic and tier
service rates are evaluated against competitive benchmark rates as
published by the FCC, and equipment and installation charges are based on
actual costs. Any rates for Regulated Services that exceeded the
benchmarks were reduced as required by the 1993 and 1994 rate regulations.
The rate regulations do not apply to the relatively few systems which are
subject to "effective competition" or to services offered on an individual
service basis, such as premium movie and pay-per-view services.
(continued)
V-118
<PAGE> 340
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company believes that it has complied in all material respects with
the provisions of the 1992 Cable Act, including its rate setting
provisions. However, the Company's rates for Regulated Services are
subject to review by the FCC, if a complaint has been filed, or the
appropriate franchise authority, if such authority has been certified. If,
as a result of the review process, a system cannot substantiate its rates,
it could be required to retroactively reduce its rates to the appropriate
benchmark and refund the excess portion of rates received. Any refunds of
the excess portion of tier service rates would be retroactive to the date
of complaint. Any refunds of the excess portion of all other Regulated
Service rates would be retroactive to one year prior to the implementation
of the rate reductions.
The Company is obligated to pay fees for the rights to exhibit certain
films that are released by various producers through 2009 (the "Film
Licensing Obligations"). Based on customer levels at December 31, 1996,
these agreements require minimum payments aggregating approximately $571
million. The aggregate amount of the Film Licensing Obligations under
other license agreements is not currently estimable because such amount is
dependent upon the number of qualifying films released theatrically by
certain motion picture studios as well as the domestic theatrical
exhibition receipts upon the release of such qualifying films.
Nevertheless, the Company's aggregate payments under the Film Licensing
Obligations could prove to be significant.
The Company has made certain financial commitments related to the
acquisition of sports program rights through 2004. At December 31, 1996,
such commitments aggregated $226 million.
The Company has guaranteed notes payable and other obligations of
affiliated and other companies with outstanding balances of approximately
$278 million at December 31, 1996. Although there can be no assurance,
management of the Company believes that it will not be required to meet
its obligations under such guarantees, or if it is required to fulfill any
of such guarantees, that they will not be material to the Company.
The Company leases business offices, has entered into converter lease
agreements, pole rental agreements and transponder lease agreements and
uses certain equipment under lease arrangements. Rental expense under such
arrangements amounted to $187 million, $142 million and $82 million in
1996, 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
millions):
<TABLE>
<CAPTION>
<S> <C>
1997 $ 173
1998 163
1999 149
2000 126
2001 116
Thereafter 354
</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.
(continued)
V-119
<PAGE> 341
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Certain key employees of the Company hold restricted stock awards, options
and options with tandem SARs to acquire shares of certain subsidiaries'
common stock. Estimates of the compensation related to the restricted
stock awards and options and/or SARs have been recorded in the
accompanying consolidated financial statements pursuant to APB Opinion No.
25. Such estimates are subject to future adjustment based upon the market
value of the respective common stock and, ultimately, on the final market
value when the rights are exercised or the restricted stock awards are
vested. Had the Company accounted for its stock based compensation
pursuant to the fair value based accounting method in Statement No. 123,
the amount of compensation would not have been materially different from
what has been reflected in the accompanying consolidated financial
statements.
Estimates of compensation relating to phantom stock appreciation rights
("PSARs") granted to employees of a subsidiary of TCI have been recorded
in the accompanying combined financial statements, but is subject to
future adjustment based upon a valuation model derived from such
subsidiary's cash flow, working capital and debt. Effective January 1,
1994, these employees have a put right that requires such subsidiary to
purchase their respective PSARs. The subsidiary may call the PSARs on or
after January 1, 1996.
The Company has contingent liabilities related to legal proceedings and
other matters arising in the ordinary course of business. Although it is
reasonably possible the Company may incur losses upon conclusion of such
matters, an estimate of any loss or range of loss cannot be made. In the
opinion of management, it is expected that amounts, if any, which may be
required to satisfy such contingencies will not be material in relation to
the accompanying consolidated financial statements.
(continued)
V-120
<PAGE> 342
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(16) Information about the Company's Operations
The following is selected information about the Company's operations
for the years ended December 31, 1996, 1995 and 1994. Separate amounts
of the Company's home shopping service have been provided to enhance
the readers understanding of the Company.
<TABLE>
<CAPTION>
Programming
----------------------------
Communi- Electronic Other Intersegment
cations Retailing Programming Eliminations Total
---------- ----------- ------------- ------------- ---------
1996 amounts in millions
<S> <C> <C> <C> <C> <C>
Revenue $ 6,790 984 355 (107) 8,022
========== =========== ============= ============= =========
Operating income
(loss) $ 546 36 50 -- 632
========== =========== ============= ============= =========
Depreciation and
amortization $ 1,555 37 24 -- 1,616
========== =========== ============= ============= =========
Capital expenditures
$ 2,043 5 7 -- 2,055
========== =========== ============= ============= =========
Identifiable assets $ 27,154 442 2,617 31 30,244
========== =========== ============= ============= =========
1995
Revenue $ 5,145 920 521 (80) 6,506
========== =========== ============= ============= =========
Operating income
(loss) $ 653 (85) (26) -- 542
========== =========== ============= ============= =========
Depreciation and
amortization $ 1,274 43 55 -- 1,372
========== =========== ============= ============= =========
Capital expenditures
$ 1,733 13 36 -- 1,782
========== =========== ============= ============= =========
Identifiable assets $ 23,059 725 1,793 -- 25,577
========== =========== ============= ============= =========
1994
Revenue $ 4,043 432 240 (33) 4,682
========= ======== ======== ======= =======
Operating income
(loss) $ 781 9 (2) -- 788
========== ========== ========== ======== ========
Depreciation and
amortization $ 992 15 11 -- 1,018
========== ========= ========= ======== =======
Capital
expenditures $ 1,239 19 6 -- 1,264
========= ========= ========== ======== =======
Identifiable assets $ 17,121 739 1,448 (32) 19,276
======== ======== ======= ======= ======
</TABLE>
(continued)
V-121
<PAGE> 343
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(17) Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
------- ------- ------- -------
amounts in millions,
1996: except per share amounts
<S> <C> <C> <C>
Revenue:
As previously reported $ 1,959 2,022 2,135
Adjustment to reclassify franchise fee revenue (67) (70) (74)
Adjustment to reclassify shipping and handling revenue
(27) -- --
Adjustment to reflect optical fiber leases as capital
leases (4) (4) (3)
------- ------ ------
As adjusted $ 1,861 1,948 2,058 2,155
======= ====== ====== ======
Operating income:
As previously reported $ 176 173 223
Adjustment to reflect optical fiber leases as capital
leases (4) (4) (3)
------- ------ ------
As adjusted $ 172 169 220 71
======= ====== ====== ======
Net earnings (loss):
As previously reported $ (118) (184) (136)
Adjustment to reflect optical fiber leases as capital
leases (3) (3) (2)
------- ------ ------
As adjusted $ (121) (187) (138) 724
======= ====== ====== ======
Primary earnings (loss) attributable to common stockholders per
common and common equivalent share:
Series A and Series B TCI Group Stock:
As previously reported $ (.22) (.29) (.24)
Adjustment to reflect optical fiber leases as
capital leases -- (.01) (.01)
------- ------ ------
As adjusted $ (.22) (.30) (.25) (.46)
======= ====== ====== ======
Series A and Series B Liberty Group Stock (a) $ .06 .02 .07 3.83
Fully diluted earnings (loss) attributable to common stockholders
per common and common equivalent share:
Series A and Series B TCI Group Stock:
As previously reported $ (.22) (.29) (.24)
Adjustment to reflect optical fiber leases as
capital leases -- (.01) (.01)
------- ------ ------
As adjusted $ (.22) (.30) (.25) (.46)
======= ====== ====== ======
Series A and Series B Liberty Group Stock (a) $ .06 .02 .07 3.74
1995:
Revenue:
As previously reported $ 1,524 1,674 1,761 1,892
Adjustment to reclassify franchise fee revenue (56) (62) (63) (65)
Adjustment to reclassify shipping and handling revenue
(22) (26) (23) (28)
------- ------ ------ ------
As adjusted $ 1,446 1,586 1,675 1,799
======= ====== ====== ======
Operating income $ 180 135 176 51
Net earnings (loss) $ (44) (95) 32 (64)
Primary and fully diluted earnings (loss) attributable to common
stockholders per common and common equivalent share:
TCI Class A and Class B common stock $ (.08) (.16) .12 N/A
Series A and Series B TCI Group Stock N/A N/A $ (.09) (.07)
Series A and Series B Liberty Group Stock (a) N/A N/A $ (.02) (.09)
</TABLE>
- - ------------------
(a) Adjusted to give effect to the Liberty Group Stock Dividend.
V-122
<PAGE> 344
"TCI VENTURES GROUP"
(a combination of certain assets)
Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The following discussion and analysis should be read in conjunction
with the TCI Ventures Group's combined financial statements for the three
months ended March 31, 1997 and for the year ended December 31, 1996 and the
TCI Ventures Group's Management's Discussion and Analysis of Financial
Condition and Results of Operations for the year ended December 31, 1996
included elsewhere herein.
On May 14, 1997, the Board of Directors of Tele-Communications, Inc.
(the "Board") authorized, subject to shareholder approval (the "TCI Ventures
Group Stock Proposal"), the issuance of two new series of stock ("TCI Ventures
Group Stock") which are intended to reflect the separate performance of the TCI
Ventures Group.
The TCI Ventures Group Stock, if issued, will be intended to reflect
the separate performance of the TCI Ventures Group. The TCI Ventures Group
would initially consist principally of the following assets and their related
liabilities: (i) TCI's 85% equity interest (representing a 92% voting interest)
in Tele-Communications International, Inc. ("International"), which is the
Company's primary vehicle for the conduct of its international cable, telephony
and programming businesses (other than those international programming
businesses attributed to the Liberty Media Group), (ii) TCI's principal
interests in the telephony business ("TCI Telephony") consisting primarily of
the Company's investment in a series of partnerships formed to engage in the
business of providing wireless communications services, using the radio
spectrum for broadband personal communications services ("PCS"), to residential
and business customers nationwide under the Sprint(R) brand (a registered
trademark of Sprint Communications Company, L.P.) (the "PCS Ventures"), the
Company's 30% equity interest (representing a 37% voting interest) in Teleport
Communications Group Inc. ("Teleport" or "TCG"), a competitive local exchange
carrier, and Western Tele-Communications, Inc. ("WTCI"), a wholly owned
subsidiary of the Company that provides long distance transport of video, voice
and data traffic and other telecommunications services to interexchange
carriers on a wholesale basis using primarily a digital broadband microwave
network located throughout a 12 state region, (iii) TCI's 40% equity interest
(representing a 85% voting interest) in United Video Satellite Group, Inc.
("UVSG"), which provides satellite-delivered video, audio, data and program
promotion services to cable television systems, satellite dish owners, radio
stations and private network users, primarily throughout North America, (iv)
TCI's 43% equity interest (representing a 75% voting interest) in At Home
Corporation ("@Home"), a provider of high speed multimedia Internet services,
and TCI's interest in other Internet-related assets and (v) other assets,
including ETC w/tci, Inc. ("ETC w/tci"), an 80% owned subsidiary of the Company
which is a developer and distributor of for-profit education, training and
communications services and products, National Digital Television Center, Inc.
("NDTC"), which provides digital compression and authorization services to
programming suppliers and to video distribution outlets and TCI Summitrak of
Texas, Inc. and TCI Summitrak L.L.C., ("Summitrak"), wholly owned subsidiaries
of the Company that provide an integrated network-based information management
system currently to certain of TCI's cable systems with plans to expand the
service to include third parties. The stocks of International, TCG and UVSG are
traded on the National Market tier of The Nasdaq Stock Market.
The TCI Ventures Group will not include any other business that uses
TCI's domestic cable network to distribute services to customers (e.g., cable,
telephony and Internet services). Such domestic "distribution" businesses will
continue to be attributed to the TCI Group.
(continued)
V-123
<PAGE> 345
"TCI VENTURES GROUP"
(a combination of certain assets)
General (continued)
The TCI Ventures Group would also include such other assets and
liabilities of the TCI Group as the Board may in the future determine to
attribute or sell to the TCI Ventures Group and such other businesses, assets
and liabilities as the Company or any of its subsidiaries may in the future
acquire for the TCI Ventures Group, as determined by the Board. It is currently
the intention of the Company that any businesses, assets and liabilities so
attributed to the TCI Ventures Group in the future would not include assets and
liabilities of the Company's domestic programming businesses and investments or
its domestic cable operations (including its businesses which utilize its cable
network to distribute telephony and Internet services).
The TCI Group is intended to reflect the performance of those
businesses of TCI not attributed to the Liberty Media Group (which is intended
to reflect the performance of TCI's business which produces and distributes
programming services) and the TCI Ventures Group. Collectively, the TCI Group,
the Liberty Media Group and the TCI Ventures Group are referred to as the
"Groups" and individually may be referred to herein as a "Group".
The common stockholders' equity value of TCI attributable to the TCI
Ventures Group that, at any relevant time, is attributed to the TCI Group, and
accordingly, not represented by outstanding TCI Ventures Group Stock is
referred to as "Inter-Group Interest". Prior to the issuance of any shares of
TCI Ventures Group Stock, the Inter-Group Interest of the TCI Group in the TCI
Ventures Group is 100%. As any shares of TCI Ventures Group Stock are issued
and distributed or sold, the TCI Group's Inter-Group Interest in the TCI
Ventures Group will be reduced accordingly.
While the TCI Ventures Group Stock constitutes common stock of TCI,
issuance of the TCI Ventures Group Stock will not result in any transfer of
assets or liabilities of TCI or any of its subsidiaries or affect the rights of
holders of TCI's or any of its subsidiaries' debt.
Holders of Series A TCI Group and Series B TCI Group common stock
("TCI Group Stock"), Series A Liberty Media Group and Series B Liberty Media
Group common stock ("Liberty Media Group Stock") and TCI Ventures Group Stock
(when issued) will be common stockholders of TCI and will be subject to risks
associated with an investment in TCI and all of its businesses, assets and
liabilities.
(continued)
V-124
<PAGE> 346
"TCI VENTURES GROUP"
(a combination of certain assets)
General (continued)
Contemporaneously with the mailing of a proxy statement to
shareholders for the shareholder approval of the TCI Ventures Group Stock
Proposal, the Company is commencing offers (the "Exchange Offers") to exchange
shares of Series A TCI Ventures Group Stock and Series B TCI Ventures Group
Stock for shares of Series A TCI Group Stock and shares of Series B TCI Group
Stock, respectively, (representing approximately 28-35% of the outstanding
shares of each such series) in the ratio of one share of the applicable series
of TCI Ventures Group Stock in exchange for each share of the corresponding
series of TCI Group Stock properly tendered. The Exchange Offers are subject,
among other conditions, to the approval by stockholders of the TCI Ventures
Group Stock Proposal. If such approval is obtained, the Company would
consummate the Exchange Offers promptly following the annual meeting.
The aggregate number of shares of TCI Ventures Group Stock being
offered in the Exchange Offers is intended initially to represent 100% of the
common stockholders' equity value of the Company attributable to the TCI
Ventures Group. Accordingly, if all of such shares were issued in the Exchange
Offers the Inter-Group Interest of the TCI Group would be reduced to zero. If
immediately following the consummation of the Exchange Offers the TCI Group has
any remaining Inter-Group Interest in the TCI Ventures Group, the Company will
extinguish such Inter-Group Interest in consideration of the attribution to the
TCI Group of a preferred equity interest in the TCI Ventures Group with a face
amount equal to the market value of the shares of TCI Ventures Group Stock not
issued in the Exchange Offers (which shall be deemed to be the same, on a per
share basis, as the market value of the Series A TCI Group Stock on the last
trading day preceding the closing of the Exchange Offers), a dividend rate of
5% per annum (with dividends being payable in kind until the fifth anniversary
of the closing of the Exchange Offers and a mandatory redemption obligation on
the 15th anniversary of the closing of the Exchange Offers.
In addition to the shares of TCI Ventures Group Stock to be issued in
the Exchange Offers, shares of Series A TCI Ventures Group Stock are being
reserved for issuance upon exchange subsequent to the closing of the Exchange
Offers of certain outstanding convertible notes issued by a subsidiary of the
Company. In lieu of a number of shares of Series A TCI Group Stock equal to
28%-35% of the number of shares of Series A TCI Group Stock currently issuable
upon exchange of such convertible notes, an equal number of shares of TCI
Ventures Group Common Stock would be issued upon such exchange.
Notwithstanding the attribution of assets and liabilities, equity and
items of income and expense among the TCI Group, the Liberty Media Group and
the TCI Ventures Group for the purpose of preparing the combined financial
statements of the TCI Group, the Liberty Media Group and the TCI Ventures
Group, the change in the capital structure of the Company contemplated by the
TCI Ventures Group Stock Proposal will not affect legal title to such assets or
responsibility for such liabilities of the Company or any of its subsidiaries.
Holders of TCI Group Stock, Liberty Media Group Stock and TCI Ventures Group
Stock will be common stockholders of the Company and will be subject to risks
associated with an investment in the Company and all of its businesses, assets
and liabilities.
(continued)
V-125
<PAGE> 347
"TCI VENTURES GROUP"
(a combination of certain assets)
General (continued)
Financial effects arising from one Group that affect the Company's
consolidated results of operations or financial condition could affect the
combined results of operations or financial condition of the other Groups and
the market price of the TCI Group Stock, the Liberty Media Group Stock and the
TCI Ventures Group Stock. In addition, any net losses of any Group, dividends
or distributions on, or repurchases of, the TCI Group Stock, the Liberty Media
Group Stock or the TCI Ventures Group Stock, and dividends on, or certain
repurchases of, preferred stock, will reduce funds of the Company legally
available for the payment of dividends on the TCI Group Stock, the Liberty
Media Group Stock and the TCI Ventures Group Stock. The combined financial
statements of the TCI Group, the Liberty Media Group and the TCI Ventures Group
should be read in conjunction with the consolidated financial statements of the
Company.
On January 25, 1996, the stockholders of UVSG adopted an agreement and
plan of merger dated as of July 10, 1995, as amended, among UVSG, TCI and TCI
Merger Sub, Inc. ("Merger Sub"), pursuant to which Merger Sub was merged into
UVSG, with UVSG as the surviving corporation (the "UVSG Merger"). TCI Ventures
Group acquired 12,373,294 shares of UVSG Class B common stock and 2,145,466
shares of UVSG Class A common stock, together representing approximately 40% of
the issued and outstanding common stock of UVSG and approximately 86% of the
total voting power of UVSG common stock immediately after the UVSG Merger,
resulting in UVSG becoming a majority-controlled subsidiary of TCI Ventures
Group.
On August 9, 1996, the TCI Ventures Group and Liberty Media Group
executed an amended and restated agreement under which UVSG and Liberty Media
Group contributed their retail C-band home satellite dish business' assets,
obligations and operations, effective April 1, 1996, to Superstar/Netlink Group
LLC, a new entity owned 50% each by TCI Ventures Group and Liberty Group (the
"Satellite Joint Venture"). The operations of the Satellite Joint Venture have
been consolidated, effective April 1, 1996, with the operating results of the
TCI Ventures Group.
On October 1, 1996, Cablevision S.A. ("Cablevision") acquired 99.99%
of the issued and outstanding capital stock of Oeste Cable Color S.A., a cable
television operation in the west of the greater Buenos Aires metropolitan area,
for a purchase price of $112.2 million (the "OCC Acquisition"). Cash
consideration of $43.7 million was paid at closing and an additional cash
payment of $22.1 million was paid on December 1, 1996. Cablevision incurred
additional bank debt of approximately $45 million in order to fund such cash
payments. The remaining purchase price was satisfied by Cablevision's issuance
of $46.4 million principal amount of secured negotiable promissory notes.
(continued)
V-126
<PAGE> 348
"TCI VENTURES GROUP"
(a combination of certain assets)
General (continued)
In January 1997, TCI Ventures Group reduced its voting interest in
Flextech p.l.c. ("Flextech") to 50% by issuing to a nominee an irrevocable
proxy (the "Proxy") to vote 960,850 Flextech ordinary shares ("Flextech
Ordinary Shares") at any shareholder meeting to be held through December 31,
1997. In April 1997, Flextech and BBC Worldwide Limited formed two separate
joint ventures (the "BBC Joint Ventures") and entered into certain related
transactions. The consummation of the BBC Joint Ventures and related
transactions resulted in, among other things, a reduction of TCI Ventures
Group's ownership interest in Flextech to 35.9% and the issuance to TCI
Ventures Group by Flextech of a special voting share (the "Special Voting
Share"). The Special Voting Share when combined with TCI Ventures Group's other
share capital in Flextech, allows TCI Ventures Group to cast 50% of the votes
on most matters brought to the shareholders of Flextech for vote. So long as
the Proxy remains outstanding, TCI Ventures Group's 50% voting interest will be
reduced by the 960,850 votes represented by the Proxy. The Special Voting Share
will terminate upon the occurrence of the earlier of (i) the third anniversary
of issuance or (ii) any transfer of Flextech shares by TCI Ventures Group
outside a specified affiliated group. In light of TCI Ventures Group's
decreased voting interest in Flextech, TCI Ventures Group, effective January 1,
1997, ceased to combine Flextech and began to account for Flextech using the
equity method of accounting.
(continued)
V-127
<PAGE> 349
"TCI VENTURES GROUP"
(a combination of certain assets)
Material Changes in Results of Operations
The following table sets forth certain financial information for the
TCI Ventures Group and each of the combined businesses attributed to it:
<TABLE>
<CAPTION>
Three months ended March 31,
------------------------------------------------
1997 1996
----------------------- ---------------------
Amount % Amount %
------------- ------ ----------- ------
dollar amounts in thousands
<S> <C> <C> <C> <C>
Revenue:
UVSG $ 122,876 50% 50,163 31%
International 65,611 27 62,624 39
ETC w/tci 23,560 9 21,705 14
NDTC 24,013 10 16,703 10
WTCI 9,095 4 8,730 6
@Home 809 -- -- --
Summitrak -- -- -- --
Other 1,056 -- 337 --
------------- ------ ----------- ------
$ 247,020 100% 160,262 100%
============= ====== =========== ======
Operating, selling, general,
administrative and stock
compensation:
UVSG $ 100,902 49% 39,664 30%
International 40,479 20 45,801 35
ETC w/tci 25,917 13 23,018 18
NDTC 12,396 6 10,168 8
WTCI 5,681 3 5,389 4
@Home 8,326 4 3,122 2
Summitrak 898 -- 993 1
Other 11,392 5 2,268 2
------------- ------ ----------- ------
$ 205,991 100% 130,423 100%
============= ====== =========== ======
Depreciation and amortization:
UVSG $ 8,736 21% 3,966 13%
International 15,713 38 12,126 41
ETC w/tci 1,838 5 743 3
NDTC 7,103 17 7,443 25
WTCI 2,124 5 2,965 10
@Home 1,574 4 27 --
Summitrak 3,983 10 2,035 7
Other 73 -- 225 1
------------- ------ ----------- ------
$ 41,144 100% 29,530 100%
============= ====== =========== ======
Operating income (loss):
UVSG $ 13,238 n/a 6,533 n/a
International 9,419 4,697
ETC w/tci (4,195) (2,056)
NDTC 4,514 (908)
WTCI 1,290 376
@Home (9,091) (3,149)
Summitrak (4,881) (3,028)
Other (10,409) (2,156)
------------- -----------
$ (115) 309
============= ===========
</TABLE>
(continued)
V-128
<PAGE> 350
"TCI VENTURES GROUP"
(a combination of certain assets)
Material Changes in Results of Operations (continued)
Revenue
Revenue increased by $87 million or 54% during the three months ended
March 31, 1997 as compared to the same period in 1996. Such increase
principally results from growth from acquisitions consummated subsequent to
January 1, 1996 net of the impact of the deconsolidation of Flextech in January
of 1997.
Revenue from UVSG increased by $73 million or 145% during the three
months ended March 31, 1997 compared to revenue of $50 million for the three
months ended March 31, 1996. The increased revenue for the quarter was
primarily due to the inclusion of UVSG for two months in 1996 versus three
months in 1997 as well as $40 million of additional revenue attributable the
Satellite Joint Venture.
International revenue increased $3 million or 5% during the three
months ended March 31, 1997 as compared to the corresponding prior year period.
Such amount was comprised of an increase in cable revenue of $16 million or
32%, net of programming revenue from Flextech amounting to $13 million for the
three months ended March 31, 1996. The cable revenue increase is primarily
attributable to revenue amounting to $8 million associated with the OCC
Acquisition and a 10% increase in Cablevision's average number of basic
subscribers.
Operating Costs and Expenses
Operating costs and expenses, excluding depreciation and amortization,
increased $76 million or 58% during the three months ended March 31, 1997 as
compared to the same period of 1996. Such increases were similarly the result
of acquisitions net of the impact of the deconsolidation of Flextech.
Operating costs and expenses, excluding depreciation and amortization,
from UVSG increased by $61 million or 154% during the three months ended March
31, 1997 compared to operating costs and expenses of $40 million for the three
months ended March 31, 1996. Such increased costs for the quarter were
primarily due to the inclusion of UVSG for two months in 1996 versus three
months in 1997 as well as $36 million of additional costs attributable to the
inclusion of the Satellite Joint Venture only during 1997.
International costs and expenses, excluding depreciation and
amortization, decreased $5.3 million or 12% during the three months ended March
31, 1997 compared to the corresponding prior period, including $15 million of
costs and expenses from Flextech for the three months ended March 31, 1996.
International cable expenses increased $9 million during the three months ended
March 31, 1997.
(continued)
V-129
<PAGE> 351
"TCI VENTURES GROUP"
(a combination of certain assets)
Material Changes in Results of Operations (continued)
Certain TCI corporate general and administrative costs are charged to
TCI Ventures Group at rates set at the beginning of the year based on projected
utilization for that year. The utilization-based charges are set at levels that
management believes to be reasonable and that approximate the costs TCI
Ventures Group would incur for comparable services on a stand alone basis.
During each of the three months ended March 31, 1997 and 1996, TCI Ventures
Group was allocated $2 million in corporate general and administrative costs by
TCI Group.
The $12 million or 39% increase in depreciation and amortization
expense during the three months ended March 31, 1997, as compared to the
corresponding prior year period, is the result of a net increase in the TCI
Ventures Group's assets that are subject to depreciation and amortization. The
increases in such assets that are attributable to acquisitions and capital
expenditures more than offset the decrease of $1 million that is attributable
to the deconsolidation of Flextech.
Other Income and Expense
Telewest Communications plc ("Telewest"), which is currently
constructing broadband cable television and telephony networks in the United
Kingdom ("UK"), has incurred losses since its inception. It is expected that
the current construction requirements of Telewest will be substantially
complete by the end of the year 2000. The TCI Ventures Group's share of
Telewest's net losses increased $11.1 million or 36% during the three months
ended March 31, 1997, as compared to the corresponding prior year period. Such
increase is primarily attributable to increases in depreciation and
amortization, interest expense and foreign currency transaction losses. In
connection with a previous merger transaction, Telewest issued United States
(sometimes referred to herein as the "U.S.") dollar denominated senior
debentures ("Telewest Debentures"). Changes in the exchange rate used to
translate the Telewest Debentures into UK pounds sterling and the adjustment of
a foreign currency option contract to market value caused Telewest to
experience unrealized foreign currency transaction losses of (pound)24.1
million ($40.5 million using the applicable exchange rate) and (pound)16.7
million ($25.6 million using the applicable exchange rate) during the three
months ended March 31, 1997 and 1996, respectively. It is anticipated that
Telewest will continue to experience realized and unrealized foreign currency
transaction gains and losses throughout the term of the Telewest Debentures,
which mature in 2006 and 2007, if not redeemed earlier.
(continued)
V-130
<PAGE> 352
"TCI VENTURES GROUP"
(a combination of certain assets)
Material Changes in Results of Operations (continued)
The PCS Ventures include Sprint Spectrum Holding Company, L.P. and
MinorCo, L.P. (collectively, "Sprint PCS" or the "Sprint PCS Partnership", and
PhillieCo, L.P. ("PhillieCo"). The partners of each of the Sprint PCS
Partnerships are subsidiaries of Sprint Corporation ("Sprint"), Comcast
Corporation ("Comcast"), Cox Communications, Inc. ("Cox") and the Company. The
partners of PhillieCo are subsidiaries of Sprint, Cox and the Company. The
Company, through TCI Telephony, has a 30% interest as a partner in each of the
Sprint PCS Partnerships and a 35.3% interest as a partner in PhillieCo. The
share of losses from the TCI Ventures Group's investment in the PCS Ventures
was $64 million for the three months ended March 31, 1997 which represents an
increase of $44 million as compared to 1996. The increase in the share of
losses is attributed primarily to general and administrative costs associated
with the start-up of operations and Sprint Spectrum's share of losses in
American PCS L.P. The PCS Ventures are in the development stage of operations.
It is expected that Sprint PCS will continue to incur significant operating
losses and significant negative cash flow from operating activities during the
next several years while it develops and constructs its PCS network and builds
its customer base. If and when Sprint PCS has successfully completed its
network buildout, Sprint PCS's operating profitability will depend upon many
factors, including, among others, its ability to market its products and
services successfully, achieve its projected market penetration, manage
customer turnover rates effectively and price its products and services
competitively. There can be no assurance that Sprint PCS will achieve or
sustain operating profitability or positive cash flow from operating activities
in the future. If Sprint PCS does not achieve and maintain operating
profitability and positive cash flow from operating activities on a timely
basis, it may not be able to meet its debt service requirements.
The share of losses from the TCI Ventures Group's investment in
Teleport was $14 million for the three months ended March 31, 1997 which
represents a $6 million increase as compared to 1996. The increase in the share
of losses is largely attributed to costs incurred by Teleport in the expansion
of their local telecommunications networks, increased depreciation expense and
increased interest expense partially offset by an increase in
telecommunications services revenue attributed to increased sales of services
in existing and new markets. Teleport has incurred net losses since its
inception due to capital expenditures associated with the acquisition,
installation, development and expansion of its existing and new
telecommunications networks and the associated initial operating expenses of
such networks. These networks generally incur negative cash flow from operating
activities and operating losses until an adequate customer base and revenue
stream for such networks have been established. TCI expects that Teleport will
continue to incur net losses for the foreseeable future as it acquires,
installs, develops and expands its existing and new telecommunications
networks. There can be no assurance that Teleport will achieve or sustain
profitability or generate sufficient positive cash flow to service its debt.
The TCI Ventures Group's share of the losses of the affiliates other
than Telewest, PCS Ventures and Teleport increased $1 million or 2% during the
three months ended March 31, 1997, as compared to the corresponding prior year
period. Such increase is primarily attributable to increased losses of
Liberty/TINTA LLC, Jupiter Telecommunications Co., Ltd. and MultiThematiques
S.A. ("MultiThe-matiques"). As previously described, the TCI Ventures Group,
effective January 1, 1997, ceased to combine Flextech and began to account for
Flextech using the equity method of accounting.
(continued)
V-131
<PAGE> 353
"TCI VENTURES GROUP"
(a combination of certain assets)
Material Changes in Results of Operations (continued)
In February 1997, TSX Corporation ("TSX"), an equity affiliate of the
TCI Venture Group, and Antec Corporation ("Antec") entered into a business
combination with Antec being the surviving entity. In connection with this
transaction, the TCI Ventures Group recognized a $28.9 million gain
representing the difference between the fair value of the Antec shares received
and the carrying value of its investment in TSX at the date of the transaction.
Upon completion of this transaction, the TCI Ventures Group holds an
approximate 16% ownership interest in Antec.
International sustained a net loss of $33 million for the three months
ended March 31, 1997, which includes International and its consolidated
subsidiaries' share of the losses of its affiliates of $64 million, for the
three months ended March 31, 1997. Most of International's affiliates have
incurred net losses since their respective inception dates and are expected to
continue to incur net losses for the foreseeable future. International expects
to continue to incur net losses for the foreseeable future due, in part, to the
relatively high level of depreciation and amortization that is common to growth
oriented companies operating within the capital intensive cable industry. Any
improvements in the results of operations of International are largely
dependent upon the ability of International's operating subsidiaries and
affiliates to increase their respective subscriber bases. No assurance can be
given that any such subscriber base increases will occur.
@Home has incurred net losses since its inception. Management of @Home
expects to incur significant additional losses as @Home continues to devote
capital to the building of its national network operations and services. To
achieve profitability, @Home must develop and market products and services
which are accepted on a broad commercial basis. @Home's products have not yet
demonstrated that they will achieve broad commercial acceptance. There can be
no assurance that @Home will ever achieve profitability.
The TCI Ventures Group's net loss of $77.3 million for the three
months ended March 31, 1997 represents an increase of $22.7 million, as
compared to the TCI Ventures Group's net loss of $54.6 million for the three
months ended March 31, 1996. Such change is primarily the net result of
increases in share of losses of affiliates offset by the gain recognized in the
TSX and Antec merger.
Material Changes in Financial Condition
Substantially all of the businesses in which the TCI Ventures Group
has investments will require significant additional capital in order to develop
their respective businesses and assets, to fund future operating losses and to
fund future growth. In certain cases, principally with respect to the Sprint
PCS Partnerships, the TCI Ventures Group has contractual commitments pursuant
to which (subject to certain conditions) it may be required to make additional
capital contributions to the entities in which it has investments.
(continued)
V-132
<PAGE> 354
"TCI VENTURES GROUP"
(a combination of certain assets)
Material Changes in Results of Operations (continued)
The Sprint PCS Partners, including TCI Telephony, have agreed to
contribute up to an aggregate of approximately $4.2 billion of equity to Sprint
PCS from inception through fiscal 1999 (of which TCI Telephony's share is
approximately $1.3 billion) if and to the extent required by annual budgets of
Sprint PCS for fiscal years in such period approved by the Sprint PCS Partners
or requested during such period by the affirmative vote of Sprint PCS Partners
with percentage interests in Sprint PCS of 75% or more in the aggregate. As of
March 31, 1997 approximately $3.0 billion of such $4.2 billion had been
contributed to Sprint PCS, of which amount TCI Telephony had contributed
approximately $900 million. TCI Telephony currently expects that the remaining
approximately $1.2 billion of such amount (of which TCI Telephony's share would
be approximately $360 million) will be contributed by the Sprint PCS Partners
by the end of the second quarter of 1998 (although there can be no assurance
that any additional capital will be contributed by any or all of the Sprint PCS
Partners). In addition, in connection with certain debt financings by Sprint
Spectrum, the corporate parents of the Sprint PCS Partners (TCI, Cox, Comcast
and Sprint, collectively, the "Sprint PCS Parents") entered into a capital
contribution agreement with Sprint Spectrum (the "Capital Contribution
Agreement"), of which the secured creditors in such debt financings are
beneficiaries, pursuant to which each Sprint PCS Parent agreed to make certain
contributions, or cause contributions to be made, to Sprint Spectrum from time
to time upon the occurrence of certain events (including a payment default
under or acceleration of Sprint Spectrum's obligation pursuant to the debt
financings agreements) up to a maximum aggregate amount determined in
accordance with a formula. The obligations of TCI under the Capital
Contribution Agreement have been attributed to the TCI Ventures Group. As of
March 31, 1997, approximately $500 million in cash of such agreed contributions
under the Capital Contribution Agreement had been contributed directly or
indirectly to Sprint Spectrum (of which TCI contributed approximately $150
million), thereby reducing the Sprint PCS Parents' respective obligations under
the Capital Contribution Agreement by such amount and reducing TCI's obligation
to approximately $150 million as of December 31, 1996. Based on the currently
expected timing of additional contributions to Sprint PCS (including the
currently expected timing of Sprint PCS's expected capital contributions to APC
and Cox PCS and to its subsidiaries other than Sprint Spectrum and its
subsidiaries), TCI does not expect that its obligations under the Capital
Contribution Agreement will result in the obligation to make any incremental
capital contributions to Sprint PCS in addition to TCI Telephony's pro rata
portion of the balance of the $4.2 billion that the Sprint PCS Partners have
agreed to contribute.
(continued)
V-133
<PAGE> 355
"TCI VENTURES GROUP"
(a combination of certain assets)
Material Changes in Financial Condition (continued)
The TCI Ventures Group's ability to obtain sufficient capital
resources to make its expected additional capital contributions to the Sprint
PCS Ventures and other entities in which it has investments will be limited
because WTCI and NDTC are the only entities included in the TCI Ventures Group
which conduct operations directly within the TCI Ventures Group and such
entities are currently the TCI Ventures Group's only source of revenue or cash
provided by operating activities. TCI could raise additional capital for the
TCI Ventures Group by, among other things, engaging in public offerings or
private placements of TCI Ventures Group Stock or through issuance of debt
securities or preferred equity securities attributed to the TCI Ventures Group.
The TCI Ventures Group anticipates that for the foreseeable future it will
continue to be dependent upon funding from the TCI Group and, to the extent
available, from external sources. To satisfy this need, the Company has agreed
to provide a revolving loan facility (the "Credit Facility") to TCI Ventures
Group for a five-year period commencing on the closing of the Exchange Offers.
Such facility would permit aggregate borrowings at any one time outstanding of
up to $500 million (subject to reduction as provided below), which borrowings
would bear interest at a rate per annum equal to The Bank of New York's prime
rate (as in effect from time to time) plus 1% per annum, payable quarterly. A
commitment fee equal to 3/8% per annum of the average unborrowed availability
under the Revolving Credit Facility would be payable by the TCI Ventures Group
to the TCI Group on a quarterly basis. The maximum amount of borrowings
permitted under the Credit Facility will be reduced on a dollar-for-dollar
basis by up to $300 million if and to the extent that the aggregate amount of
any additional capital that TCI Ventures Group is required to contribute to
Sprint PCS Partnerships subsequent to the closing of the Exchange Offers is
less than $300 million. If the available borrowings under the Credit Facility
are not sufficient to fund the TCI Ventures Group's capital requirements, no
assurance can be given that the TCI Ventures Group will be able to obtain any
required additional financing on terms acceptable to it, or at all.
The majority of the TCI Ventures Group entities currently have
significant capital requirements and TCI expects such entities will continue to
have significant capital requirements for the foreseeable future. TCI Ventures
Group's businesses and investments consist of entities which require the
acquisition, ownership, development and operation of broadband cable television
and telephony distribution networks and new programming services, all of which
require substantial capital investment. The buildout of Sprint PCS's network
and the development of @Home's network infrastructure and the development,
marketing and distribution of their respective products and services will
require substantial capital. Although Teleport has been operating its networks
for over ten years, its continuous acquisition, development and expansion of
its existing and new networks and services also require significant capital
expenditures.
(continued)
V-134
<PAGE> 356
"TCI VENTURES GROUP"
(a combination of certain assets)
Material Changes in Financial Condition (continued)
International expects to have substantial capital requirements for the
foreseeable future because its businesses and investments consist of entities
which require the acquisition, ownership, development and operation of
broadband cable television and telephony distribution networks and new
programming services. Many of International's subsidiaries and affiliates are
incurring substantial costs as they build or rebuild their cable networks or
develop and acquire programming. Until such companies begin generating profits
and positive cash flow from operating activities, they will need additional
capital to fund capital expenditures and working capital requirements.
International and its consolidated subsidiaries have commitments under various
partnership and other funding agreements to contribute capital or loan money to
fund capital expenditures and other capital requirements of certain affiliates.
International believes that its actual future cash requirements in order to
fund the capital expenditures and working capital requirements of its
subsidiaries and affiliates will exceed the sum of the amounts that
International and its consolidated subsidiaries are currently contractually
obligated to fund and such additional funding commitments that International
and its consolidated subsidiaries are currently negotiating. Further,
International's business strategy requires that it have the ability to access
or raise sufficient funds to allow it to take advantage of new acquisition and
joint venture opportunities as they arise, which management of International
believes will require the availability of substantial additional funds.
Although International has $134 million proceeds remaining from the sale of its
4 1/2% Convertible Subordinated Debentures due 2006 which were issued in
February 1996 (the "International Debentures") (which remaining proceeds have
been loaned to TCI pursuant to an unsecured promissory note pending its use by
International) and has a $200 million credit facility ("International Credit
Facility") with the TCI Ventures Group, International's ability to otherwise
obtain debt financing to assist its operating companies and to meet its capital
obligations at other than the subsidiary level will be limited because
International does not conduct any operations directly. No assurance can be
given that International will be able to meet its commitments to its
subsidiaries and affiliates or to fund its operations or liquidity requirements
through the receipt of cash distributions or other advances from its
subsidiaries or affiliates. The only subsidiary of International from which it
presently is able to obtain funds is the subsidiary which owns International's
interest in the Puerto Rico cable systems (the "Puerto Rico Subsidiary").
International believes that the remaining consolidated operating activities of
International will produce net cash flow deficits for the foreseeable future.
Accordingly, International anticipates that it will be dependent upon its
current levels of cash and cash equivalents (exclusive of amounts held by its
subsidiaries), the remaining proceeds from the sale of the International
Debentures and borrowings under the International Credit Facility to meet its
liquidity requirements, including its commitments to its subsidiaries and its
affiliates, for the foreseeable future. To the extent that International seeks
to make significant additional acquisitions or significant new investments or
is required to meet significant future liquidity requirements, International
anticipates that it will need to obtain additional financing.
(continued)
V-135
<PAGE> 357
"TCI VENTURES GROUP"
(a combination of certain assets)
Material Changes in Financial Condition (continued)
@Home is incurring substantial operating expenses and making
significant capital expenditures (including the development of its network
infrastructure and hiring new personnel) in anticipation of growth in its
business, which is in a very early state of development. As of March 31, 1997
there were minimal subscribers to its @Home services. @Home believes that it
has raised sufficient capital through private issuances of equity to meet its
currently projected network infrastructure investment and implementation and
working capital needs until the end of 1997. However, @Home may need to raise
additional funds if its estimates of working capital and/or capital expenditure
and/or lease financing requirements change or prove inaccurate or in order for
@Home to respond to unforeseen technological or marketing hurdles or to take
advantage of unanticipated opportunities, and @Home will require significant
additional capital in the future to fund @Home's infrastructure investment,
product development, marketing, sales and customer support needs. @Home
currently does not have and will not have for the foreseeable future operating
income to meet its capital requirements. Currently all of @Home's capital
requirements have been met by equity investments in @Home. While TCI Ventures
Group has no outstanding contractual obligation to provide capital to @Home, if
@Home is not able to find additional capital from third parties on attractive
terms, it is likely that TCI Ventures Group will need to invest additional
amounts, which may be significant, to fund the capital expenditures and working
capital requirements of @Home.
Certain terms of the relationship between TCI and @Home could create a
situation in which the TCI Ventures Group's interest in @Home is adversely
affected by the TCI Group's performance in the distribution of the @Home
services over TCI's cable systems. For example, under the terms of the @Home
stockholders agreement, if during the period when the @Home exclusivity
provisions are still in effect, TCI ceases to control at least 80% of the
number of homes passed it controlled as of June 4, 1996, TCI will be required
to offer to sell a proportionate amount of its equity in @Home to the other
@Home principal stockholders at fair market value. In addition, if TCI does not
meet certain subscriber penetration levels by June 4, 1999, or any anniversary
thereof, the other @Home principal cable stockholders may terminate all
exclusivity obligations of the @Home principal cable stockholders, which
termination could have a material adverse effect on @Home. Because TCI's
investment in @Home is attributed to the TCI Ventures Group and TCI's business
of distributing @Home's Internet services to customers through TCI's cable
systems is attributed to the TCI Group, the TCI Ventures Group could be forced
to sell all or a portion of its interest in @Home or the value of its
investment in @Home could be adversely affected through the loss of
exclusivity, in each case due to behavior of the TCI Group, which the TCI
Ventures Group cannot control.
There can be no assurance that any of the foregoing entities will be
successful in generating sufficient cash flow from operating activities or
raising debt or equity capital in sufficient amounts or on terms acceptable to
it to be able to meet their respective capital requirements. There is also no
assurance that the anticipated capital requirements described above will not
significantly increase due to changing circumstances, such as unanticipated
opportunities, technological or marketing hurdles, unanticipated expenses, and
the like. The failure to generate sufficient cash flow from operating
activities or to raise sufficient funds may require such entity to delay or
abandon some or all of its development and expansion plans.
(continued)
V-136
<PAGE> 358
"TCI VENTURES GROUP"
(a combination of certain assets)
Material Changes in Financial Condition (continued)
Many of the TCI Ventures Group entities, such as Sprint PCS and
several of the operating companies in which International has interests, are
governed by partnership and other agreements that require TCI (directly or
through its subsidiaries and affiliates which hold the investment in the
applicable business) to contribute capital or make loans to such businesses.
The failure of TCI or such subsidiary or affiliate to meet its capital
commitments to a particular operating Company may have adverse consequences to
the TCI Ventures Group. Such consequences may include, among others, (i) a
breach of contract action for damages against TCI (or such subsidiary or
affiliate), (ii) the dilution of TCI's (or such subsidiary or affiliate's)
interest in such operating Company, (iii) the loss of any management rights in
such entity (such as a right to elect one or more directors), (iv) the right of
the other investors in such operating Company to force TCI (or such subsidiary
or affiliate) to sell its interest at less than fair value or (v) the forced
dissolution of such operating Company.
Neither PCS systems nor Internet services have any significant
commercial operating history in the United States, and there can be no
assurance that operation of either of these businesses will become profitable.
The inability of Sprint PCS or @Home to establish service or to obtain
appropriate equipment for its respective system could have a material adverse
effect on its financial condition and results of operations. Both Sprint PCS
and @Home are relying on new products and technologies to operate their
services which have not yet been widely tested on a commercial basis. Failure
of such products and technologies to operate in the manner expected by such
entity, or any delay or inability to obtain a sufficient quantity of such
products at acceptable price and performance levels could delay or impair the
expansion of such entity's business.
Both the wireless telecommunications industry and the Internet
services industry are experiencing significant technological change, evolving
industry standards, ongoing improvements in the capacity and quality of such
services, frequent new product and service introductions and enhancements and
changes in end-user requirements and preferences. Accordingly, demand and
market acceptance for recently introduced products and services are subject to
a high level of uncertainty. With respect to PCS, there is uncertainty as to
the extent of customer demand as well as the extent to which airtime and
monthly access rates may continue to decline. With respect to Internet
services, critical issues concerning the commercial use of the Internet remain
unresolved and may impact the growth of Internet use, especially in the
business market targeted by @Home. Despite growing interest in the many
commercial uses of the Internet, many businesses have been deterred from
purchasing Internet access services for a number of reasons, including
inconsistent quality of service, lack of availability of cost-effective,
high-speed options, a limited number of local access points for corporate
users, inability to integrate business applications on the Internet, and
inadequate protection of the confidentiality of stored data and information
moving across the Internet. There can be no assurance that @Home's service will
be able to meet any or all of these concerns. Market acceptance of @Home's
services is substantially dependent upon the adoption of the Internet for
commerce and communications. If either of @Home's or Sprint PCS's market fails
to develop, develops more slowly than expected, or becomes highly competitive,
such entity's business, operating results and financial condition may be
materially adversely affected. For the foregoing reasons, the future prospects
of the PCS and Internet services industries and of Sprint PCS and @Home remain
uncertain.
(continued)
V-137
<PAGE> 359
"TCI VENTURES GROUP"
(a combination of certain assets)
Material Changes in Financial Condition (continued)
With respect to the TCI Ventures Group's investments in entities in
which TCI does not have a controlling interest, TCI (either directly or through
its affiliates) has for the most part, attempted to structure such investments
in a manner that allows it to influence management decisions (including through
representation on the board of directors or other governing body and veto
rights (alone or with one or more strategic investors) over significant
business decisions); however, as is the case with the TCI Ventures Group's
interests in Sprint PCS, Teleport and many of the operating companies in which
International has interests, TCI will often be unable to direct the operations,
strategies, and financial decisions of the companies in which it has acquired
an interest without the concurrence of one or more of its partners or other
co-investors. Moreover, the ability of TCI to pledge, sell or otherwise dispose
of its interest in many of the operating companies in which it has investments
is subject to shareholder or similar agreements that severely limit the ability
of the parties (including TCI) to transfer their equity interests. Accordingly,
the TCI Ventures Group may not be able to cause its subsidiaries or affiliates
to make distributions when it may have a need for such distributions and may
not be able to timely dispose of its investment in many of its operating
companies if required for financial or other reasons.
In addition, the structure of the governance of several of the TCI
Ventures Group entities allows for situations in which the failure of the
directors or general partners of an entity to agree on certain issues may give
rise to a "deadlock event," which, if unresolved after a certain period of
time, may require the dissolution or liquidation of such entity. There can be
no assurance that such a deadlock event will not occur or if such event does
occur, that resolution procedures will be successful or that such deadlock
event will not have a material adverse effect on the value of the TCI Ventures
Group's interest in such entity.
Although the TCI Ventures Group currently holds a controlling voting
interest in International, TCI is unable to control the operating companies in
which International has an interest because International is limited in its
ability to control such operating companies. International has invested in most
of its subsidiaries and affiliates with strategic and local partners. It is
likely that financial and operational considerations, as well as laws that
limit foreign equity positions, will require International to continue to make
future investments in its operating companies with strategic and local
partners. Many foreign countries limit foreign investment to a minority equity
position or require the board of directors to be largely independent, which can
result in International having diminished ability to implement strategies that
International may favor, or cause dividends or distributions to be paid.
(continued)
V-138
<PAGE> 360
"TCI VENTURES GROUP"
(a combination of certain assets)
Material Changes in Financial Condition (continued)
Several of the TCI Ventures Group entities, including Teleport,
International and Sprint PCS, are holding companies. As such, the ability of
such holding companies to meet their respective financial obligations and their
funding and other commitments to their respective subsidiaries and affiliates,
is dependent upon the cash provided by operating activities of such
subsidiaries and affiliates and the distribution or other payment of such
amounts to such holding companies in the form of dividends, loans or other
advances, payment or reimbursement for management fees and expenses from their
respective subsidiaries and affiliates, or repayment of loans and advances from
such holding companies. Accordingly, such holding companies' ability to meet
their respective liquidity requirements is severely limited as a result of
their dependence upon the distribution and advances of funds by their
respective subsidiaries and affiliates. The payment of dividends or the making
of loans or advances to such holding companies by their respective subsidiaries
and affiliates may be subject to statutory, regulatory or contractual
restrictions, are contingent upon the earnings of those subsidiaries and
affiliates , and are subject to various business considerations. Distributions
or other payments from foreign subsidiaries and affiliates to International may
also be subject to restrictions on expatriation of funds or adverse currency
exchange rates and, in the case of subsidiaries or affiliates that are located
in countries where United States does not have a tax treaty, to increased
withholding taxes. Moreover, in certain cases, such holding companies do not
have voting control over many of the entities in which they have ownership
interests and such entities will have no obligation, contingent or otherwise,
to make any funds available to such holding companies, whether by dividends,
advances, loans or other payments. Certain of the subsidiaries or affiliates of
such holding companies are, or may in the future be, subject to loan agreements
that prohibit or limit the transfer of funds to such holding companies in the
form of dividends, loans, or advances and/or require that any indebtedness of
such subsidiaries or affiliates to such holding companies by subordinate to the
indebtedness under such loan agreements. Further, any right of each of such
holding companies as an equity holder to participate in the distribution of the
assets of any of its subsidiaries upon liquidation or reorganization will be
subject to the prior claims of the creditors (including trade creditors) of
such subsidiary. To date, neither Sprint PCS, Teleport, nor International has
received any significant distributions or advances from any of its subsidiaries
or affiliates. Accordingly, each of such entities has had to rely on outside
sources for financing.
(continued)
V-139
<PAGE> 361
"TCI VENTURES GROUP"
(a combination of certain assets)
Material Changes in Financial Condition (continued)
Many of the TCI Ventures Group entities operate in industries,
primarily the telecommunications industry, which have experienced and are
expected to continue to experience rapid and significant changes in technology.
The degree to which these changes will affect such entities and the ability of
such entities to compete in their respective businesses cannot be predicted.
Also, alternative technologies may develop for the provision of services
similar to those provided by such entities. Such entities may be required to
select in advance one technology over another, but it will be impossible to
predict with any certainty, at the time such entity is required to make its
investment, which technology will prove to be the most economic, efficient or
capable of attracting customer usage.
The TCI Ventures Group is exposed to unfavorable and potentially
volatile fluctuations of the U.S. dollar (the functional currency of TCI
Ventures Group) against the UK pound sterling, the Japanese yen ("(Y)"), the
Argentine peso and various other foreign currencies that are the functional
currencies of certain of the TCI Ventures Group's operating subsidiaries and
affiliates. Since the enactment of a convertibility plan in April 1991, the
Argentine government has maintained an exchange rate of one Argentine peso to
one U.S. dollar. No assurance can be given that such an exchange rate will be
maintained in future periods.
Because the TCI Ventures Group's functional currency is the U.S.
dollar, any increase or decrease in the value of the U.S. dollar against any
foreign currency in which the TCI Ventures Group has funding commitments
effectively reduces or increases the U.S. dollar equivalent of such funding
commitments. At the same time, any increase or decrease in the value of the
U.S. dollar against any foreign currency that is the functional currency of an
operating subsidiary or affiliate of TCI Ventures Group will cause the TCI
Ventures Group to experience unrealized foreign currency translation losses or
gains with respect to amounts already invested in such foreign currencies.
The TCI Ventures Group and certain of its operating subsidiaries and
affiliates are also exposed to foreign currency risk to the extent that they
enter into transactions denominated in currencies other than their respective
functional currencies. In this regard, the TCI Ventures Group has experienced
realized and unrealized currency gains and losses with respect to (i) the UK
pound sterling denominated loans made by an indirect subsidiary of TCI Ventures
Group to Flextech and (ii) the TCI Ventures Group's French franc denominated
obligation (the "MultiThematiques Obligation") to make capital contributions to
MultiThematiques. In addition, Telewest has experienced realized and unrealized
foreign currency transaction gains and losses with respect to the Telewest
Debentures.
(continued)
V-140
<PAGE> 362
"TCI VENTURES GROUP"
(a combination of certain assets)
Material Changes in Financial Condition (continued)
Because TCI Ventures Group generally views its foreign operating
subsidiaries and affiliates as long-term investments, the TCI Ventures Group
generally does not attempt to hedge existing investments in its foreign
affiliates and subsidiaries. With respect to funding commitments that are
denominated in currencies other than the U.S. dollar, the TCI Ventures Group
historically has sought to reduce its exposure to short-term (generally no more
than 90 days) movements in the applicable exchange rates once the timing and
amount of such funding commitments become fixed. Although the TCI Ventures
Group monitors foreign currency exchange rates with the objective of mitigating
its exposure to unfavorable fluctuations in such rates, the TCI Ventures Group
believes that, given the nature of its business, it is not possible or
practical to eliminate the TCI Ventures Group's exposure to unfavorable
fluctuations in foreign currency exchange rates.
On November 20, 1995, TCI Ventures Group announced its intention to
form strategic partnerships with News Corp., Organizacoes Globo and Grupo
Televisa S.A. for the development and operation of a direct-to-home satellite
service for Latin America, Mexico, and various Central and South American
countries (collectively, the "DTH Ventures"). It is anticipated that TCI
Ventures Group could be required to make cash contributions totaling $46
million over the next three years in connection with the DTH Ventures.
On April 19, 1996, International, Torneos y Competencias S.A.
("Torneos") and the Torneos stockholders from whom International previously
acquired its 35% interest entered into an agreement (the "International/Torneos
Sports Agreement") whereby International agreed to make minimum periodic
payments from 1996 through 2004 aggregating $235.2 million to acquire certain
rights and considerations, including the exploitation rights to all sports
rights owned by Torneos with the exception of any rights which at that time had
been contractually committed to any third party.
Pending the assignment of the rights under the International/Torneos
Sports Agreement which fit within the geographic area and business plan of a
joint venture ("Sports Venture") formed among TCI Ventures Group, Liberty Media
Group and News Corporation Limited ("News Corp.") (the "Sports Venture Rights")
to the Sports Venture, TCI Ventures Group, News Corp. and Liberty Media Group
have paid their respective portion of any payments made with respect to the
Sports Venture Rights. Through March 31, 1997, payments made under the
International/Torneos Sports Agreement totaled $20.1 million.
The TCI Ventures Group and/or other subsidiaries of TCI have
guaranteed notes payable and other obligations of certain of the TCI Ventures
Group's affiliates. At March 31, 1997, the U.S. dollar equivalent of the
amounts borrowed pursuant to the Guaranteed Obligations was $16.6 million. The
TCI Ventures Group also has guaranteed the obligation of an affiliate ("The
Premium Movie Partnership") to pay fees for the license to exhibit certain
films through the year 2000. If the TCI Ventures Group were to fail to fulfill
its obligations under the guarantees, the beneficiaries have the right to
demand an aggregate payment of approximately $55 million. Although the TCI
Ventures Group has not had to perform under such guarantee to date, the TCI
Ventures Group cannot be certain that it will not be required to perform under
such guarantee in the future.
(continued)
V-141
<PAGE> 363
"TCI VENTURES GROUP"
(a combination of certain assets)
Material Changes in Financial Condition (continued)
If at any time (x) the aggregate of the amount of (i) Flextech
securities held by the TCI Ventures Group (ii) the Hallmark Cards Incorporated
("Hallmark") and U S WEST, Inc. ("U S WEST") subsidiaries' interests in
Flextech acquired in June of 1995 (the "Hallmark Subscription" and the "U S
WEST Subscription"), respectively, and (iii) Flextech securities acquired by
International Family Entertainment, Inc. ("IFE") pursuant to certain
acquisitions in 1996 (the "IFE Acquisitions") exceeds 75% of Flextech's issued
and outstanding share capital, or (y) subject to certain exceptions, the
Flextech Ordinary Shares cease to be admitted to trading on the Official List
of the London Stock Exchange as a result of the exercise by the TCI Ventures
Group of any of its rights as a Flextech shareholder, the TCI Ventures Group
shall be obligated to offer to purchase from the Hallmark and U S WEST
subsidiaries, and from IFE any Flextech Ordinary Shares held by them and which
were originally acquired pursuant to the Hallmark Subscription, the U S WEST
Subscription, or the IFE Acquisitions, as applicable. Under such circumstances,
the offer price for such shares shall be the higher of (i) the then current
market price for the Flextech Ordinary Shares and (ii) the highest price paid
to any third party by the TCI Ventures Group for any Flextech Ordinary Shares
during the preceding 12 month period. In the event the TCI Ventures Group is
required to purchase any Flextech Ordinary Shares, as described above, it may
elect, subject to certain limited exceptions, to pay the purchase price thereof
in cash or in shares of International Series A common stock, or in certain
securities of TCI.
On December 13, 1995, TCI Ventures Group invested in MultiThematiques
with two French media companies, CANAL+ S.A. ("Canal+") and Generale d'Images
S.A. ("GDI"). Canal + and GDI have contributed to MultiThematiques their
combined equity interests in four French thematic channels and Canal + has also
contributed its equity interest in a Spanish classic movie channel. The TCI
Ventures Group contributed 123.1 million French Francs ("FF") ($24.7 million at
the applicable exchange rate), FF105.0 million ($20.4 million at the applicable
exchange rate) and FF100.00 million ($19.5 million at the applicable exchange
rate) to MultiThematiques in December 1995, December 1996 and February 1997,
respectively. The TCI Ventures Group is obligated to contribute an additional
FF164.0 million ($29.1 million) no later than December 13, 1997. In order to
manage the TCI Ventures Group's foreign exchange currency risk with respect to
its December 13, 1997 contribution obligation, the TCI Ventures Group entered
into a foreign currency option contract that allows the TCI Ventures Group to
purchase FF164.0 million at a price of FF5.5367 per U.S. dollar through
December 13, 1997. Each of TCI Ventures Group, Canal + and GDI own a one-third
interest in MultiThematiques.
On January 27, 1997, International announced that it was instituting a
stock repurchase program. Under the stock repurchase program, International may
repurchase from time to time up to 5% (approximately 5.3 million shares) of its
outstanding International Series A Common Stock. Through March 31, 1997,
International had repurchased 492,000 shares under such program for an
aggregate purchase price of $6.8 million. Subsequent to March 31, 1997,
International repurchased an additional 2.9 million shares of International
Series A common stock for an aggregate purchase price of $35.2 million under
such program.
The board of directors of UVSG has authorized UVSG to repurchase from
time to time up to an aggregate of 1,000,000 shares of UVSG's Class A common
stock using existing cash resources. Through March 31, 1997, UVSG had
repurchased 124,000 shares of stock for a total of $2.1 million.
(continued)
V-142
<PAGE> 364
"TCI VENTURES GROUP"
(a combination of certain assets)
Material Changes in Financial Condition (continued)
The TCI Ventures Group has significant contingent obligations with
respect to Flextech's funding obligations to one of the BBC Joint Ventures (the
"Principal Joint Venture") provided by the TCI Ventures Group to the Principal
Joint Venture in April 1997. For additional information concerning the effects
of the formation of the BBC Joint Ventures and related transactions on the
liquidity and capital resources of the TCI Ventures Group and Flextech, see
note 3 to the accompanying combined financial statements.
On May 1, 1997, the Puerto Rico Subsidiary paid cash consideration of
approximately $12.2 million, and assumed aggregate indebtedness of $32 million,
to acquire the 50% ownership interest in Caguas/Humacao Cable Systems which the
TCI Ventures Group did not already own (the "Caguas Acquisition"). In
connection with the Caguas Acquisition, the Puerto Rico Subsidiary entered into
a credit facility and used borrowings of approximately $45 million thereunder
to fund the cash portion of the purchase price and to repay the assumed
indebtedness.
Cablevision's debt includes $100.5 million of bank borrowings due on
or before December 31, 1997. Although no assurance can be given, it is
anticipated that Cablevision will extend the maturity dates of, or otherwise
refinance, such bank borrowings.
If the TCI Ventures Group Stock Proposal is approved by stockholders,
all debt incurred or preferred stock issued by the Company and its subsidiaries
following the issuance of TCI Ventures Group Stock would (unless the Board
otherwise provides) be specifically attributed to and reflected in the combined
financial statements of the Group that includes the entity which incurred the
debt or issued the preferred stock or, in case the entity incurring the debt or
issuing the preferred stock is Tele-Communications, Inc., the TCI Group. The
Board could, however, determine from time to time that debt incurred or
preferred stock issued by entities included in a Group should be specifically
attributed to and reflected in the combined financial statements of one of the
other Groups to the extent that the debt is incurred or the preferred stock is
issued for the benefit of such other Group.
(continued)
V-143
<PAGE> 365
"TCI VENTURES GROUP"
(a combination of certain assets)
Material Changes in Financial Condition (continued)
To the extent cash needs of one Group exceed cash provided by such
Group, one of the other Groups may transfer funds to such Group. The TCI Group
has provided and will continue to provide centralized cash management functions
under which cash receipts of certain entities included in the other Groups are
remitted to the TCI Group and certain cash disbursements of the other Groups
will be funded by the TCI Group on a daily basis. Such transfers of funds
between the Groups will be reflected as borrowings or, if determined by the
Board, in the case of a transfer from the TCI Group to either the Liberty Media
Group or the TCI Ventures Group, reflected as the creation of, or increase in,
the TCI Group's Inter-Group Interest in such Group or, in the case of a
transfer from either the Liberty Media Group or the TCI Ventures Group to the
TCI Group, reflected as a reduction in the TCI Group's Inter-Group Interest in
such Group. There are no specific criteria for determining when a transfer will
be reflected as a borrowing or as an increase or reduction in an Inter-Group
Interest. The Board expects to make such determinations, either in specific
instances or by setting generally applicable policies from time to time, after
consideration of such factors as it deems relevant, including, without
limitation, the needs of the Company, the financing needs and objectives of the
Groups, the investment objectives of the Groups, the availability, cost and
time associated with alternative financing sources, prevailing interest rates
and general economic conditions.
Except as described with respect to the Credit Facility, loans from
one Group to another Group would bear interest at such rates and have such
repayment schedules and other terms as are established from time to time by, or
pursuant to procedures established by, the Board. The Board expects to make
such determinations, either in specific instances or by setting generally
applicable polices from time to time, after consideration of such factors as it
deems relevant, including, without limitation, the needs of the Company, the
use of proceeds by and creditworthiness of the recipient Group, the capital
expenditure plans and investment opportunities available to each Group and the
availability, cost and time associated with alternative financing sources.
The combined balance sheets of a Group would reflect its net loans to
or borrowings from the other Groups. Similarly, the respective combined
statements of operations of the Groups would reflect interest income or
expense, as the case may be, associated with such loans or borrowings and the
respective combined statements of cash flows of the Groups would reflect
changes in the amounts of loans or borrowings deemed outstanding. In the
historical financial statements, net borrowings of the TCI Ventures Group have
been included as a component of the TCI Ventures Group's combined equity. Such
net borrowings will continue to be reflected as a component of the TCI Ventures
Group's combined equity. Amounts borrowed by the TCI Ventures Group from
another Group on and subsequent to the consummation of the Exchange Offers
(including pursuant to the Credit Facility), will be reflected on the TCI
Ventures Group's financial statements as indebtedness to the applicable lender.
Although any increase in the TCI Group's Inter-Group Interest in the
TCI Ventures Group resulting from an equity contribution by the TCI Group to
the TCI Ventures Group or any decrease in such Inter-Group Interest resulting
from a transfer of funds from the TCI Ventures Group to the TCI Group would be
determined by reference to the market value of the Series A TCI Ventures Group
Stock as of the date of such transfer, such an increase could occur at a time
when such shares could be considered undervalued and such a decrease could
occur at a time when such shares could be considered overvalued.
(continued)
V-144
<PAGE> 366
"TCI VENTURES GROUP"
(a combination of certain assets)
Material Changes in Financial Condition (continued)
All financial impacts of issuances of shares of TCI Ventures Group
Stock the proceeds of which are attributed to the TCI Ventures Group will be to
such extent reflected in the combined financial statements of the TCI Ventures
Group, and all financial impacts of issuances of shares of TCI Ventures Group
Stock the proceeds of which are attributed to the TCI Group in respect of a
reduction in the TCI Group's Inter-Group Interest in the TCI Ventures Group
will be to such extent reflected in the combined financial statements of the
TCI Group. Financial impacts of dividends or other distributions on, and
purchases of, TCI Group Stock will be attributed entirely to the TCI Group, and
financial impacts of dividends or other distributions on TCI Ventures Group
Stock will be attributed entirely to the TCI Ventures Group, except that
dividends or other distributions on the TCI Ventures Group Stock will (if at
the time there is an Inter-Group Interest in the TCI Ventures Group) result in
the TCI Group being credited, and the TCI Ventures Group being charged (in
addition to the charge for the dividend or other distribution paid), with an
amount equal to the product of the aggregate amount of such dividend or other
distribution paid or distributed in respect of outstanding shares of TCI
Ventures Group Stock and a fraction the numerator of which is the TCI Ventures
Group Inter-Group Interest Fraction and the denominator of which is the TCI
Ventures Group Outstanding Interest Fraction (both as defined). Financial
impacts of repurchases of TCI Ventures Group Stock the consideration for which
is charged to the TCI Ventures Group will be to such extent reflected in the
combined financial statements of the TCI Ventures Group, and financial impacts
of repurchases of TCI Ventures Group Stock the consideration for which is
charged to the TCI Group will be to such extend reflected in the combined
financial statements of the TCI Group and will result in an increase in the TCI
Group's Inter-Group Interest in the TCI Ventures Group.
(continued)
V-145
<PAGE> 367
"TCI VENTURES GROUP"
(a combination of certain assets)
Material Changes in Financial Condition (continued)
The Board expects to determine, either in specific instances or by
setting generally applicable policies from time to time, whether to allocate
resources and financial support to or pursue business opportunities or
operational strategies through one Group or one or more of the other Groups,
after consideration of such factors as it deems relevant. TCI had advised
International that TCI intends (a) to make available to International any
opportunity to acquire, develop, own and/or manage cable and/or telephony
operations outside the United States that is presented to TCI or any of its
controlled affiliates and (b) except as provided below, to make available to
International any opportunity to acquire, develop, manage and/or operate
programming services outside of the United States (an "International
Programming Opportunity") that is presented to TCI or any of its controlled
affiliates, including those that are a part of the Liberty Media Group. The
foregoing does not apply to (1) international programming services owned or
managed, directly or indirectly (in whole or in part), by TCI or any of its
controlled affiliates other than International as of July 12, 1995 (the date of
the prospectus for International's initial public offering), (2) International
Programming Opportunities under development by TCI or any of its controlled
affiliates other than International that were the subject of a signed letter of
intent or other agreement in principle as of July 12, 1995, (3) an
International Programming Opportunity in respect of foreign sports programming,
which may be pursued either through International or Liberty Media Group, (4)
an International Programming Opportunity presented to a public company that is
a controlled affiliate of either TCI or any of TCI's controlled affiliates
(other than International), (5) an International Programming Opportunity
presented to, or cable television or cable telephony services provided by, any
company or other entity in which TCI or any of its controlled affiliates has an
interest but which is not itself a controlled affiliate of either TCI or any of
TCI's controlled affiliates and (6) the distribution outside the United States
of a programming service initially distributed within the United States and
owned and/or managed by TCI or any of its controlled affiliates (other than
International). If International determines not to pursue an International
Programming Opportunity, subsidiaries or controlled affiliates of TCI other
than International may pursue such International Programming Opportunity or
International and another subsidiary of TCI (or any of its other controlled
affiliates) may pursue such opportunity jointly. To the extent that TCI or any
of its controlled affiliates (other than International) owns rights to
worldwide or regional sporting events, TCI or such affiliates may also utilize
those rights worldwide, including to provide "backdrop" services. Neither TCI
nor any of its controlled affiliates will be obligated to make available to
International any International Programming Opportunity to the extent TCI or
such controlled affiliate is legally (for example, by a fiduciary duty owned to
others) or contractually prohibited from doing so. The foregoing arrangement
concerning International Programming Opportunities will, in any event, be
terminable at such time as TCI ceases to beneficially own at least a majority
in voting power of the outstanding shares of common stock of International.
V-146
<PAGE> 368
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Combined Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---------- ------------
Assets amounts in thousands
<S> <C> <C>
Cash and cash equivalents $ 51,091 105,527
Trade and other receivables, net 93,988 115,491
Film inventory and other prepaid expenses 26,185 85,998
Investment in Telewest Communications plc ("Telewest"),
accounted for under the equity method (note 6) 426,810 488,495
Investments in Sprint Spectrum Holding Company, L.P. and MinorCo,
L.P. (and their respective predecessor) and PhillieCo
(collectively, the "PCS Ventures"), accounted for under the equity
method (note 7) 728,246 829,651
Investment in Teleport Communications Group, Inc. ("Teleport"),
accounted for under the equity method, and related receivables
(note 8) 262,850 276,112
Investment in other affiliates, accounted for
under the equity method, and related
receivables (note 9) 403,220 474,599
Property and equipment, at cost:
Land 7,847 7,837
Distribution systems 796,013 761,191
Support equipment and buildings 200,011 208,294
---------- ---------
1,003,871 977,322
Less accumulated depreciation 258,478 240,322
---------- ---------
745,393 737,000
---------- ---------
Franchise costs and other intangible assets 960,902 1,029,842
Less accumulated amortization 108,816 103,631
---------- ---------
852,086 926,211
---------- ---------
Other assets, net of amortization 273,693 220,619
---------- ----------
$3,863,562 4,259,703
========== ==========
</TABLE>
(continued)
V-147
<PAGE> 369
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Combined Balance Sheets, continued
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- ------------
Liabilities and Combined Equity amounts in thousands
<S> <C> <C>
Accounts payable $ 35,437 71,776
Accrued liabilities 129,388 148,962
Customer prepayments 115,590 100,670
MultiThematiques Obligation (note 9) 27,044 47,902
Capital lease obligations 193,832 199,961
Debt (note 10) 512,757 526,254
Deferred income taxes 189,107 220,306
Other liabilities 8,263 21,477
---------- ----------
Total liabilities 1,211,418 1,337,308
---------- ----------
Minority interests in equity of subsidiaries 218,147 370,879
Combined equity:
Combined equity 2,556,643 2,686,794
Cumulative foreign currency translation
adjustments 4,817 26,146
Unrealized holding gains for available-
for-sale securities 7,028 15,077
---------- ----------
2,568,488 2,728,017
Due from Tele-Communications, Inc. ("TCI" or the "Company")
("TCI Note Receivable") (note 11)
(134,491) (176,501)
---------- ----------
Total combined equity 2,433,997 2,551,516
---------- ----------
Commitments and contingencies
(notes 3, 5, 7, 9 and 12)
$3,863,562 4,259,703
========== ==========
</TABLE>
See accompanying notes to combined financial statements.
V-148
<PAGE> 370
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Combined Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
----------------------------------
1997 1996
--------------- -------------
amounts in thousands,
except per share amounts
<S> <C> <C>
Revenue (note 11) $ 247,020 160,262
Operating costs and expenses:
Operating (note 11) 133,084 80,464
General and administrative (note 11) 64,645 51,316
Stock compensation (note 12) 8,262 (1,357)
Depreciation 26,354 19,166
Amortization 14,790 10,364
--------------- -------------
247,135 159,953
--------------- -------------
Operating income (loss) (115) 309
Other income (expense):
Share of losses of Telewest (note 6) (41,708) (30,597)
Share of losses of PCS Ventures (note 7) (63,536) (19,208)
Share of losses of Teleport (note 8) (13,768) (7,962)
Share of losses of other affiliates (note 9) (23,108) (22,580)
Interest expense (14,196) (12,354)
Interest income (note 11) 3,034 6,387
Minority interests' share of losses 616 3,601
Foreign currency transaction gains 1,477 1,284
Gain on dispositions 28,893 414
Other, net 789 4,363
--------------- -------------
(121,507) (76,652)
--------------- -------------
Loss before income taxes (121,622) (76,343)
Income tax benefit 44,370 21,771
--------------- -------------
Net loss $ (77,252) (54,572)
============== =============
Pro forma net loss per common share (note 1) $ (.40)
=========
</TABLE>
See accompanying notes to combined financial statements.
V-149
<PAGE> 371
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Statement of Combined Equity
(unaudited)
<TABLE>
<CAPTION>
Unrealized
Cumulative holdings
foreign gains for
currency available-
translation for-sale TCI Total
Combined adjustment, securities, Note combined
equity net of taxes net of taxes Receivable equity
----------- ------------ ------------ ---------- -----------
amounts in thousands
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997 $ 2,686,794 26,146 15,077 (176,501) 2,551,516
Net loss (77,252) -- -- -- (77,252)
Repurchases of International common
stock (6,798) -- -- -- (6,798)
Foreign currency
translation adjustment -- (21,329) -- -- (21,329)
Unrealized holding gains for
available-for-sale securities -- -- (8,049) -- (8,049)
Repayment on TCI Note Receivable -- -- -- 42,010 42,010
Interest income on TCI Note
Receivable (2,400) -- -- -- (2,400)
Stock compensation 8,262 -- -- -- 8,262
Revenue from TCI Group and Liberty
Media Group (13,541) -- -- -- (13,541)
Operating costs to TCI Group 13,150 -- -- -- 13,150
Corporate general and
administrative cost allocations 2,212 -- -- -- 2,212
Intergroup tax allocation (46,074) -- -- -- (46,074)
Other intercompany transfers (7,710) -- -- -- (7,710)
----------- ------- ------- -------- ----------
Balance at March 31, 1997 $ 2,556,643 4,817 7,028 (134,491) 2,433,997
=========== ======= ======= ======== ==========
</TABLE>
See accompanying notes to combined financial statements.
V-150
<PAGE> 372
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Combined Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
---------------------
1997 1996
-------- --------
amounts in thousands
(see note 2)
<S> <C> <C>
Cash flows from operating activities:
Net loss $(77,252) (54,572)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 41,144 29,530
Stock compensation 8,262 (1,357)
Payments of stock compensation (57) --
Share of losses of PCS Ventures 63,536 19,208
Share of losses of Teleport 13,768 7,962
Share of losses of Telewest 41,708 30,597
Share of losses of other affiliates 23,108 22,580
Minority interests' share of losses (616) (3,601)
Gain on dispositions (28,893) (414)
Foreign currency transaction gains (2,653) (1,304)
Accretion of discount on MultiThematiques Obligation 966 1,595
Other noncash charges 768 320
Deferred income tax expense (benefit) 1,417 (5,809)
Intergroup tax allocation (46,074) (16,329)
Changes in operating assets and liabilities, net of the effect of the
deconsolidation of Flextech p.l.c.:
Change in receivables (6,260) 4,666
Change in film inventory and other prepaid expenses (2,328) (6,839)
Change in payables, accruals and other liabilities (3,542) (12,763)
-------- --------
Net cash provided by operating activities
$ 27,002 13,470
======== ========
</TABLE>
(continued)
V-151
<PAGE> 373
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Combined Statements of Cash Flows, continued
(unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
----------------------
1997 1996
--------- ---------
amounts in thousands
(see note 2)
<S> <C> <C>
Cashflows from investing activities:
Effect of the deconsolidation of Flextech p.l.c
cash and cash equivalents $ (38,142) --
Cash received in acquisitions -- 10,073
Investments in and loans to affiliates and others (44,359) (72,614)
Capital expended for property and equipment (42,249) (29,920)
Repayments received on loans to affiliates 63,495 --
Cash paid to purchase minority interests -- (4,296)
Other, net 13,162 10,815
--------- ---------
Net cash used in investing activities (48,093) (85,942)
--------- ---------
Cash flows from financing activities:
Borrowings of debt 36,857 17,395
Repayments of debt (72,243) (38,218)
Repayments of capital lease obligations (2,956) (3,359)
Repurchases of International common stock (6,798) --
Issuance of debentures -- 345,000
Payment of deferred financing costs -- (9,495)
Contributions from minority interest owners -- 2,235
Distribution to minority interest owners (7,000) --
Repayment on TCI Note Receivable 42,010 --
Change in cash transfers to other Groups (23,215) (268,098)
--------- ---------
Net cash provided (used) by financing activities (33,345) (45,460)
--------- ---------
Effect of exchange rate changes on cash and cash equivalents -- (1,329)
--------- ---------
Net decrease in cash and
cash equivalents (54,436) (28,341)
Cash and cash equivalents:
Beginning of period 105,527 141,754
--------- ---------
End of period $ 51,091 113,413
========= =========
</TABLE>
See accompanying notes to combined financial statements.
V-152
<PAGE> 374
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
March 31, 1997
(unaudited)
(1) Basis of Presentation
On May 14, 1997, the Board of Directors of TCI (the "Board")
authorized, subject to shareholder approval (the "TCI Ventures Group
Stock Proposal"), the issuance of two new series of stock ("TCI
Ventures Group Stock") which are intended to reflect the separate
performance of the TCI Ventures Group.
The TCI Ventures Group Stock, if issued, will be intended to reflect
the separate performance of the TCI Ventures Group. The TCI Ventures
Group would initially consist principally of the following assets and
their related liabilities: (i) TCI's 85% equity interest (representing
a 92% voting interest) in Tele-Communications International, Inc.
("International"), which is the Company's primary vehicle for the
conduct of its international cable, telephony and programming
businesses (other than those international programming businesses
attributed to the Liberty Media Group), (ii) TCI's principal interests
in the telephony business ("TCI Telephony") consisting primarily of
the Company's investment in a series of partnerships formed to engage
in the business of providing wireless communications services, using
the radio spectrum for broadband personal communications services
("PCS"), to residential and business customers nationwide under the
Sprint(R) brand (a registered trademark of Sprint Communications
Company, L.P.) (the "PCS Ventures"), the Company's 30% equity interest
(representing a 37% voting interest) in Teleport Communications Group
Inc. ("Teleport" or "TCG"), a competitive local exchange carrier, and
Western Tele-Communications, Inc. ("WTCI"), a wholly owned subsidiary
of the Company that provides long distance transport of video, voice
and data traffic and other telecommunications services to
interexchange carriers on a wholesale basis using primarily a digital
broadband microwave network located throughout a 12 state region,
(iii) TCI's 40% equity interest (representing a 85% voting interest)
in United Video Satellite Group, Inc. ("UVSG"), which provides
satellite-delivered video, audio, data and program promotion services
to cable television systems, satellite dish owners, radio stations and
private network users, primarily throughout North America, (iv) TCI's
43% equity interest (representing a 75% voting interest) in At Home
Corporation ("@Home"), a provider of high speed multimedia Internet
services, and TCI's interest in other Internet-related assets and (v)
other assets, including ETC w/tci, Inc. ("ETC w/tci"), an 80% owned
subsidiary of the Company which is a developer and distributor of
for-profit education, training and communications services and
products, National Digital Television Center, Inc. ("NDTC"), which
provides digital compression and authorization services to programming
suppliers and to video distribution outlets and TCI Summitrak of
Texas, Inc. and TCI Summitrak L.L.C., ("Summitrak"), wholly owned
subsidiaries of the Company that provide an integrated network-based
information management system currently to certain of TCI's cable
systems with plans to expand the service to include third parties. The
stocks of International, TCG and UVSG are traded on the National
Market tier of The Nasdaq Stock Market.
(continued)
V-153
<PAGE> 375
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
The TCI Ventures Group will not include any other business that uses
TCI's domestic cable network to distribute services to customers
(e.g., cable, telephony and Internet services). Such domestic
"distribution" businesses will continue to be attributed to the TCI
Group.
The TCI Ventures Group would also include such other assets and
liabilities of the TCI Group as the Board may in the future determine
to attribute or sell to the TCI Ventures Group and such other
businesses, assets and liabilities as the Company or any of its
subsidiaries may in the future acquire for the TCI Ventures Group, as
determined by the Board. It is currently the intention of the Company
that any businesses, assets and liabilities so attributed to the TCI
Ventures Group in the future would not include assets and liabilities
of the company's domestic programming businesses and investments or
its domestic cable operations (including its businesses which utilize
its cable network to distribute telephony and Internet services).
The TCI Group is intended to reflect the performance of those
businesses of TCI not attributed to the Liberty Media Group (which is
intended to reflect the performance of TCI's business which produces
and distributes programming services) and the TCI Ventures Group.
Collectively, the TCI Group, the Liberty Media Group and the TCI
Ventures Group are referred to as the "Groups" and individually may be
referred to herein as a "Group".
The common stockholders' equity value of TCI attributable to the TCI
Ventures Group that, at any relevant time, is attributed to the TCI
Group, and accordingly, not represented by outstanding TCI Ventures
Group Stock is referred to as "Inter-Group Interest". Prior to the
issuance of any shares of TCI Ventures Group Stock, the Inter-Group
Interest of the TCI Group in the TCI Ventures Group is 100%. As any
shares of TCI Ventures Group Stock are issued and distributed or sold,
the TCI Group's Inter-Group Interest in the TCI Ventures Group will be
reduced accordingly.
While the TCI Ventures Group Stock constitutes common stock of TCI,
issuance of the TCI Ventures Group Stock will not result in any
transfer of assets or liabilities of TCI or any of its subsidiaries or
affect the rights of holders of TCI's or any of its subsidiaries'
debt.
Holders of Series A TCI Group and Series B TCI Group common stock
("TCI Group Stock"), Series A Liberty Media Group and Series B Liberty
Media Group common stock ("Liberty Media Group Stock") and TCI
Ventures Group Stock (when issued) will be common stockholders of TCI
and will be subject to risks associated with an investment in TCI and
all of its businesses, assets and liabilities.
(continued)
V-154
<PAGE> 376
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Contemporaneously with the mailing of a proxy statement to
shareholders for the shareholder approval of the TCI Ventures Group
Stock Proposal, the Company is commencing offers (the "Exchange
Offers") to exchange shares of Series A TCI Ventures Group Stock and
Series B TCI Ventures Group Stock for shares of Series A TCI Group
Stock and shares of Series B TCI Group Stock, respectively,
(representing approximately 28-35% of the outstanding shares of each
such series) in the ratio of one share of the applicable series of TCI
Ventures Group Stock in exchange for each share of the corresponding
series of TCI Group Stock properly tendered. The Exchange Offers are
subject, among other conditions, to the approval by stockholders of
the TCI Ventures Group Stock Proposal. If such approval is obtained,
the Company would consummate the Exchange Offers promptly following
the annual meeting.
The aggregate number of shares of TCI Ventures Group Stock being
offered in the Exchange Offers is intended initially to represent 100%
of the common stockholders' equity value of the Company attributable
to the TCI Ventures Group. Accordingly, if all of such shares were
issued in the Exchange Offers the Inter-Group Interest of the TCI
Group would be reduced to zero. If immediately following the
consummation of the Exchange Offers the TCI Group has any remaining
Inter-Group Interest in the TCI Ventures Group, the Company will
extinguish such Inter-Group Interest in consideration of the
attribution to the TCI Group of a preferred equity interest in the TCI
Ventures Group with a face amount equal to the market value of the
shares of TCI Ventures Group Stock not issued in the Exchange Offers
(which shall be deemed to be the same, on a per share basis, as the
market value of the Series A TCI Group Stock on the last trading day
preceding the closing of the Exchange Offers), a dividend rate of 5%
per annum (with dividends being payable in kind until the fifth
anniversary of the closing of the Exchange Offers and a mandatory
redemption obligation on the 15th anniversary of the closing of the
Exchange Offers.
In addition to the shares of TCI Ventures Group Stock to be issued in
the Exchange Offers, shares of Series A TCI Ventures Group Stock are
being reserved for issuance upon exchange subsequent to the closing of
the Exchange Offers of certain outstanding convertible notes issued by
a subsidiary of the Company. In lieu of a number of shares of Series A
TCI Group Stock equal to 28%-35% of the number of shares of Series A
TCI Group Stock currently issuable upon exchange of such convertible
notes, an equal number of shares of TCI Ventures Group Common Stock
would be issued upon such exchange.
Notwithstanding the attribution of assets and liabilities, equity and
items of income and expense among the TCI Group, the Liberty Media
Group and the TCI Ventures Group for the purpose of preparing the
combined financial statements of the TCI Group, the Liberty Media
Group and the TCI Ventures Group, the change in the capital structure
of TCI contemplated by the TCI Ventures Group Stock Proposal will not
affect legal title to such assets or responsibility for such
liabilities of the Company or any of its subsidiaries. Holders of TCI
Group Stock, Liberty Media Group Stock and TCI Ventures Group Stock
will be common stockholders of the Company and will be subject to
risks associated with an investment in the Company and all of its
businesses, assets and liabilities.
(continued)
V-155
<PAGE> 377
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Financial effects arising from one Group that affect the Company's
consolidated results of operations or financial condition could affect
the combined results of operations or financial condition of the other
Groups and the market price of the TCI Group Stock, the Liberty Media
Group Stock and the TCI Ventures Group Stock. In addition, any net
losses of any Group, dividends or distributions on, or repurchases of,
the TCI Group Stock, the Liberty Media Group Stock or the TCI Ventures
Group Stock, and dividends on, or certain repurchases of, preferred
stock, will reduce funds of the Company legally available for the
payment of dividends on the TCI Group Stock, the Liberty Media Group
Stock and the TCI Ventures Group Stock. The combined financial
statements of the TCI Group, the Liberty Media Group and the TCI
Ventures Group should be read in conjunction with the consolidated
financial statements of the Company.
Dividends on the TCI Ventures Group Stock will be payable at the sole
discretion of the Board out of the lesser of the assets of TCI legally
available for dividends or the available dividend amount with respect
to TCI Ventures Group, as defined. Determinations to pay dividends on
TCI Ventures Group Stock are based primarily upon the financial
condition, results of operations and business requirements of TCI
Ventures Group and TCI as a whole.
The accompanying interim consolidated financial statements are
unaudited but, in the opinion of management, reflect all adjustments
(consisting of normal recurring accruals) necessary for a fair
presentation of the results of such periods. The results of operations
for any interim period are not necessarily indicative of results for
the full year. These unaudited interim consolidated financial
statements should be read in conjunction with the TCI Ventures Group's
December 31, 1996 audited financial statements and notes thereto.
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share"
("Statement No. 128"). Statement No. 128 requires the presentation of
basic earnings per share ("EPS") and, for companies with potentially
dilutive securities, such as convertible debt, options and warrants,
diluted EPS. Statement No. 128 is effective for annual and interim
periods ending after December 31, 1997. TCI Ventures Group does not
expect that Statement No. 128 will have a material impact on the
calculation of the TCI Ventures Group's loss per share.
Pro forma loss attributable to common shareholders for the three
months ended March 31, 1997 assumes, solely for the purpose of this
calculation, that the Exchange Offers were consummated prior to
January 1, 1997 and that, in connection with such Exchange Offers,
shares representing 28% of the TCI Group Stock which were issued and
outstanding on March 31, 1997 were exchanged for TCI Ventures Group
Stock on a share for share basis.
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.
(continued)
V-156
<PAGE> 378
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(2) Supplemental Disclosures to Consolidated Statements of Cash Flows
Cash paid for interest was $15.4 million and $9.0 million during the
three months ended March 31, 1997 and 1996, respectively. Cash paid
for income taxes was $1.7 million during the three months ended March
31, 1997. Cash paid for income taxes was not material during the three
months ended March 31, 1996.
The net cash received by the TCI Ventures Group in acquisitions is as
follows (amounts in thousands):
<TABLE>
<CAPTION>
Three months ended
March 31,
-------------------
1997 1996
------- -------
<S> <C> <C>
Fair value of assets acquired $ -- 309,179
Liabilities assumed, net of current
assets -- (77,605)
Minority interest in equity of acquired
entity -- (45,643)
Increase in combined equity resulting
from preferred stock issued in
acquisition -- (196,004)
------- --------
Cash received in acquisitions $ -- (10,073)
======= ========
Property and equipment purchased
under capital leases $ -- 63,656
======= ========
</TABLE>
The non-cash effects of changing the method of accounting for the TCI
Venture Group's ownership interest in Flextech p.l.c. ("Flextech")
(see note 3) from the consolidation method to the equity method are
summarized below (amounts in thousands):
<TABLE>
<S> <C>
Assets reclassified to equity investments $ 177,003
Liabilities reclassified to equity investments (72,512)
Minority interests in equity of subsidiaries
reclassified to equity investments (142,633)
---------
Decrease in cash and cash equivalents $ (38,142)
==========
</TABLE>
(3) Flextech Transactions
TCI Ventures Group's ownership interest in the issued and outstanding
share capital of Flextech was 48.8% during the three months ended
March 31, 1996, 46.2% from April 1996 through April 1997, and 35.9%
from April 1997 to the present. TCI Ventures Group's voting interest
in Flextech was 50.6% during 1996 and approximately 50% from January
1997 to the present.
In January 1997, TCI Ventures Group reduced its voting interest in
Flextech to 50% by issuing to a nominee an irrevocable proxy (the
"Proxy") to vote 960,850 Flextech ordinary shares ("Flextech Ordinary
Shares") at any shareholder meeting to be held through December 31,
1997. In April 1997, Flextech and BBC Worldwide Limited ("BBC
Worldwide") formed two separate joint ventures (the "BBC Joint
Ventures") and entered into certain related transactions. The
consummation of the BBC Joint Ventures and related transactions
resulted in, among other things, a reduction of TCI Ventures Group's
ownership interest in Flextech to 35.9% and the issuance to TCI
Ventures Group by Flextech of a special voting share (the "Special
Voting Share"). The Special Voting Share when combined with TCI
Ventures Group's other share capital in Flextech, allows TCI Ventures
Group to cast 50% of the votes on most matters brought to the
shareholders of Flextech for vote. So long as the Proxy remains
outstanding, TCI Ventures Group's 50% voting interest will be reduced
by the 960,850 votes represented by the Proxy. The Special Voting
Share will terminate upon the occurrence of the earlier of (i) the
third anniversary of issuance or (ii) any transfer of Flextech shares
by TCI Ventures Group outside a specified affiliated group. In light
of TCI Ventures Group's decreased voting interest in Flextech, TCI
Ventures Group, effective January 1, 1997, ceased to consolidate
Flextech and began to account for Flextech using the equity method of
accounting.
(continued)
V-157
<PAGE> 379
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
In April 1997, (i) Flextech and BBC Worldwide formed the two BBC Joint
Ventures and (ii) Flextech acquired from the other shareholders of UK
Living Limited ("UKLL") and UK Gold Television Limited ("UKGL") all of
the share capital in those two companies not already owned by Flextech
and the TCI Ventures Group through the issuance of new Flextech
Ordinary Shares.
Flextech's outstanding convertible non-preference shares ("Flextech
Non-Preference Shares") had been issued in connection with previous
acquisition transactions by Flextech due to the TCI Ventures Group's
requirement that it maintain specified voting interests in Flextech.
With the issuance of the Special Voting Share, the purpose for the
Flextech Non-Preference Shares was eliminated. Accordingly, and in
order to simplify the capital structure of Flextech, upon the issuance
of the Special Voting Share, the Flextech Non-Preference Shares were
converted into Flextech Ordinary Shares. Immediately following such
conversion, and the issuance of additional Flextech Ordinary Shares in
connection with the UKGL and UKLL transactions described above, (i)
the TCI Ventures Group's interest in the equity share capital of
Flextech was 35.9% and (ii) the TCI Ventures Group's voting interest
was 50%.
Flextech has undertaken to finance the working capital requirements of
one of the BBC Joint Ventures (the "Principal Joint Venture").
Flextech has also agreed to make available to the other BBC Joint
Venture (the "Second Joint Venture"), if required, funding of up to
(pound)10 million ($16 million). If Flextech defaults in its funding
obligation to the Principal Joint Venture and fails to cure within 42
days after receipt of notice from BBC Worldwide, BBC Worldwide is
entitled, within the following 90 days, to require that the TCI
Ventures Group assume all of Flextech's funding obligations to the
Principal Joint Venture (the "Standby Commitment"). In addition to
Flextech's April 1997 purchase of (pound)22 million ($36 million) of
ordinary shares in the Principal Joint Venture, Flextech is obligated
to provide the Principal Joint Venture with a primary credit facility
of (pound)88 million ($144 million) and, subject to certain
restrictions, a standby credit facility of (pound)30 million ($49
million).
If BBC Worldwide requires the TCI Ventures Group to perform Flextech's
funding obligations pursuant to the Standby Commitment, then the TCI
Ventures Group will acquire Flextech's entire equity interest in the
Principal Joint Venture for (pound)1.00, and will replace Flextech's
directors on the board of the Principal Joint Venture with
representatives of the TCI Ventures Group. Flextech will pay
commitment and standby fees to the TCI Ventures Group for its
undertaking under the Standby Commitment. If Flextech repays to the
TCI Ventures Group all loans it makes to the Principal Joint Venture
(plus interest at International's marginal cost of funds plus 2% per
annum) within 180 days after the TCI Ventures Group first becomes
obligated to perform Flextech's financial obligations, it may
reacquire its interest in the Principal Joint Venture for (pound)1.00.
The TCI Ventures Group may also, within the same period, require
Flextech to reacquire its interest on the same terms. The Standby
Commitment will terminate on the earliest of (i) the date on which
Flextech has met all of its required financial obligations to the
Principal Joint Venture under the primary and standby credit
facilities, or (ii) the date on which Flextech delivers a bank
guarantee of all of its funding obligations to the Principal Joint
Venture.
(continued)
V-158
<PAGE> 380
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
So long as the TCI Ventures Group is contingently obligated under the
Standby Commitment, it has been agreed that (i) Flextech will not sell
any of its direct or indirect interests in the Principal Joint
Venture, (ii) Flextech will not conduct its business in such a way as
is likely to cause it to be in material breach of any material
contracts or to have insufficient working capital to meet its funding
obligation to the Principal Joint Venture, and (iii) Flextech will use
its available resources to subscribe for any outstanding loan stock of
the Principal Joint Venture, if and to the extent required by the TCI
Ventures Group at any time after December 31, 2011.
(4) Acquisitions
(a) OCC Acquisition
On October 1, 1996, Cablevision S.A. ("Cablevision") acquired
99.99% of the issued and outstanding capital stock of Oeste
Cable Color S.A. ("OCC"), a cable television operation in the
west of the greater Buenos Aires metropolitan area, for a
purchase price of $112.2 million (the "OCC Acquisition").
Cash consideration of $43.7 million was paid at closing and
an additional cash payment of $22.1 million was paid on
December 1, 1996. Cablevision incurred additional bank debt
of approximately $45 million in order to fund such cash
payments. The remaining purchase price was satisfied by
Cablevision's issuance of $46.4 million principal amount of
secured negotiable promissory notes (the "OCC Notes"). The
OCC Acquisition has been accounted for by the purchase
method. Accordingly, the results of operations of OCC have
been consolidated with those of the TCI Ventures Group since
the date of acquisition and the TCI Ventures Group recorded
OCC's assets and liabilities at fair value.
(b) UVSG Merger
On January 25, 1996, the stockholders of UVSG adopted the
Agreement and Plan of Merger dated as of July 10, 1995, as
amended, among UVSG, TCI and TCI Merger Sub, Inc. ("Merger
Sub"), pursuant to which Merger Sub was merged into UVSG,
with UVSG as the surviving corporation (the "UVSG Merger").
TCI Ventures Group acquired 12,373,294 shares of UVSG Class B
common stock and 2,145,466 shares of UVSG Class A common
stock, together representing approximately 40% of the issued
and outstanding common stock of UVSG and approximately 86% of
the total voting power of UVSG common stock immediately after
the UVSG Merger, resulting in UVSG becoming a
majority-controlled subsidiary of TCI Ventures Group. The
UVSG Merger has been accounted for by the purchase method.
Accordingly, the results of operations of UVSG have been
consolidated with those of the TCI Ventures Group since the
date of acquisition and the TCI Ventures Group recorded
UVSG's assets and liabilities at fair value.
(continued)
V-159
<PAGE> 381
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(c) Satellite Joint Venture
On August 9, 1996, the TCI Ventures Group and Liberty Media
Group executed an amended and restated agreement under which
UVSG and Liberty Media Group contributed their retail C-band
home satellite dish business' assets, obligations and
operations, effective April 1, 1996, to Superstar/Netlink
Group LLC, a new entity owned 50% each by TCI Ventures Group
and Liberty Media Group (the "Satellite Joint Venture"). The
combination was accounted for as a merger of businesses under
common control, whereby the assets and obligations of both
UVSG and Liberty Media Group which were contributed to the
venture were reflected at their historical cost. The
operations of the Satellite Joint Venture have been
consolidated, effective April 1, 1996, with the operating
results of the TCI Ventures Group.
(5) Cablevision
On April 25, 1995, the TCI Ventures Group acquired a 51% ownership
interest in Cablevision. None of Cablevision's post-acquisition
operating results have been allocated to Cablevision's 49% minority
interest because (i) the minority interest has no obligation to
provide any funding to Cablevision and (ii) Cablevision's liabilities
exceeded the minority interest's historical cost basis in
Cablevision's assets at March 31, 1997. To the extent that
Cablevision's post-acquisition net earnings (exclusive of the effects
of purchase accounting) cause the minority interest's historical cost
basis in Cablevision's net assets to become positive, the TCI Ventures
Group would begin to allocate 49% of such net earnings to the minority
interest. If the minority interest's historical cost basis had been
positive during the three months ended March 31, 1997 and 1996, the
TCI Ventures Group would have allocated $3.5 million and $5.3 million,
respectively, of Cablevision's net earnings (exclusive of the effect
of purchase accounting) to the minority interest.
(6) Investment in Telewest
At March 31, 1997, the TCI Ventures Group indirectly owned, through
its 50% ownership interest in TW Holdings, Inc., 132,638,250 or 26.7%
of the issued and outstanding non-voting Telewest convertible
preference shares and 246,111,750 or 26.5% (assuming no conversion of
the Telewest convertible preference shares) of the issued and
outstanding Telewest ordinary shares. On March 31, 1997, the reported
closing price on the London Stock Exchange of Telewest's ordinary
shares was (pound)1.09 ($1.79).
As a result of Telewest's 1995 issuance of U.S. dollar denominated
debentures (the "Telewest Debentures"), changes in the exchange rate
used to convert the U.S. dollar into the United Kingdom ("UK") pound
sterling will cause Telewest to experience realized and unrealized
foreign currency transaction gains and losses throughout the term of
the Telewest Debentures, which mature in 2006 and 2007, if not
redeemed earlier. During the three months ended March 31, 1997 and
1996, Telewest experienced foreign currency transaction losses of
(pound)24.1 million ($40.5 million using the applicable exchange rate)
and (pound)16.7 million ($25.6 million using the applicable exchange
rate), respectively, resulting from the conversion of the Telewest
Debentures into UK pounds sterling and the adjustment of a foreign
currency option contract to market value.
(continued)
V-160
<PAGE> 382
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
The functional currency of Telewest is the UK pound sterling. The
average exchange rate used to translate the TCI Ventures Group's share
of Telewest's operating results from UK pounds to U.S. dollars was
1.6459 to 1 and 1.5362 to 1 during the three months ended March 31,
1997 and 1996, respectively. The spot rate used to translate the TCI
Ventures Group's share of Telewest's net assets from UK pounds to U.S.
dollars was 1.6395 to 1 and 1.7125 to 1 at March 31, 1997 and December
31, 1996, respectively.
Summarized unaudited results of operations of Telewest are as follows:
<TABLE>
<CAPTION>
Three months ended
March 31,
----------------------
1997 1996
--------- ---------
amounts in thousands
<S> <C> <C>
Revenue $ 147,876 100,099
Operating, selling, general and
administrative expenses (135,983) (105,856)
Depreciation and amortization (72,014) (49,940)
--------- ---------
Operating loss (60,121) (55,697)
Share of losses of affiliates (8,144) (5,464)
Interest expense, net (45,656) (26,376)
Foreign currency transaction loss (40,525) (25,602)
Other, net (126) 2
--------- ---------
Net loss $(154,572) (113,137)
========= =========
</TABLE>
(7) Investments in PCS Ventures
Summarized unaudited results of operations for the PCS Ventures,
accounted for under the equity method, are as follows:
<TABLE>
<CAPTION>
Three months ended
March 31,
----------------------
1997 1996
--------- ---------
amounts in thousands
Combined Operations
-------------------
<S> <C> <C>
Revenue $ 9,487 --
Operating expenses (167,582) (30,775)
Depreciation and amortization (34,429) (254)
--------- ---------
Operating loss (192,524) (31,029)
Interest expense (1,590) (290)
Other, net (22,955) (36,186)
--------- ---------
Net loss $(217,069) (67,505)
========= =========
</TABLE>
(continued)
V-161
<PAGE> 383
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
TCI Ventures Group is a partner in a series of partnerships formed to
engage in the business of providing wireless communications services,
using the radio spectrum for broadband personal communications
services ("PCS"), to residential and business customers nationwide,
using the "Sprint" brand. The PCS Ventures include Sprint Spectrum
Holding Company, L. P. ("Sprint Spectrum") and MinorCo, L.P.
(collectively, the "Sprint PCS Partnerships") and PhillieCo, L.P.
("PhillieCo"). The partners of each of the Sprint PCS Partnerships are
subsidiaries of Sprint Corporation, Comcast Corporation, Cox
Communications, Inc. and the TCI Ventures Group. The partners of
PhillieCo are subsidiaries of Sprint, Cox and the TCI Ventures Group.
From inception through March 1997, the four partners have contributed
approximately $3.0 billion to the Sprint PCS Partnerships (of which
the TCI Ventures Group contributed an aggregate of approximately $0.9
billion). The remaining capital that the Sprint PCS Partnerships will
require to fund the construction of the PCS systems and the
commitments made to APC and Cox-California will be substantial. The
partners had agreed in forming the Sprint PCS Partnerships to
contribute up to an aggregate of approximately $4.2 billion of equity
thereto, from inception through fiscal 1999, subject to certain
requirements. The TCI Ventures Group expects that the remaining
approximately $1.2 billion of such amount (of which the TCI Ventures
Group's share is approximately $0.4 billion) will be contributed by
the end of the second quarter of 1998 (although there can be no
assurance that any additional capital will be contributed). The TCI
Ventures Group expects that the Sprint PCS Partnerships will require
additional equity thereafter.
Pursuant to an agreement entered into in connection with certain
financings by Sprint Spectrum, under certain circumstances the
partners in Sprint Spectrum may be required to make additional
contributions to Sprint Spectrum to fund projected cash shortfalls to
the extent that the amount of the partners' aggregate contributions to
Sprint Spectrum (exclusive of certain amounts, including amounts
invested in certain affiliates of Sprint Spectrum), following December
31, 1995 are less than $1.0 billion; however, based on the currently
expected timing and use of the partners' contributions to Sprint
Spectrum, the TCI Ventures Group currently believes that such
agreement will not result in the TCI Ventures Group's being required
to make any incremental capital contributions in addition to its pro
rata portion of the aforementioned $4.2 billion amount.
(8) Investment in Teleport
Teleport is a competitive local exchange carrier which provides
integrated local telecommunications services in major metropolitan
markets nationwide. Teleport's customers are principally
telecommunications intensive businesses, long distance carriers and
resellers of wireless communications companies.
The TCI Ventures Group's investment in Teleport is accounted for under
the equity method of accounting.
(continued)
V-162
<PAGE> 384
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Summarized unaudited combined results of operations for Teleport,
accounted for under the equity method, are as follows:
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------
1997 1996
-------- --------
amounts in thousands
Combined Operations
-------------------
<S> <C> <C>
Revenue $ 96,844 50,435
Operating expenses (90,708) (42,718)
Depreciation and amortization (29,756) (12,849)
-------- --------
Operating loss (23,620) (5,132)
Interest expense (29,508) (8,148)
Other, net 8,100 (5,413)
-------- --------
Net loss $(45,028) (18,693)
======== ========
</TABLE>
(9) Investments in Other Affiliates
The TCI Ventures Group's affiliates other than Telewest PCS Ventures
and Teleport that are accounted for using the equity method (the
"Other Affiliates") generally are engaged in the cable and/or
programming businesses in various foreign countries.
Certain of the Other Affiliates are general partnerships and any
subsidiary of the TCI Ventures Group that is a general partner in a
general partnership could be liable, depending upon the applicable
partnership law, for all debts of that partnership to the extent
liabilities of that partnership were to exceed its assets.
Agreements governing the TCI Ventures Group's investment in certain of
the Other Affiliates contain (i) buy-sell and other exit arrangements
whereby the TCI Ventures Group could be required to purchase another
investor's ownership interest and (ii) performance guarantees whereby
the TCI Ventures Group and/or other subsidiaries of TCI have
guaranteed the performance of the TCI Ventures Group's subsidiary that
directly holds the related investment.
(continued)
V-163
<PAGE> 385
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
The following table reflects the TCI Ventures Group's carrying amount
(including receivables) of the Other Affiliates:
<TABLE>
<CAPTION>
Carrying value
---------------------
March 31, December 31,
1997 1996
---------- ----------
amounts in thousands
<S> <C> <C>
Flextech (note 3) $114,544 --
Flextech Affiliates (a) -- 129,563
MultiThematiques S.A
("MultiThematiques") 79,289 84,007
Liberty/TINTA LLC (b) 60,009 63,227
Jupiter Telecommunications Co., Ltd.
("Jupiter") 39,200 47,251
Bresnan International Partners
(Poland), L.P. 27,848 27,951
Bresnan International Partners (Chile),
L.P. 20,993 34,408
Other 61,337 88,192
---------- ----------
$ 403,220 474,599
========== ==========
</TABLE>
(a) Flextech Affiliates
Due to the January 1, 1997 deconsolidation of Flextech
described in note 3, Flextech's equity method affiliates (the
"Flextech Affiliates") are no longer included with the Other
Affiliates; the Flextech Affiliates are included with
Flextech.
At December 31, 1996, the Flextech Affiliates were comprised
of European Business News Partners (30%-owned by Flextech),
HIT Entertainment PLC (23%-owned by Flextech), Preview
Investments B.V. (33%-owned by Flextech), Scottish Television
plc (20%-owned by Flextech), UKGL (25%-owned by Flextech) and
UKLL (31%-owned by Flextech). In connection with the April
1997 formation of the BBC Joint Ventures, Flextech acquired
all of the equity share capital of UKGL and UKLL (75% and
68.75%, respectively) that Flextech did not already own.
(b) Liberty/TINTA LLC
TCI Ventures Group may make additional cash contributions
totaling $29.0 million to the limited liability company owned
in equal parts by subsidiaries of TCI Ventures Group and
Liberty Media Group (the "LLC") to fund the operations of the
joint venture between TCI Ventures Group, News Corporation
Limited ("News Corp.") and Liberty Media Group (the "Sports
Venture"). As part of the formation of the Sports Venture,
the LLC is entitled to receive from News Corp. 7.5% of the
outstanding stock of STAR Television Limited. Upon the
delivery of such stock to the LLC, News Corp. is entitled to
receive from the LLC up to $20.0 million and rights under
various Asian sports programming agreements. STAR Television
Limited operates a satellite-delivered television platform in
Asia.
(continued)
V-164
<PAGE> 386
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
On April 19, 1996, International, Torneos y Competencias S.A.
("Torneos") and the Torneos stockholders from whom
International previously acquired its 35% interest entered
into an agreement (the "International/Torneos Sports
Agreement") whereby International agreed to make minimum
periodic payments from 1996 through 2004 aggregating $235.2
million to acquire certain rights and considerations,
including the exploitation rights to all sports rights owned
by Torneos with the exception of any rights which at that
time had been contractually committed to any third party.
Pending the assignment of the rights under the
International/Torneos Sports Agreement which fit within the
geographic area and business plan of the Sports Venture (the
"Sports Venture Rights") to the Sports Venture, TCI Ventures
Group, News Corp. and Liberty Media Group have paid their
respective portion of any payments made with respect to the
Sports Venture Rights. Through March 31, 1997, payments made
under the International/Torneos Sports Agreement totaled
$20.1 million.
The $33 million excess of TCI Ventures Group's aggregate
historical cost basis in the LLC over TCI Ventures Group's
50% proportionate share of the LLC's net assets is being
amortized over an estimated useful life of 20 years.
(continued)
V-165
<PAGE> 387
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Summarized unaudited results of operations of the Other Affiliates by
geographic region for the periods in which they were owned by the TCI
Ventures Group are as follows:
<TABLE>
<CAPTION>
Three months ended March 31, 1997
----------------------------------------------------------
Latin America
Asia and and the United
Europe(a) Australia Caribbean(b) States Total
--------- --------- ------------ ------ -----
amounts in thousands
--------------------
Combined Operations
-------------------
<S> <C> <C> <C> <C> <C>
Revenue $ 60,499 50,837 3,484 2,345 117,165
Operating, selling, general and
administrative expenses (77,551) (56,652) (2,086) (2,035) (138,324)
Depreciation and amortization (6,457) (10,186) (856) (1,285) (18,784)
-------- -------- -------- -------- --------
Operating income (loss) (23,509) (16,001) 542 (975) (39,943)
Interest expense, net (558) (2,883) (1,918) (497) (5,856)
Other, net 276 (966) (6,797) (44) (7,531)
-------- -------- -------- -------- --------
Net loss $(23,791) (19,850) (8,173) (1,516) (53,330)
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Three months ended March 31, 1997
----------------------------------------------------------
Latin America
Asia and and the United
Europe(a) Australia Caribbean(b) States Total
--------- --------- ------------ ------ -----
amounts in thousands
Combined Operations --------------------
-------------------
<S> <C> <C> <C> <C> <C>
Revenue $ 87,167 37,316 10,819 24,449 159,751
Operating, selling, general and
administrative expenses (94,962) (42,361) (9,229) (20,354) (166,906)
Depreciation and amortization (2,146) (7,712) (972) (146) (10,976)
-------- -------- -------- -------- --------
Operating income (loss) (9,941) (12,757) 618 3,949 (18,131)
Interest expense, net (1,809) (2,254) (3,387) (357) (7,807)
Other, net (925) 277 (263) (104) (1,015)
-------- -------- -------- -------- --------
Net earnings (loss) $(12,675) (14,734) (3,032) 3,488 (26,953)
======== ======== ======== ======== ========
</TABLE>
- - -----------------
(continued)
V-166
<PAGE> 388
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(a) The summarized combined operations for the three months ended
March 31, 1997 include the results of operations of Flextech
but exclude the results of operations of the Flextech
Affiliates. The summarized combined operations for the three
months ended March 31, 1996 include only the operations of
the Flextech Affiliates.
(b) The summarized operating results of Torneos are included in
the combined operations for the three months ended March 31,
1996 but are excluded from the combined operations for the
three months ended March 31, 1997 due to TCI Ventures Group's
contribution of its 35% ownership interest in Torneos to the
Sports Venture.
(10) Debt
The components of debt are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
-------- --------
amounts in thousands
<S> <C> <C>
Convertible Subordinated Debentures
("Debentures") $345,000 345,000
Cablevision notes -- 13,013
Cablevision bank loans 100,835 104,556
OCC Notes 43,691 46,418
Other 23,231 17,267
-------- --------
$512,757 526,254
======== ========
</TABLE>
With the exception of the Debentures, which had a fair value of $259
million at March 31, 1997, the TCI Ventures Group believes that the
fair value and the carrying value of the TCI Ventures Group's debt
were approximately equal at March 31, 1997.
Subsequent to March 31, 1997, the subsidiary which conducts operations
in Puerto Rico (the "Puerto Rico Subsidiary") entered into a new
reducing revolving bank credit facility (the "Puerto Rico Bank
Facility"). The Puerto Rico Bank Facility is unsecured and provides
for maximum borrowing commitments of $100 million. The availability of
such commitments for borrowing is subject to the Puerto Rico
Subsidiary's compliance with applicable financial covenants and other
customary conditions. Commencing March 31, 2000, the maximum
commitments will be reduced quarterly in accordance with a schedule,
until final maturity at March 31, 2006. Borrowings under the Puerto
Rico Bank Facility bear interest at variable rates. In addition, the
Puerto Rico Subsidiary is required to pay a commitment fee equal to
0.375% on the average daily unused portion of the maximum borrowing
commitments, payable quarterly in arrears and at maturity. The Puerto
Rico Bank Facility contains restrictive covenants which require, among
other things, the maintenance of certain financial ratios (primarily
the ratios of cash flow to total debt and cash flow to debt service,
as defined), and includes certain limitations on indebtedness,
investments, guarantees, acquisitions, dispositions, dividends, liens
and encumbrances, and transactions with affiliates. If TCI's ownership
interest in International were to fall below 50.1%, borrowings under
the Puerto Rico Bank Facility would be secured by the assets of the
Puerto Rico Subsidiary and the variable interest rates on such
borrowings would be increased.
(continued)
V-167
<PAGE> 389
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(11) Combined Equity
General
If the TCI Ventures Group Stock Proposal is approved by stockholders,
the Series A TCI Ventures Group Stock will have one vote per share and
the Series B TCI Ventures Group Stock will have ten votes per share.
Shares of Series B TCI Ventures Group Stock will be convertible at any
time at the option of the holder only into the same number of shares
of Series A TCI Ventures Group Stock.
The rights of holders of the TCI Ventures Group Stock upon liquidation
of TCI will be based upon the ratio of the aggregate market
capitalization, as defined, of the TCI Ventures Group Stock to the
aggregate market capitalization, as defined, of the TCI Group Stock,
the TCI Ventures Group Stock and the Liberty Media Group Stock.
Transactions with TCI Group, Liberty Media Group and Other Related
Parties
Certain TCI corporate general and administrative costs are charged to
TCI Ventures Group at rates set at the beginning of the year based on
projected utilization for that year. The utilization-based charges are
set at levels that management believes to be reasonable and that
approximate the costs TCI Ventures Group would incur for comparable
services on a stand alone basis. During the three months ended March
31, 1997 and 1996, TCI Ventures Group was allocated $2,212,000 and
$2,234,000, respectively, in corporate general and administrative
costs by TCI Group.
(continued)
V-168
<PAGE> 390
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Certain of the companies with domestic operations that are attributed
to the TCI Ventures Group provide services to companies attributed to
one or more of the other Groups, and certain of the companies
attributed to the other Groups provide services and the use of
facilities to companies attributed to the TCI Ventures Group.
Generally, services and rights to use facilities provided pursuant to
contractual arrangements to which a member of the TCI Ventures Group
that is not a wholly owned subsidiary of the Company is a party will
continue to be provided in accordance with the terms of such
arrangements following the consummation of the Exchange Offers. For
example, Teleport has the indefeasible right to use certain fiber
optic and cable transmission facilities of the Company for
compensation based on the cost of construction of such facilities. In
general, such arrangements were entered into with Teleport by the
Company and other multiple cable system operators ("MSOs") that are
stockholders of Teleport several years ago when Teleport was a
privately owned company. Similarly, @Home has entered into
arrangements for the distribution of its @Home service with its
stockholders that are MSO's. The TCI Group has agreements with UVSG
for, among other things, the carriage of UVSG's Prevue Networks and
superstation programming on certain of the cable systems attributed to
the TCI Group, and UVSG purchases programming from companies
attributed to the Liberty Media Group. Many of these contracts were
entered into prior to the UVSG Merger. Because of the presence in each
of TCG, @Home and UVSG of other stockholders not affiliated with the
Company and the independent management teams at each of these
companies, the Company anticipates that future contractual
arrangements between these companies and entities attributed to the
other Groups will be negotiated on an arm's-length basis.
In addition to the foregoing entities, WTCI, NDTC, and Summitrak, each
of which is a wholly owned subsidiary of the Company, provide or may
provide services to the other Groups. WTCI provides video transport
services to the TCI Group (in addition to service provided to third
parties) based on published tariffed rates. NDTC provides digital
television services which include digital compression of programming,
satellite uplinking, and transponder management primarily to
programming suppliers, many of which are affiliated with the Liberty
Media Group. Such services provided to affiliated companies are
governed by agreements which have been negotiated on an arm's-length
basis and the material terms of which are substantially the same as
those governing relationships with third parties, except as appropriate
to take into account volume differences. NDTC has also recently begun
offering on a commercial basis its newly developed service of
authorization of addressable set-top boxes and transmission of
compressed and encrypted digital programming signals, and is currently
negotiating a long term contract with the TCI Group, for such services.
Such negotiations are being carried out on an arm's-length basis and it
is expected that the material terms made available to the TCI Group
will be substantially the same as those provided to unaffiliated third
parties, but will include pricing on a most favored nations basis due
to the importance to NDTC of the TCI Group's large customer base.
Summitrak has been funded by the TCI Group during its development and
test phases, which are substantially complete. Currently, the TCI Group
is only utilizing Summitrak's services on a test basis and has no
agreement with Summitrak for commercial deployment. If Summitrak's
services are used by the TCI Group on a commercial basis, such use will
be at commercial rates and on arm's length terms.
(continued)
V-169
<PAGE> 391
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Amounts included in revenue for services provided to the other Groups
by WTCI and NDTC are $11,492,000 and $5,055,000 for the three months
ended March 31, 1997 and 1996, respectively.
During the three months ended March 31, 1997 and 1996, revenue earned
by UVSG from TCI Group was $2,049,000 and $2,464,000, respectively.
UVSG purchased programming from Liberty Media Group and certain
affiliates during 1997 and 1996 amounting to $11,850,000 and
$2,802,000, respectively.
Amounts outstanding under the TCI Note Receivable bear interest at
variable rates based on TCI's weighted average cost of bank borrowings
of similar maturities (6.2% at March 31, 1997). Principal and interest
is due and payable as mutually agreed from time to time by TCI and
International. During the three months ended March 31, 1997 and 1996,
interest income related to the TCI Note Receivable aggregated $2.4
million and $2.2 million, respectively.
If the TCI Ventures Group Stock Proposal is approved by stockholders,
all debt incurred or preferred stock issued by the Company and its
subsidiaries following the issuance of TCI Ventures Group Stock would
(unless the Board otherwise provides) be specifically attributed to
and reflected in the combined financial statements of the Group that
includes the entity which incurred the debt or issued the preferred
stock or, in case the entity incurring the debt or issuing the
preferred stock is Tele-Communications, Inc., the TCI Group. The Board
could, however, determine from time to time that debt incurred or
preferred stock issued by entities included in a Group should be
specifically attributed to and reflected in the combined financial
statements of one of the other Groups to the extent that the debt is
incurred or the preferred stock is issued for the benefit of such
other Group.
To the extent cash needs of one Group exceed cash provided by such
Group, one of the other Groups may transfer funds to such Group. The
TCI Group has provided and will continue to provide centralized cash
management functions under which cash receipts of certain entities
included in the other Groups are remitted to the TCI Group and certain
cash disbursements of the other Groups will be funded by the TCI Group
on a daily basis. Such transfers of funds between the Groups will be
reflected as borrowings or, if determined by the Board, in the case of
a transfer from the TCI Group to either the Liberty Media Group or the
TCI Ventures Group, reflected as the creation of, or increase in, the
TCI Group's Inter-Group Interest in such Group or, in the case of a
transfer from either the Liberty Media Group or the TCI Ventures Group
to the TCI Group, reflected as a reduction in the TCI Group's
Inter-Group Interest in such Group. There are no specific criteria for
determining when a transfer will be reflected as a borrowing or as an
increase or reduction in an Inter-Group Interest. The Board expects to
make such determinations, either in specific instances or by setting
generally applicable policies from time to time, after consideration
of such factors as it deems relevant, including, without limitation,
the needs of the Company, the financing needs and objectives of the
Groups, the investment objectives of the Groups, the availability,
cost and time associated with alternative financing sources,
prevailing interest rates and general economic conditions.
(continued)
V-170
<PAGE> 392
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
The TCI Ventures Group is expected to require additional advances from
the TCI Group for some period of time. To satisfy this need, the
Company has agreed to provide a revolving loan facility (the "Credit
Facility") to TCI Ventures Group for a five-year period commencing on
the closing of the Exchange Offers. Such facility would permit
aggregate borrowings at any one time outstanding of up to $500 million
(subject to reduction or increase as provided below), which borrowings
would bear interest at a rate per annum equal to The Bank of New
York's prime rate (as in effect from time to time) plus 1% per annum,
payable quarterly. A commitment fee equal to 3/8% per annum of the
average unborrowed availability under the Revolving Credit Facility
would be payable by the TCI Ventures Group to the TCI Group on a
quarterly basis. The maximum amount of borrowings permitted under the
Credit Facility will be reduced on a dollar-for-dollar basis by up to
$300 million if and to the extent that the aggregate amount of any
additional capital that TCI Ventures Group is required to contribute
to Sprint PCS Partnerships subsequent to the closing of the Exchange
Offers is less than $300 million.
Except as described above with respect to the Credit Facility, loans
from one Group to another Group would bear interest at such rates and
have such repayment schedules and other terms as are established from
time to time by, or pursuant to procedures established by, the Board.
The Board expects to make such determinations, either in specific
instances or by setting generally applicable polices from time to
time, after consideration of such factors as it deems relevant,
including, without limitation, the needs of the Company, the use of
proceeds by and creditworthiness of the recipient Group, the capital
expenditure plans of and investment opportunities available to each
Group and the availability, cost and time associated with alternative
financing sources.
The combined balance sheets of a Group would reflect its net loans to
or borrowings from the other Groups. Similarly, the respective
combined statements of operations of the Groups would reflect interest
income or expense, as the case may be, associated with such loans or
borrowings and the respective combined statements of cash flows of the
Groups would reflect changes in the amounts of loans or borrowings
deemed outstanding. In the historical financial statements, net
borrowings of the TCI Ventures Group have been included as a component
of the TCI Ventures Group's combined equity. Such net borrowings will
continue to be reflected as a component of the TCI Ventures Group's
combined equity. Amounts borrowed by the TCI Ventures Group from
another Group on and subsequent to the consummation of the Exchange
Offers (including pursuant to the Credit Facility), will be reflected
on the TCI Ventures Group's financial statements as indebtedness to
the applicable lender.
(continued)
V-171
<PAGE> 393
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Although any increase in the TCI Group's Inter-Group Interest in the
TCI Ventures Group resulting from an equity contribution by the TCI
Group to the TCI Ventures Group or any decrease in such Inter-Group
Interest resulting from a transfer of funds from the TCI Ventures
Group to the TCI Group would be determined by reference to the market
value of the Series A TCI Ventures Group Stock as of the date of such
transfer, such an increase could occur at a time when such shares
could be considered undervalued and such a decrease could occur at a
time when such shares could be considered overvalued.
All financial impacts of issuances of shares of TCI Ventures Group
Stock the proceeds of which are attributed to the TCI Ventures Group
will be to such extent reflected in the combined financial statements
of the TCI Ventures Group, and all financial impacts of issuances of
shares of TCI Ventures Group Stock the proceeds of which are
attributed to the TCI Group in respect of a reduction in the TCI
Group's Inter-Group Interest in the TCI Ventures Group will be to such
extent reflected in the combined financial statements of the TCI
Group. Financial impacts of dividends or other distributions on, and
purchases of, TCI Group Stock will be attributed entirely to the TCI
Group, and financial impacts of dividends or other distributions on
TCI Ventures Group Stock will be attributed entirely to the TCI
Ventures Group, except that dividends or other distributions on the
TCI Ventures Group Stock will (if at the time there is an Inter-Group
Interest in the TCI Ventures Group) result in the TCI Group being
credited, and the TCI Ventures Group being charged (in addition to the
charge for the dividend or other distribution paid), with an amount
equal to the product of the aggregate amount of such dividend or other
distribution paid or distributed in respect of outstanding shares of
TCI Ventures Group Stock and a fraction the numerator of which is the
TCI Ventures Group Inter-Group Interest Fraction and the denominator
of which is the TCI Ventures Group Outstanding Interest Fraction (both
as defined). Financial impacts of repurchases of TCI Ventures Group
Stock the consideration for which is charged to the TCI Ventures Group
will be to such extent reflected in the combined financial statements
of the TCI Ventures Group, and financial impacts of repurchases of TCI
Ventures Group Stock the consideration for which is charged to the TCI
Group will be to such extend reflected in the combined financial
statements of the TCI Group and will result in an increase in the TCI
Group's Inter-Group Interest in the TCI Ventures Group.
(continued)
V-172
<PAGE> 394
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
The Board expects to determine, either in specific instances or by
setting generally applicable policies from time to time, whether to
allocate resources and financial support to or pursue business
opportunities or operational strategies through one Group or one or
more of the other Groups, after consideration of such factors as it
deems relevant. TCI had advised International that TCI intends (a) to
make available to International any opportunity to acquire, develop,
own and/or manage cable and/or telephony operations outside the United
States that is presented to TCI or any of its controlled affiliates
and (b) except as provided below, to make available to International
any opportunity to acquire, develop, manage and/or operate
programming services outside of the United States (an "International
Programming Opportunity") that is presented to TCI or any of its
controlled affiliates, including those that are a part of the Liberty
Media Group. The foregoing does not apply to (1) international
programming services owned or managed, directly or indirectly (in
whole or in part), by TCI or any of its controlled affiliates other
than International as of July 12, 1995 (the date of the prospectus for
International's initial public offering), (2) International
Programming Opportunities under development by TCI or any of its
controlled affiliates other than International that were the subject
of a signed letter of intent or other agreement in principle as of
July 12, 1995, (3) an International Programming Opportunity in respect
of foreign sports programming, which may be pursued either through
International or Liberty Media Group, (4) an International Programming
Opportunity presented to a public company that is a controlled
affiliate of either TCI or any of TCI's controlled affiliates (other
than International), (5) an International Programming Opportunity
presented to, or cable television or cable telephony services provided
by, any company or other entity in which TCI or any of its controlled
affiliates has an interest but which is not itself a controlled
affiliate of either TCI or any of TCI's controlled affiliates and (6)
the distribution outside the United States of a programming service
initially distributed within the United States and owned and/or
managed by TCI or any of its controlled affiliates (other than
International). If International determines not to pursue an
International Programming Opportunity, subsidiaries or controlled
affiliates of TCI other than International may pursue such
International Programming Opportunity or International and another
subsidiary of TCI (or any of its other controlled affiliates) may
pursue such opportunity jointly. To the extent that TCI or any of its
controlled affiliates (other than International) owns rights to
worldwide or regional sporting events, TCI or such affiliates may also
utilize those rights worldwide, including to provide "backdrop"
services. Neither TCI nor any of its controlled affiliates will be
obligated to make available to International any International
Programming Opportunity to the extent TCI or such controlled affiliate
is legally (for example, by a fiduciary duty owned to others) or
contractually prohibited from doing so. The foregoing arrangement
concerning International Programming Opportunities will, in any event,
be terminable at such time as TCI ceases to beneficially own at least
a majority in voting power of the outstanding shares of common stock
of International.
The Puerto Rico Subsidiary purchases programming services from the TCI
Group. The charges, which approximate the TCI Group's cost and are
based on the aggregate number of subscribers served by the Puerto Rico
Subsidiary, aggregated $1.3 million and $1.1 million during the three
months ended March 31, 1997 and 1996, respectively. Such programming
charges are included in operating costs and expenses in the
accompanying combined statements of operations.
(continued)
V-173
<PAGE> 395
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(12) Commitments and Contingencies
As a partner in certain partnerships, from time to time, the TCI
Ventures Group is obligated to make cash payments, either in the form
of equity or loans, the most significant of which is the funding of
Sprint Spectrum. As previously described, the Partners are obligated
to make cash capital contributions to Sprint Spectrum in the aggregate
amount of approximately $1.9 billion during the two-year period that
commenced January 1, 1996. Pursuant to an agreement entered into in
connection with certain financings by Sprint Spectrum, under certain
circumstances the Partners may be required to make additional
contributions to Sprint Spectrum to fund projected cash shortfalls to
the extent that the amount of the Partners' aggregate contributions to
Sprint Spectrum (exclusive of certain amounts, including amounts
invested in certain affiliates of Sprint Spectrum), following December
31, 1995 are less than $1.0 billion; however, based on the currently
expected timing and use of the Partners' contributions to Sprint
Spectrum, the TCI Ventures Group currently believes that such
agreement will not result in the TCI Ventures Group's being required
to make any incremental capital contributions in addition to its pro
rata portion of such $1.9 billion amount.
The TCI Ventures Group has guaranteed the obligation of an affiliate
("The Premium Movie Partnership") to pay fees for the license to
exhibit certain films through 2000. Although the aggregate amount of
The Premium Movie Partnership's license fee obligations is not
currently estimable, the TCI Ventures Group believes that the
aggregate payments pursuant to such obligations could be significant.
If the TCI Ventures Group were to fail to fulfill its obligations
under the guarantee, the beneficiaries have the right to demand an
aggregate payment from the TCI Ventures Group of approximately $55
million. Although the TCI Ventures Group has not had to perform under
such guarantee to date, the TCI Ventures Group cannot be certain that
it will not be required to perform under such guarantee in the future.
In 1995, Flextech issued newly issued Flextech Ordinary Shares and
Flextech Non-Preference Shares to subsidiaries of Hallmark Cards
Incorporated ("Hallmark") (the "Hallmark Subscription") and U S WEST,
Inc. ("U S WEST") (the "U S WEST Subscription").
(continued)
V-174
<PAGE> 396
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
If at any time (x) the aggregate of the amount of (i) Flextech
securities held by the TCI Ventures Group, (ii) the Hallmark and U S
WEST subsidiaries' interests in Flextech acquired under the Hallmark
Subscription and the U S WEST Subscription, respectively, and (iii)
Flextech securities acquired by International Family Entertainment,
Inc. ("IFE") pursuant to certain acquisitions (the "IFE Acquisitions")
exceeds 75% of Flextech's issued and outstanding share capital, or (y)
subject to certain exceptions, the Flextech Ordinary Shares cease to
be admitted to trading on the Official List of the London Stock
Exchange as a result of the exercise by the TCI Ventures Group of any
of its rights as a Flextech shareholder, the TCI Ventures Group shall
be obligated to offer to purchase from the Hallmark and U S WEST
subsidiaries, and from IFE any Flextech Ordinary Shares held by them
and which were originally acquired pursuant to the Hallmark
Subscription, the U S WEST Subscription, or the IFE Acquisitions, as
applicable. Under such circumstances, the offer price for such shares
shall be the higher of (i) the then current market price for the
Flextech Ordinary Shares and (ii) the highest price paid to any third
party by the TCI Ventures Group for any Flextech Ordinary Shares
during the preceding 12 month period. In the event the TCI Ventures
Group is required to purchase any Flextech Ordinary Shares, it may
elect, subject to certain limited exceptions, to pay the purchase
price thereof in cash or in shares of International Series A common
stock, or in certain securities of TCI.
In light of certain change of control provisions contained in the
articles of association of UKGL and UKLL, TCI has agreed to maintain
an indirect voting interest of at least 50.01% in a wholly-owned
subsidiary of Flextech so long as Flextech continues to hold its
ownership interests in UKGL and UKLL. Under Flextech's Articles of
Association, if the TCI Ventures Group becomes obligated to purchase
any of the Flextech Non-Preference Shares (as described above) and
fails to complete such purchase within 12 months from the date such
purchase is required to be completed, such Flextech Non-Preference
Shares shall become convertible into Flextech Ordinary Shares whether
or not the TCI Ventures Group ceases to own at least 50.01% of the
voting interest attributable to Flextech's then outstanding ordinary
share capital.
On November 20, 1995, International announced its intention to form
strategic partnerships with News Corp., Organizacoes Globo and Grupo
Televisa S.A. for the development and operation of a direct-to-home
satellite service for Latin America, Mexico, and various Central and
South American countries (collectively, the "DTH Ventures"). It is
anticipated that International could be required to make cash
contributions totaling $46 million over the next three years in
connection with the DTH Ventures.
Certain key employees of TCI involved with TCI Ventures Group matters
hold options with tandem stock appreciation rights to acquire Series A
TCI Group Stock, Series A Liberty Media Group Stock and International
Series A common stock as well as restricted stock awards of Series A
TCI Group Stock and International Series A common stock. Additionally,
in December of 1996, certain employees of TCI involved with TCI
Ventures Group were each granted options representing 1.0% of the
common equity of TCI Telephony Services, Inc., TCI Wireline, Inc., and
TCI.NET, Inc. The exercise price of each such option will be adjusted
for a 6% per annum interest factor to the date of exercise.
Additionally, in December of 1996, an employee involved with TCI
Ventures Group was granted options representing 1.0% of TCI Satellite
Entertainment, Inc.
(continued)
V-175
<PAGE> 397
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Estimates of the compensation relating to the options and/or stock
appreciation rights as well as restricted stock awards granted to
employees involved with TCI Ventures Group have been recorded in the
accompanying combined financial statements, but are subject to future
adjustment based upon the market value of the underlying equity and,
ultimately, on the final determination of market value when the
options or rights are exercised or the restricted shares are vested.
V-176
<PAGE> 398
"TCI VENTURES GROUP"
(a combination of certain assets)
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
General
On May 14, 1997, the Board of Directors of Tele-Communications, Inc.
(the "Board") authorized, subject to shareholder approval (the "TCI Ventures
Group Stock Proposal"), the issuance of two new series of stock ("TCI Ventures
Group Stock") which are intended to reflect the separate performance of the TCI
Ventures Group.
The TCI Ventures Group Stock, if issued, will be intended to reflect
the separate performance of the TCI Ventures Group. The TCI Ventures Group
would initially consist principally of the following assets and their related
liabilities: (i) TCI's 85% equity interest (representing a 92% voting interest)
in Tele-Communications International, Inc. ("International"), which is the
Company's primary vehicle for the conduct of its international cable, telephony
and programming businesses (other than those international programming
businesses attributed to the Liberty Media Group), (ii) TCI's principal
interests in the telephony business ("TCI Telephony") consisting primarily of
the Company's investment in a series of partnerships formed to engage in the
business of providing wireless communications services, using the radio
spectrum for broadband personal communications services ("PCS"), to residential
and business customers nationwide under the Sprint(R) brand (a registered
trademark of Sprint Communications Company, L.P.) (the "PCS Ventures"), the
Company's 30% equity interest (representing a 37% voting interest) in Teleport
Communications Group Inc. ("Teleport" or "TCG"), a competitive local exchange
carrier, and Western Tele-Communications, Inc. ("WTCI"), a wholly owned
subsidiary of the Company that provides long distance transport of video, voice
and data traffic and other telecommunications services to interexchange
carriers on a wholesale basis using primarily a digital broadband microwave
network located throughout a 12 state region, (iii) TCI's 40% equity interest
(representing a 85% voting interest) in United Video Satellite Group, Inc.
("UVSG"), which provides satellite-delivered video, audio, data and program
promotion services to cable television systems, satellite dish owners, radio
stations and private network users, primarily throughout North America, (iv)
TCI's 43% equity interest (representing a 75% voting interest) in At Home
Corporation ("@Home"), a provider of high speed multimedia Internet services,
and TCI's interest in other Internet-related assets and (v) other assets,
including ETC w/tci, Inc. ("ETC w/tci"), an 80% owned subsidiary of the Company
which is a developer and distributor of for-profit education, training and
communications services and products, National Digital Television Center, Inc.
("NDTC"), which provides digital compression and authorization services to
programming suppliers and to video distribution outlets and TCI Summitrak of
Texas, Inc. and TCI Summitrak L.L.C., ("Summitrak"), wholly owned subsidiaries
of the Company that provide an integrated network-based information management
system currently to certain of TCI's cable systems with plans to expand the
service to include third parties. The stocks of International, TCG and UVSG are
traded on the National Market tier of The Nasdaq Stock Market.
The TCI Ventures Group will not include any other business that uses
TCI's domestic cable network to distribute services to customers (e.g., cable,
telephony and Internet services). Such domestic "distribution" businesses will
continue to be attributed to the TCI Group.
(continued)
V-177
<PAGE> 399
"TCI VENTURES GROUP"
(a combination of certain assets)
The TCI Ventures Group would also include such other assets and
liabilities of the TCI Group as the Board may in the future determine to
attribute or sell to the TCI Ventures Group and such other businesses, assets
and liabilities as the Company or any of its subsidiaries may in the future
acquire for the TCI Ventures Group, as determined by the Board. It is currently
the intention of the Company that any businesses, assets and liabilities so
attributed to the TCI Ventures Group in the future would not include assets and
liabilities of the company's domestic programming businesses and investments or
its domestic cable operations (including its businesses which utilize its cable
network to distribute telephony and Internet services).
The TCI Group is intended to reflect the performance of those
businesses of TCI not attributed to the Liberty Media Group (which is intended
to reflect the performance of TCI's business which produces and distributes
programming services) and the TCI Ventures Group. Collectively, the TCI Group,
the Liberty Media Group and the TCI Ventures Group are referred to as the
"Groups" and individually may be referred to herein as a "Group".
The common stockholders' equity value of TCI attributable to the TCI
Ventures Group that, at any relevant time, is attributed to the TCI Group, and
accordingly, not represented by outstanding TCI Ventures Group Stock is
referred to as "Inter-Group Interest". Prior to the issuance of any shares of
TCI Ventures Group Stock, the Inter-Group Interest of the TCI Group in the TCI
Ventures Group is 100%. As any shares of TCI Ventures Group Stock are issued
and distributed or sold, the TCI Group's Inter-Group Interest in the TCI
Ventures Group will be reduced accordingly.
While the TCI Ventures Group Stock constitutes common stock of TCI,
issuance of the TCI Ventures Group Stock will not result in any transfer of
assets or liabilities of TCI or any of its subsidiaries or affect the rights of
holders of TCI's or any of its subsidiaries' debt.
Holders of Series A TCI Group and Series B TCI Group common stock
("TCI Group Stock"), Series A Liberty Media Group and Series B Liberty Media
Group common stock ("Liberty Media Group Stock") and TCI Ventures Group Stock
(when issued) will be common stockholders of TCI and will be subject to risks
associated with an investment in TCI and all of its businesses, assets and
liabilities.
Contemporaneously with the mailing of a proxy statement to
shareholders for the shareholder approval of the TCI Ventures Group Stock
Proposal, the Company is commencing offers (the "Exchange Offers") to exchange
shares of Series A TCI Ventures Group Stock and Series B TCI Ventures Group
Stock for shares of Series A TCI Group Stock and shares of Series B TCI Group
Stock, respectively, (representing approximately 28-35% of the outstanding
shares of each such series) in the ratio of one share of the applicable series
of TCI Ventures Group Stock in exchange for each share of the corresponding
series of TCI Group Stock properly tendered. The Exchange Offers are subject,
among other conditions, to the approval by stockholders of the TCI Ventures
Group Stock Proposal. If such approval is obtained, the Company would
consummate the Exchange Offers promptly following the annual meeting.
(continued)
V-178
<PAGE> 400
"TCI VENTURES GROUP"
(a combination of certain assets)
The aggregate number of shares of TCI Ventures Group Stock being
offered in the Exchange Offers is intended initially to represent 100% of the
common stockholders' equity value of the Company attributable to the TCI
Ventures Group. Accordingly, if all of such shares were issued in the Exchange
Offers the Inter-Group Interest of the TCI Group would be reduced to zero. If
immediately following the consummation of the Exchange Offers the TCI Group has
any remaining Inter-Group Interest in the TCI Ventures Group, the Company will
extinguish such Inter-Group Interest in consideration of the attribution to the
TCI Group of a preferred equity interest in the TCI Ventures Group with a face
amount equal to the market value of the shares of TCI Ventures Group Stock not
issued in the Exchange Offers (which shall be deemed to be the same, on a per
share basis, as the market value of the Series A TCI Group Stock on the last
trading day preceding the closing of the Exchange Offers), a dividend rate of
5% per annum (with dividends being payable in kind until the fifth anniversary
of the closing of the Exchange Offers and a mandatory redemption obligation on
the 15th anniversary of the closing of the Exchange Offers.
In addition to the shares of TCI Ventures Group Stock to be issued in
the Exchange Offers, shares of Series A TCI Ventures Group Stock are being
reserved for issuance upon exchange subsequent to the closing of the Exchange
Offers of certain outstanding convertible notes issued by a subsidiary of the
Company. In lieu of a number of shares of Series A TCI Group Stock equal to
28%-35% of the number of shares of Series A TCI Group Stock currently issuable
upon exchange of such convertible notes, an equal number of shares of TCI
Ventures Group Common Stock would be issued upon such exchange.
Notwithstanding the attribution of assets and liabilities, equity and
items of income and expense among the TCI Group, the Liberty Media Group and
the TCI Ventures Group for the purpose of preparing the combined financial
statements of the TCI Group, the Liberty Media Group and the TCI Ventures
Group, the change in the capital structure of the Company contemplated by the
TCI Ventures Group Stock Proposal will not affect legal title to such assets or
responsibility for such liabilities of the Company or any of its subsidiaries.
Holders of TCI Group Stock, Liberty Media Group Stock and TCI Ventures Group
Stock will be common stockholders of the Company and will be subject to risks
associated with an investment in the Company and all of its businesses, assets
and liabilities.
Financial effects arising from one Group that affect the Company's
consolidated results of operations or financial condition could affect the
combined results of operations or financial condition of the other Groups and
the market price of the TCI Group Stock, the Liberty Media Group Stock and the
TCI Ventures Group Stock. In addition, any net losses of any Group, dividends
or distributions on, or repurchases of, the TCI Group Stock, the Liberty Media
Group Stock or the TCI Ventures Group Stock, and dividends on, or certain
repurchases of, preferred stock, will reduce funds of the Company legally
available for the payment of dividends on the TCI Group Stock, the Liberty
Media Group Stock and the TCI Ventures Group Stock. The combined financial
statements of the TCI Group, the Liberty Media Group and the TCI Ventures Group
should be read in conjunction with the consolidated financial statements of the
Company.
On April 25, 1995, the TCI Ventures Group acquired a 51% ownership
interest in Cablevision S.A. and certain affiliated companies ("Cablevision")
for an adjusted purchase price of $282.0 million, before liabilities assumed
(the "Cablevision Acquisition"). The purchase price was paid with cash
consideration of $195.2 million (including a previously paid $20 million
deposit) and the TCI Ventures Group's issuance of $86.8 million principal
amount of secured negotiable promissory notes payable to the selling
shareholders.
(continued)
V-179
<PAGE> 401
"TCI VENTURES GROUP"
(a combination of certain assets)
In June 1995, the TCI Ventures Group acquired certain assets of
CareerTrack, Inc. ("CareerTrack") and DDP Realty Company and all of the
outstanding common stock of CareerTrack (collectively, the "CareerTrack
Acquisition") in exchange for cash in the amount of $17,998,000, non-interest
bearing promissory notes with a recorded amount of $12,790,000 (net of discount
of $2,612,000), and assumed debt of $6,922,000.
On January 25, 1996, the stockholders of UVSG adopted the Agreement
and Plan of Merger dated as of July 10, 1995, as amended (the "UVSG Merger
Agreement"), among UVSG, TCI and TCI Merger Sub, Inc. ("Merger Sub"), pursuant
to which Merger Sub was merged into UVSG, with UVSG as the surviving
corporation (the "UVSG Merger"). TCI Ventures Group acquired 12,373,294 shares
of UVSG Class B common stock and 2,145,466 shares of UVSG Class A common stock,
together representing approximately 40% of the issued and outstanding common
stock of UVSG and approximately 86% of the total voting power of UVSG common
stock immediately after the UVSG Merger, resulting in UVSG becoming a
majority-controlled subsidiary of TCI Ventures Group.
On August 9, 1996, the TCI Ventures Group and Liberty Media Group
executed an amended and restated agreement under which UVSG and Liberty Media
Group contributed their retail C-band home satellite dish business' assets,
obligations and operations, effective April 1, 1996, to Superstar/Netlink Group
LLC, a new entity owned 50% each by UVSG and Liberty Media Group (the
"Satellite Joint Venture"). The operations of the Satellite Joint Venture have
been consolidated, effective April 1, 1996, with the operating results of the
TCI Ventures Group.
On October 1, 1996, Cablevision acquired 99.99% of the issued and
outstanding capital stock of Oeste Cable Color S.A., a cable television
operation in the west of the greater Buenos Aires metropolitan area, for a
purchase price of $112.2 million (the "OCC Acquisition"). Cash consideration of
$43.7 million was paid at closing and an additional cash payment of $22.1
million was paid on December 1, 1996. The remaining purchase price was
satisfied by Cablevision's issuance of $46.4 million principal amount of
secured negotiable promissory notes.
On February 2, 1994, the TCI Ventures Group contributed its 100%
ownership interests in Flextech Television Limited ("FTV") and Bravo Classic
Movies Limited ("Bravo Ltd."), together with its equity method investments in
UK Gold Television Limited ("UKGL"), UK Living Limited ("UKLL") and Starstream
Limited ("Starstream") (collectively, the "International UK Programming
Assets") to Flextech p.l.c. ("Flextech") in exchange for 60.4% of Flextech's
issued and outstanding ordinary shares (the "Flextech Combination").
On June 5, 1995, Flextech completed the sale of newly issued Flextech
ordinary shares ("Flextech Ordinary Shares") and newly issued convertible
non-preference shares ("Flextech Non-Preference Shares") to subsidiaries of
Hallmark Cards Incorporated ("Hallmark") (the "Hallmark Subscription") and U S
WEST, Inc. ("U S WEST") (the "U S WEST Subscription") in exchange for
(pound)48.4 million ($77.2 million using the applicable exchange rate) in cash
and convertible redeemable preferred shares of Thomson Directories Limited,
respectively. The Hallmark Subscription and the U S WEST Subscription are
collectively referred to herein as the "Flextech Transactions."
(continued)
V-180
<PAGE> 402
"TCI VENTURES GROUP"
(a combination of certain assets)
On April 22, 1996, Flextech acquired from International Family
Entertainment, Inc. ("IFE") (i) the 61% ownership interest in Maidstone
Broadcasting ("Maidstone"), which Flextech did not already own and (ii) a 100%
ownership interest in TVS Television Limited ("TVS"). Excluding liabilities
assumed, the total consideration paid by Flextech to acquire such ownership
interests was (pound)31.4 million ($47.8 million using the applicable exchange
rate), of which (pound)3.0 million ($4.5 million using the applicable exchange
rate) was paid in cash and the remaining balance was satisfied by Flextech's
issuance of convertible non-preference shares (the "IFE Consideration Shares").
The TCI Ventures Group owned, at December 31, 1996, 46.5% of the
issued and outstanding Flextech share capital and 50.9% of the aggregate voting
interests attributable to such Flextech share capital.
In January 1997, the TCI Ventures Group reduced its voting interest in
Flextech to 50% by issuing to a nominee an irrevocable proxy (the "Proxy") to
vote 960,850 Flextech Ordinary Shares at any shareholder meeting to be held
through December 31, 1997. In April 1997, Flextech and BBC Worldwide Limited
("BBC Worldwide") formed two separate joint ventures (the "BBC Joint Ventures")
and entered into certain related transactions. The consummation of the BBC
Joint Ventures and related transactions resulted in, among other things, a
reduction of TCI Ventures Group's ownership interest in Flextech to 35.9% and
the issuance to the TCI Ventures Group by Flextech of a special voting share
(the "Special Voting Share"). The Special Voting Share when combined with
International's other share capital in Flextech, allows TCI Ventures Group to
cast 50% of the votes on most matters brought to the shareholders of Flextech
for vote. So long as the Proxy remains outstanding, TCI Ventures Group's 50%
voting interest will be reduced by the 960,850 votes represented by the Proxy.
The Special Voting Share will terminate upon the occurrence of the earlier of
(i) the third anniversary of issuance or (ii) any transfer of Flextech shares
by the TCI Ventures Group outside a specified affiliated group. In light of the
TCI Ventures Group's decreased voting interest in Flextech, as described above,
the TCI Ventures Group, effective January 1, 1997, ceased to consolidate
Flextech and began to account for Flextech using the equity method of
accounting.
(continued)
V-181
<PAGE> 403
"TCI VENTURES GROUP"
(a combination of certain assets)
Summary of Operations
Combined Operations
The following table sets forth certain financial information for the
TCI Ventures Group and each of the combined businesses attributed to it during
the years ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------------------------
1996 1995 1994
---------------------- -------------------- ----------------------
Amount % Amount % Amount %
------ - ------ - ------ -
dollar amounts in thousands
<S> <C> <C> <C> <C> <C> <C>
Revenue:
UVSG $ 409,616 44% -- --% -- --%
International 314,560 34 190,533 59 43,982 42
ETC w/tci 90,598 10 49,994 15 -- --
NDTC 74,881 8 53,393 16 26,051 25
WTCI 31,857 4 31,877 10 33,811 33
Summitrak -- -- -- -- -- --
@Home 673 -- -- -- -- --
Other 3,491 -- 194 -- -- --
------------- ------ ----------- ------ ----------- ------
$ 925,676 100% 325,991 100% 103,844 100%
============= ===== =========== ===== =========== =====
Operating, selling,
general,
administrative and
stock compensation:
UVSG $ 342,544 42% -- --% -- --%
International 279,170 34 165,389 58 62,196 61
ETC w/tci 107,785 13 51,360 18 -- --
NDTC 44,171 5 30,867 11 20,390 20
WTCI 19,530 2 19,399 7 17,798 18
Summitrak 1,649 -- 1,657 1 644 1
@Home 23,950 3 2,845 1 -- --
Other 8,145 1 12,318 4 (311) --
------------- ------ ----------- ------ ----------- ------
$ 826,944 100% 283,835 100% 100,717 100%
============= ===== =========== ===== =========== =====
Depreciation and amortization:
UVSG $ 29,775 20% -- --% -- --%
International 58,747 40 36,360 48 8,590 30
ETC w/tci 4,953 3 3,900 5 -- --
NDTC 28,776 19 18,737 25 6,918 24
WTCI 10,595 7 10,164 14 11,478 40
Summitrak 11,680 8 5,582 7 1,684 6
@Home 1,774 1 21 -- -- --
Other 2,989 2 333 1 -- --
------------- ------ ----------- ------ ----------- ------
$ 149,289 100% 75,097 100% 28,670 100%
============= ===== =========== ===== =========== =====
Operating income (loss):
UVSG $ 37,297 n/a -- n/a -- n/a
International (23,357) (11,216) (26,804)
ETC w/tci (22,140) (5,266) --
NDTC 1,934 3,789 (1,257)
WTCI 1,732 2,314 4,535
Summitrak (13,329) (7,239) (2,328)
@Home (25,051) (2,866) --
Other (7,643) (12,457) 311
------------- ----------- -----------
$ (50,557) (32,941) (25,543)
============= =========== ===========
</TABLE>
(continued)
V-182
<PAGE> 404
"TCI VENTURES GROUP"
(a combination of certain assets)
Revenue
Revenue increased by $600 million or 184% during the year ended
December 31, 1996 as compared to 1995. Revenue increased by $222 million or
214% during the year ended December 31, 1995 as compared to 1994. Such
increases are principally the result of revenue from acquired companies.
Revenue from UVSG, amounting to $410 million, represents in excess of
two-thirds of the combined increase in revenue for 1996. Such increase is
principally the result of the acquisition in January of 1996 of UVSG by the TCI
Ventures Group. Additionally, such increase reflects $121 million additional
revenue resulting from the Satellite Joint Venture.
International revenue increased $124 million or 65% during the year
ended December 31, 1996 as compared to the corresponding prior year period.
Such increase was comprised of an increase in cable revenue of $78 million or
55% and an increase in programming revenue from Flextech of $46 million or 97%
during the year ended December 31, 1996. The increase in cable revenue is
primarily attributable to the effect of the Cablevision Acquisition and the OCC
Acquisition. A significant component of the increase in programming revenue is
attributable to the inclusion of Maidstone and TVS in the TCI Ventures Group's
results of operations in 1996.
International revenue increased $147 million during the year ended
December 31, 1995 as compared to the corresponding prior period, representing a
333% increase. Of such amount, international cable revenue increased $124
million (649%) primarily as the result of the Cablevision Acquisition and the
OCC Acquisition. International programming revenue increased $23 million or 93%
during the year ended December 31, 1995. The majority of such increase is
attributable to 92% and 64% increases in revenue from Bravo, Ltd. and
Starstream, respectively.
Revenue from ETC w/tci increased $41 million or 81% during the year
ended December 31, 1996 as compared to 1995. Revenue from ETC w/tci increased
$50 million from 1994 to 1995. Such increases are attributable to the
CareerTrack Acquisition consummated in June of 1995.
The TCI Ventures Group, effective January 1, 1997, ceased to
consolidate Flextech and began to account for Flextech using the equity method
of accounting. During the years ended December 31, 1996, 1995 and 1994, revenue
attributable to Flextech of $94 million, $48 million and $25 million,
respectively, was included in the TCI Ventures Group's statements of
operations.
Operating Costs and Expenses
Operating costs and expenses, excluding depreciation and amortization,
increased by $543 million or 191% during the year ended December 31, 1996 as
compared to 1995. Operating costs and expenses, excluding depreciation and
amortization, increased by $183 million or 182% during the year ended December
31, 1995 as compared to 1994. Such increases are principally the result of
operating costs and expenses from acquired companies.
Operating costs and expenses, excluding depreciation and amortization,
from UVSG represents 63% of the combined increase in operating costs and
expenses for 1996. Such increase is principally the result of the acquisition
in January of 1996 of UVSG by the TCI Ventures Group. Additionally, such
increase reflects $110 million additional expense resulting from the Satellite
Joint Venture.
(continued)
V-183
<PAGE> 405
"TCI VENTURES GROUP"
(a combination of certain assets)
International operating costs and expenses, excluding depreciation and
amortization, increased $114 million or 69% for the year ended December 31,
1996, as compared to the corresponding prior year period. International
programming costs and expenses increased $64 million during 1996, a 103%
increase. Such increase is attributable to the inclusion of Maidstone and TVS
in the TCI Ventures Group's results of operations in 1996 and higher
programming and stock compensation costs during 1996. International cable costs
and expenses increased $44 million (48%) during the year ended December 31,
1996, primarily as a result of the Cablevision Acquisition, the OCC
Acquisition, and increased programming costs.
International operating costs and expenses, excluding depreciation and
amortization, increased $103 million during the year ended December 31, 1995 as
compared to the corresponding prior year period, representing a 166% increase.
Of such amount, cable operating costs and expenses increased $76 million or
512% during 1995, of which $69 million was attributable to the Cablevision
Acquisition. International programming costs and expenses increased $23 million
or 58% during 1995 as compared to the 1994 period. The majority of such
increase is attributable to higher transponder, marketing and programming costs
of Bravo, Ltd. and Starstream.
During 1996, the TCI Ventures Group revised its estimate of future
revenue to be earned from certain programming rights. As a result of such
revisions, the TCI Ventures Group has recorded an adjustment of $9 million to
reduce the carrying value of the affected programming rights.
The TCI Ventures Group, effective January 1, 1997, ceased to
consolidate Flextech and began to account for Flextech using the equity method
of accounting. During the years ended December 31, 1996, 1995 and 1994,
programming operating costs and expenses (including any programming rights
provisions) attributable to Flextech of $135 million, $62 million and $39
million, respectively, were included in the TCI Ventures Group's statements of
operations.
Operating costs and expenses from ETC w/tci, excluding depreciation
and amortization, increased $56 million or 110% during the year ended December
31, 1996 as compared to 1995. Operating costs and expenses from ETC w/tci,
excluding depreciation and amortization, increased $51 million from 1994 to
1995. Such increases are attributable to the CareerTrack Acquisition
consummated in mid-1995.
Certain TCI corporate general and administrative costs are charged to
TCI Ventures Group at rates set at the beginning of the year based on projected
utilization for that year. The utilization-based charges are set at levels that
management believes to be reasonable and that approximate the costs TCI
Ventures Group would incur for comparable services on a stand alone basis.
During the years ended December 31, 1996, 1995 and 1994, TCI Ventures Group was
allocated $8 million, $4 million and less than $1 million, respectively, in
corporate general and administrative costs by TCI Group.
The $74 million or 99% and $46 million or 162% increases in
depreciation and amortization expense during the years ended December 31, 1996
and 1995, respectively, are the result of increases in the TCI Ventures Group's
assets that are subject to depreciation and amortization. The increases in such
assets were primarily attributable to acquisitions, as described above, and
capital expenditures.
(continued)
V-184
<PAGE> 406
"TCI VENTURES GROUP"
(a combination of certain assets)
Other Income and Expense
Telewest Communications plc ("Telewest"), which is currently
constructing broadband cable television and telephony networks in the United
Kingdom ("UK"), has incurred losses since its inception. It is expected that
the current construction requirements of Telewest will be substantially
complete by the end of the year 2000. The TCI Ventures Group's indirect
ownership interest in Telewest decreased from 50% to 37.8% in November 1994,
from 37.8% to 26.8% in October 1995 and from 26.8% to 26.6% during 1996.
Despite such decreased ownership interests, the TCI Ventures Group's share of
Telewest's net losses increased $39.1 million or 56% and $27.8 million or 65%
during 1996 and 1995, respectively. In general, such increases are attributable
to Telewest incurring higher amounts of interest expense, depreciation and
amortization. Such higher amounts include certain effects of a previous merger
transaction (the "SBCC Transaction"). In connection with the SBCC Transaction,
Telewest issued United States (sometimes referred to herein as the "U.S.")
dollar denominated senior debentures (the "Telewest Debentures"). In light of
the issuance of the Telewest Debentures and Telewest's use of purchase
accounting to account for the SBCC Transaction, Telewest's interest expense,
depreciation and amortization were significantly higher during the fourth
quarter of 1995 and the year ended December 31, 1996 (and will be significantly
higher in future periods) as compared to the amounts incurred by Old Telewest
prior to the consummation of the SBCC Transaction. In addition, changes in the
exchange rate used to translate the Telewest Debentures into UK pounds sterling
and the adjustment of a foreign currency option contract to market value caused
Telewest to experience unrealized foreign currency transaction gains (losses)
of $1.7 million and $(23.0 million) during 1996 and 1995, respectively. It is
anticipated that Telewest will continue to experience realized and unrealized
foreign currency transaction gains and losses throughout the term of the
Telewest Debentures, which mature in 2006 and 2007, if not redeemed earlier.
The PCS Ventures include Sprint Spectrum Holding Company, L.P. and
MinorCo, L.P. (collectively, "Sprint PCS" or the "Sprint PCS Partnership", and
PhillieCo, L.P. ("PhillieCo"). The partners of each of the Sprint PCS
Partnerships are subsidiaries of Sprint Corporation ("Sprint"), Comcast
Corporation ("Comcast"), Cox Communications, Inc. ("Cox") and the Company. The
partners of PhillieCo are subsidiaries of Sprint, Cox and the Company. The
Company, through TCI Telephony, has a 30% interest as a partner in each of the
Sprint PCS Partnerships and a 35.3% interest as a partner in PhillieCo. The
share of losses from the TCI Ventures Group's investment in the PCS Ventures
was $133 million for the year ended December 31, 1996 which represents an
increase of $99 million as compared to 1995. The share of losses from the PCS
Ventures was $34 million for the year ended December 31, 1995 which represents
an increase of $33 million, as compared to the share of losses of $1 million
for the year ended December 31, 1994. The increase in the share of losses is
attributed primarily to general and administrative costs associated with the
start-up of operations and Sprint Spectrum's share of losses in American PCS
L.P. The PCS Ventures are in the development stage of operations. It is
expected that Sprint PCS will continue to incur significant operating losses
and significant negative cash flow from operating activities during the next
several years while it develops and constructs its PCS network and builds its
customer base. If and when Sprint PCS has successfully completed its network
buildout, Sprint PCS's operating profitability will depend upon many factors,
including, among others, its ability to market its products and services
successfully, achieve its projected market penetration, manage customer
turnover rates effectively and price its products and services competitively.
There can be no assurance that Sprint PCS will achieve or sustain operating
profitability or positive cash flow from operating activities in the future. If
Sprint PCS does not achieve and maintain operating profitability and positive
cash flow from operating activities on a timely basis, it may not be able to
meet its debt service requirements.
(continued)
V-185
<PAGE> 407
"TCI VENTURES GROUP"
(a combination of certain assets)
The share of losses from the TCI Ventures Group's investment in
Teleport was $51 million for the year ended December 31, 1996 which represents
a $21 million increase as compared to 1995. The share of losses from Teleport
was $30 million for the year ended December 31, 1995 which represents an
increase of $11 million, as compared to the share of losses of $19 million for
the year ended December 31, 1994. The increase in the share of losses is
largely attributed to costs incurred by Teleport in the expansion of their
local telecommunications networks, increased depreciation expense and increased
interest expense partially offset by an increase in telecommunications services
revenue attributed to increased sales of services in existing and new markets.
Teleport has incurred net losses since its inception due to capital
expenditures associated with the acquisition, installation, development and
expansion of its existing and new telecommunications networks and the
associated initial operating expenses of such networks. These networks
generally incur negative cash flow from operating activities and operating
losses until an adequate customer base and revenue stream for such networks
have been established. TCI expects that Teleport will continue to incur net
losses for the foreseeable future as it acquires, installs, develops and
expands its existing and new telecommunications networks. There can be no
assurance that Teleport will achieve or sustain profitability or generate
sufficient positive cash flow to service its debt.
The TCI Ventures Group's share of the losses of affiliates other than
Telewest, PCS Ventures and Teleport (the "Other Affiliates") increased $14
million or 23% and $25 million or 70% during the years ended December 31, 1996
and 1995, as compared to the corresponding prior year periods. The majority of
the 1996 increase is attributable to (i) increased losses of certain of its
affiliates in 1996 and (ii) the TCI Ventures Group's share of losses of
affiliates that were acquired in 1996 and late 1995. The majority of the 1995
increase is attributable to the TCI Ventures Group's share of losses of
affiliates that were acquired in 1995 or late 1994.
Interest income increased $15 million or 97% and $12 million or 364%
during the years ended December 31, 1996 and 1995, respectively. The 1996
increase is primarily attributable to interest income earned on amounts loaned
to TCI. Such loans were funded with the net proceeds received upon the February
9, 1996 issuance of International's 4-1/2% Convertible Subordinated Debentures
(the "Debentures"). The 1995 increase is attributable to the increase in cash
and cash equivalents that resulted from the International initial public
offering ("International IPO").
Interest expense increased $9 million or 23% and $29 million or 222%
during the years ended December 31, 1996 and 1995, respectively, as a result of
an increase in the outstanding debt balance. The 1996 increase is primarily
attributable to the issuance of the Debentures. The 1995 increase is primarily
attributable to debt incurred in connection with the Cablevision Acquisition
and borrowings incurred by Flextech in 1995.
In connection with the dilution of the TCI Ventures Group's ownership
interest in Telewest that occurred in connection with the October 1995 SBCC
Transaction and the November 1994 initial public offering of Telewest's
predecessor, the TCI Ventures Group recognized non-cash gains of $165 million
and $161 million (before deducting the related tax expense of $58 million and
$57 million, respectively) during the years ended December 31, 1995 and 1994,
respectively. During 1996, the TCI Ventures Group also recognized a non-cash
gain of $258,000 in connection with the issuance of stock by Telewest. Such
gains represent the differences, at the respective transaction dates, between
the TCI Ventures Group's recorded cost for its ownership interest in Telewest
and the TCI Ventures Group proportionate share of Telewest's net assets. No
assurance can be given that any such gains will be recognized in the future.
(continued)
V-186
<PAGE> 408
"TCI VENTURES GROUP"
(a combination of certain assets)
Teleport conducted an initial public offering (the "Teleport IPO") on
July 2, 1996 in which it sold 27,025,000 shares of Class A common stock at
$16.00 per share to the public for aggregate net proceeds of approximately
$410,000,000. As a result of the Teleport IPO, the TCI Ventures Group's
ownership interest in Teleport was reduced from approximately 35% to
approximately 31%. Accordingly, the TCI Ventures Group recognized a gain
amounting to $12 million (before deducting deferred income tax expense of
approximately $5 million).
The TCI Ventures Group recognized net gains upon the disposition of
assets of $12 million and $49 million during 1996 and 1995, respectively. The
1996 gain is primarily attributable to the dissolution of the TeleWest Europe
Group, an entity in which International held a 50% ownership interest. The 1995
gain is attributable to the sale of the cable television subsidiaries of IVS
Cable Holdings Limited, a subsidiary of Flextech.
On July 18, 1995, International completed the International IPO in
which 20,000,000 shares of International's Series A common stock were sold to
the public for net proceeds of approximately $301 million. In connection with
such sale, the TCI Ventures Group recognized a non-recurring gain of $123
million.
The minority interests' share of net losses (earnings) was $28
million, $(15 million) and $10 million during the years ended December 31,
1996, 1995, and 1994, respectively. Such minority interests are attributable to
Flextech since none of Cablevision's $65 million of net liabilities at the
April 25, 1995 acquisition date and none of Cablevision's post-acquisition
operating results have been allocated to Cablevision's 49% minority interest
because (i) the Cablevision minority interest has no obligation to provide any
funding to Cablevision and (ii) the minority interest continued to have a
negative historical cost basis in Cablevision's net assets at December 31,
1996. To the extent that Cablevision's post-acquisition net earnings (exclusive
of the effects of purchase accounting) cause the minority interest's historical
cost basis in Cablevision's net assets to become positive, the TCI Ventures
Group would begin to allocate 49% of such net earnings to the minority
interest. If the minority interest's historical cost basis had been positive
during the periods ended December 31, 1996 and 1995, the TCI Ventures Group
would have allocated $16 million and $12 million, respectively, of
Cablevision's net earnings (exclusive of the effects of purchase accounting) to
the minority interest.
The TCI Ventures Group recognized realized and unrealized foreign
currency transaction gains (losses) of $7 million, $(3) million and $1 million
during the years ended December 31, 1996, 1995, and 1994, respectively. The
1996 amount includes (i) a $3.6 million unrealized gain with respect to the
remeasurement into the U.S. dollar of the French franc denominated obligation
(the "MultiThematiques Obligation") to make capital contributions to
MultiThematiques S.A. ("MultiThematiques") and (ii) a $3.6 million unrealized
gain with respect to the remeasurement into the U.S. dollar of the UK pound
denominated intercompany debt owed by Flextech to an indirect subsidiary of
International.
During 1996, holding losses on certain available-for-sale securities
were determined to be other than temporary. Accordingly, the TCI Ventures Group
recognized a $59 million loss during 1996 in connection with the write-off of
such securities.
(continued)
V-187
<PAGE> 409
"TCI VENTURES GROUP"
(a combination of certain assets)
Income Taxes
The TCI Ventures Group's income tax benefit (expense) was $110
million, $2 million and $(21 million) during the years ended December 31, 1996,
1995 and 1994, respectively. A tax sharing agreement (the "Tax Sharing
Agreement") among TCI Ventures Group, TCI and certain other subsidiaries of TCI
was implemented effective July 1, 1995. The Tax Sharing Agreement formalizes
certain elements of a pre-existing tax sharing arrangement and contains
additional provisions regarding the allocations of certain consolidated income
tax attributes and the settlement procedures with respect to the intercompany
allocation of current tax attributes.
Net Earnings (Losses)
The TCI Ventures Group reported net earnings (losses) of $(258
million), $60 million and $13 million during the years ended December 31, 1996,
1995 and 1994, respectively. Included in such amounts was the recognition of
certain non-operating gains aggregating $33 million, $336 million and $155
million during 1996, 1995 and 1994, respectively. TCI Ventures Group would have
reported net loss in all periods presented excluding the impact of such gains.
The losses are principally due to operating losses and share of losses of
affiliates.
International sustained operating losses of $23 million for the year
ended December 31, 1996. International's net earnings (loss) was $130 million
for the year ended December 31, 1996, which includes International and its
consolidated subsidiaries' share of the losses of its affiliates of $179
million, for the year ended December 31, 1996. Most of International's
affiliates have incurred net losses since their respective inception dates and
are expected to continue to incur net losses for the foreseeable future.
International expects to continue to incur net losses for the foreseeable
future due, in part, to the relatively high level of depreciation and
amortization that is common to growth oriented companies operating within the
capital intensive cable industry. Any improvements in the results of operations
of International are largely dependent upon the ability of International's
operating subsidiaries and affiliates to increase their respective subscriber
bases. No assurance can be given that any such subscriber base increases will
occur.
@Home has incurred net losses since its inception. Management of @Home
expects to incur significant additional losses as @Home continues to devote
capital to the building of its national network operations and services. To
achieve profitability, @Home must develop and market products and services
which are accepted on a broad commercial basis. @Home's products have not yet
demonstrated that they will achieve broad commercial acceptance. There can be
no assurance that @Home will ever achieve profitability.
Liquidity and Capital Resources
Substantially all of the businesses in which the TCI Ventures Group
has investments will require significant additional capital in order to develop
their respective businesses and assets, to fund future operating losses and to
fund future growth. In certain cases, principally with respect to the Sprint
PCS Partnerships, the TCI Ventures Group has contractual commitments pursuant
to which (subject to certain conditions) it may be required to make additional
capital contributions to the entities in which it has investments.
(continued)
V-188
<PAGE> 410
"TCI VENTURES GROUP"
(a combination of certain assets)
The Sprint PCS Partners, including TCI Telephony, have agreed to
contribute up to an aggregate of approximately $4.2 billion of equity to Sprint
PCS from inception through fiscal 1999 (of which TCI Telephony's share is
approximately $1.3 billion) if and to the extent required by annual budgets of
Sprint PCS for fiscal years in such period approved by the Sprint PCS Partners
or requested during such period by the affirmative vote of Sprint PCS Partners
with percentage interests in Sprint PCS of 75% or more in the aggregate. As of
March 31, 1997 approximately $3.0 billion of such $4.2 billion had been
contributed to Sprint PCS, of which amount TCI Telephony had contributed
approximately $900 million. TCI Telephony currently expects that the remaining
approximately $1.2 billion of such amount (of which TCI Telephony's share would
be approximately $360 million) will be contributed by the Sprint PCS Partners
by the end of the second quarter of 1998 (although there can be no assurance
that any additional capital will be contributed by any or all of the Sprint PCS
Partners). In addition, in connection with certain debt financings by Sprint
Spectrum, the corporate parents of the Sprint PCS Partners (TCI, Cox, Comcast
and Sprint, collectively, the "Sprint PCS Parents") entered into a capital
contribution agreement with Sprint Spectrum (the "Capital Contribution
Agreement"), of which the secured creditors in such debt financings are
beneficiaries, pursuant to which each Sprint PCS Parent agreed to make certain
contributions, or cause contributions to be made, to Sprint Spectrum from time
to time upon the occurrence of certain events (including a payment default
under or acceleration of Sprint Spectrum's obligation pursuant to the debt
financings agreements) up to a maximum aggregate amount determined in
accordance with a formula. The obligations of TCI under the Capital
Contribution Agreement have been attributed to the TCI Ventures Group. As of
March 31, 1997, approximately $500 million in cash of such agreed contributions
under the Capital Contribution Agreement had been contributed directly or
indirectly to Sprint Spectrum (of which TCI contributed approximately $150
million), thereby reducing the Sprint PCS Parents' respective obligations under
the Capital Contribution Agreement by such amount and reducing TCI's obligation
to approximately $150 million as of December 31, 1996. Based on the currently
expected timing of additional contributions to Sprint PCS (including the
currently expected timing of Sprint PCS's expected capital contributions to APC
and Cox PCS and to its subsidiaries other than Sprint Spectrum and its
subsidiaries), TCI does not expect that its obligations under the Capital
Contribution Agreement will result in the obligation to make any incremental
capital contributions to Sprint PCS in addition to TCI Telephony's pro rata
portion of the balance of the $4.2 billion that the Sprint PCS Partners have
agreed to contribute.
(continued)
V-189
<PAGE> 411
"TCI VENTURES GROUP"
(a combination of certain assets)
The TCI Ventures Group's ability to obtain sufficient capital
resources to make its expected additional capital contributions to the Sprint
PCS Ventures and other entities in which it has investments will be limited
because WTCI and NDTC are the only entities included in the TCI Ventures Group
which conduct operations directly within the TCI Ventures Group and such
entities are currently the TCI Ventures Group's only source of revenue or cash
provided by operating activities. TCI could raise additional capital for the
TCI Ventures Group by, among other things, engaging in public offerings or
private placements of TCI Ventures Group Stock or through issuance of debt
securities or preferred equity securities attributed to the TCI Ventures Group.
The TCI Ventures Group anticipates that for the foreseeable future it will
continue to be dependent upon funding from the TCI Group and, to the extent
available, from external sources. To satisfy this need, the Company has agreed
to provide a revolving loan facility (the "Credit Facility") to TCI Ventures
Group for a five-year period commencing on the closing of the Exchange Offers.
Such facility would permit aggregate borrowings at any one time outstanding of
up to $500 million (subject to reduction or increase as provided below), which
borrowings would bear interest at a rate per annum equal to The Bank of New
York's prime rate (as in effect from time to time) plus 1% per annum, payable
quarterly. A commitment fee equal to 3/8% per annum of the average unborrowed
availability under the Revolving Credit Facility would be payable by the TCI
Ventures Group to the TCI Group on a quarterly basis. The maximum amount of
borrowings permitted under the Credit Facility will be reduced on a
dollar-for-dollar basis by up to $300 million if and to the extent that the
aggregate amount of any additional capital that TCI Ventures Group is required
to contribute to Sprint PCS Partnerships subsequent to the closing of the
Exchange Offers is less than $300 million. If the available borrowings under
the Credit Facility are not sufficient to fund the TCI Ventures Group's capital
requirements, no assurance can be given that the TCI Ventures Group will be
able to obtain any required additional financing on terms acceptable to it, or
at all.
The majority of the TCI Ventures Group entities currently have
significant capital requirements and TCI expects such entities will continue to
have significant capital requirements for the foreseeable future. TCI Ventures
Group's businesses and investments consist of entities which require the
acquisition, ownership, development and operation of broadband cable television
and telephony distribution networks and new programming services, all of which
require substantial capital investment. The buildout of Sprint PCS's network
and the development of @Home's network infrastructure and the development,
marketing and distribution of their respective products and services will
require substantial capital. Although Teleport has been operating its networks
for over ten years, its continuous acquisition, development and expansion of
its existing and new networks and services also require significant capital
expenditures.
(continued)
V-190
<PAGE> 412
"TCI VENTURES GROUP"
(a combination of certain assets)
International expects to have substantial capital requirements for the
foreseeable future because its businesses and investments consist of entities
which require the acquisition, ownership, development and operation of
broadband cable television and telephony distribution networks and new
programming services. Many of International's subsidiaries and affiliates are
incurring substantial costs as they build or rebuild their cable networks or
develop and acquire programming. Until such companies begin generating profits
and positive cash flow from operating activities, they will need additional
capital to fund capital expenditures and working capital requirements.
International and its consolidated subsidiaries have commitments under various
partnership and other funding agreements to contribute capital or loan money to
fund capital expenditures and other capital requirements of certain affiliates.
International believes that its actual future cash requirements in order to
fund the capital expenditures and working capital requirements of its
subsidiaries and affiliates will exceed the sum of the amounts that
International and its consolidated subsidiaries are currently contractually
obligated to fund and such additional funding commitments that International
and its consolidated subsidiaries are currently negotiating. Further,
International's business strategy requires that it have the ability to access
or raise sufficient funds to allow it to take advantage of new acquisition and
joint venture opportunities as they arise, which management of International
believes will require the availability of substantial additional funds.
Although, as of March 31, 1997, International has $134 million proceeds
remaining from the sale of its 4 1/2% Convertible Subordinated Debentures due
2006 which were issued in February 1996 (the "International Debentures") (which
remaining proceeds have been loaned to TCI pursuant to an unsecured promissory
note pending its use by International) and has a $200 million credit facility
("International Credit Facility") with the TCI Ventures Group, International's
ability to otherwise obtain debt financing to assist its operating companies
and to meet its capital obligations at other than the subsidiary level will be
limited because International does not conduct any operations directly. No
assurance can be given that International will be able to meet its commitments
to its subsidiaries and affiliates or to fund its operations or liquidity
requirements through the receipt of cash distributions or other advances from
its subsidiaries or affiliates. The only subsidiary of International from which
it presently is able to obtain funds is the subsidiary which owns
International's interest in the Puerto Rico cable systems. International
believes that the remaining consolidated operating activities of International
will produce net cash flow deficits for the foreseeable future. Accordingly,
International anticipates that it will be dependent upon its current levels of
cash and cash equivalents (exclusive of amounts held by its subsidiaries), the
remaining proceeds from the sale of the International Debentures and borrowings
under the International Credit Facility to meet its liquidity requirements,
including its commitments to its subsidiaries and its affiliates, for the
foreseeable future. To the extent that International seeks to make significant
additional acquisitions or significant new investments or is required to meet
significant future liquidity requirements, International anticipates that it
will need to obtain additional financing.
(continued)
V-191
<PAGE> 413
"TCI VENTURES GROUP"
(a combination of certain assets)
@Home is incurring substantial operating expenses and making
significant capital expenditures (including the development of its network
infrastructure and hiring new personnel) in anticipation of growth in its
business, which is in a very early state of development. As of March 31, 1997
there were minimal subscribers to its @Home services. @Home believes that it
has raised sufficient capital through private issuances of equity to meet its
currently projected network infrastructure investment and implementation and
working capital needs until the end of 1997. However, @Home may need to raise
additional funds if its estimates of working capital and/or capital expenditure
and/or lease financing requirements change or prove inaccurate or in order for
@Home to respond to unforeseen technological or marketing hurdles or to take
advantage of unanticipated opportunities, and @Home will require significant
additional capital in the future to fund @Home's infrastructure investment,
product development, marketing, sales and customer support needs. @Home
currently does not have and will not have for the foreseeable future operating
income to meet its capital requirements. Currently all of @Home's capital
requirements have been met by equity investments in @Home. While TCI Ventures
Group has no outstanding contractual obligation to provide capital to @Home, if
@Home is not able to find additional capital from third parties on attractive
terms, it is likely that TCI Ventures Group will need to invest additional
amounts, which may be significant, to fund the capital expenditures and working
capital requirements of @Home.
Certain terms of the relationship between TCI and @Home could create a
situation in which the TCI Ventures Group's interest in @Home is adversely
affected by the TCI Group's performance in the distribution of the @Home
services over TCI's cable systems. For example, under the terms of the @Home
stockholders agreement, if during the period when the @Home exclusivity
provisions are still in effect, TCI ceases to control at least 80% of the
number of homes passed it controlled as of June 4, 1996, TCI will be required
to offer to sell a proportionate amount of its equity in @Home to the other
@Home principal stockholders at fair market value. In addition, if TCI does not
meet certain subscriber penetration levels by June 4, 1999, or any anniversary
thereof, the other @Home principal cable stockholders may terminate all
exclusivity obligations of the @Home principal cable stockholders, which
termination could have a material adverse effect on @Home. Because TCI's
investment in @Home is attributed to the TCI Ventures Group and TCI's business
of distributing @Home's Internet services to customers through TCI's cable
systems is attributed to the TCI Group, the TCI Ventures Group could be forced
to sell all or a portion of its interest in @Home or the value of its
investment in @Home could be adversely affected through the loss of
exclusivity, in each case due to behavior of the TCI Group, which the TCI
Ventures Group cannot control.
There can be no assurance that any of the foregoing entities will be
successful in generating sufficient cash flow from operating activities or
raising debt or equity capital in sufficient amounts or on terms acceptable to
it to be able to meet their respective capital requirements. There is also no
assurance that the anticipated capital requirements described above will not
significantly increase due to changing circumstances, such as unanticipated
opportunities, technological or marketing hurdles, unanticipated expenses, and
the like. The failure to generate sufficient cash flow from operating
activities or to raise sufficient funds may require such entity to delay or
abandon some or all of its development and expansion plans.
(continued)
V-192
<PAGE> 414
"TCI VENTURES GROUP"
(a combination of certain assets)
Many of the TCI Ventures Group entities, such as Sprint PCS and
several of the operating companies in which International has interests, are
governed by partnership and other agreements that require TCI (directly or
through its subsidiaries and affiliates which hold the investment in the
applicable business) to contribute capital or make loans to such businesses.
The failure of TCI or such subsidiary or affiliate to meet its capital
commitments to a particular operating company may have adverse consequences to
the TCI Ventures Group. Such consequences may include, among others, (i) a
breach of contract action for damages against TCI (or such subsidiary or
affiliate), (ii) the dilution of TCI's (or such subsidiary or affiliate's)
interest in such operating company, (iii) the loss of any management rights in
such entity (such as a right to elect one or more directors), (iv) the right of
the other investors in such operating company to force TCI (or such subsidiary
or affiliate) to sell its interest at less than fair value or (v) the forced
dissolution of such operating company.
Neither PCS systems nor Internet services have any significant
commercial operating history in the United States, and there can be no
assurance that operation of either of these businesses will become profitable.
The inability of Sprint PCS or @Home to establish service or to obtain
appropriate equipment for its respective system could have a material adverse
effect on its financial condition and results of operations. Both Sprint PCS
and @Home are relying on new products and technologies to operate their
services which have not yet been widely tested on a commercial basis. Failure
of such products and technologies to operate in the manner expected by such
entity, or any delay or inability to obtain a sufficient quantity of such
products at acceptable price and performance levels could delay or impair the
expansion of such entity's business.
Both the wireless telecommunications industry and the Internet
services industry are experiencing significant technological change, evolving
industry standards, ongoing improvements in the capacity and quality of such
services, frequent new product and service introductions and enhancements and
changes in end-user requirements and preferences. Accordingly, demand and
market acceptance for recently introduced products and services are subject to
a high level of uncertainty. With respect to PCS, there is uncertainty as to
the extent of customer demand as well as the extent to which airtime and
monthly access rates may continue to decline. With respect to Internet
services, critical issues concerning the commercial use of the Internet remain
unresolved and may impact the growth of Internet use, especially in the
business market targeted by @Home. Despite growing interest in the many
commercial uses of the Internet, many businesses have been deterred from
purchasing Internet access services for a number of reasons, including
inconsistent quality of service, lack of availability of cost-effective,
high-speed options, a limited number of local access points for corporate
users, inability to integrate business applications on the Internet, and
inadequate protection of the confidentiality of stored data and information
moving across the Internet. There can be no assurance that @Home's service will
be able to meet any or all of these concerns. Market acceptance of @Home's
services is substantially dependent upon the adoption of the Internet for
commerce and communications. If either of @Home's or Sprint PCS's market fails
to develop, develops more slowly than expected, or becomes highly competitive,
such entity's business, operating results and financial condition may be
materially adversely affected. For the foregoing reasons, the future prospects
of the PCS and Internet services industries and of Sprint PCS and @Home remain
uncertain.
(continued)
V-193
<PAGE> 415
"TCI VENTURES GROUP"
(a combination of certain assets)
With respect to the TCI Ventures Group's investments in entities in
which TCI does not have a controlling interest, TCI (either directly or through
its affiliates) has for the most part, attempted to structure such investments
in a manner that allows it to influence management decisions (including
through representation on the board of directors or other governing body and
veto rights (alone or with one or more strategic investors) over significant
business decisions); however, as is the case with the TCI Ventures Group's
interests in Sprint PCS, Teleport and many of the operating companies in which
International has interests, TCI will often be unable to direct the
operations, strategies, and financial decisions of the companies in which it
has acquired an interest without the concurrence of one or more of its partners
or other co-investors. Moreover, the ability of TCI to pledge, sell or
otherwise dispose of its interest in many of the operating companies in which
it has investments is subject to shareholder or similar agreements that
severely limit the ability of the parties (including TCI) to transfer their
equity interests. Accordingly, the TCI Ventures Group may not be able to cause
its subsidiaries or affiliates to make distributions when it may have a need
for such distributions and may not be able to timely dispose of its investment
in many of its operating companies if required for financial or other reasons.
In addition, the structure of the governance of several of the TCI
Ventures Group entities allows for situations in which the failure of the
directors or general partners of an entity to agree on certain issues may give
rise to a "deadlock event," which, if unresolved after a certain period of
time, may require the dissolution or liquidation of such entity. There can be
no assurance that such a deadlock event will not occur or if such event does
occur, that resolution procedures will be successful or that such deadlock
event will not have a material adverse effect on the value of the TCI Ventures
Group's interest in such entity.
Although the TCI Ventures Group currently holds a controlling voting
interest in International, TCI is unable to control the operating companies in
which International has an interest because International is limited in its
ability to control such operating companies. International has invested in most
of its subsidiaries and affiliates with strategic and local partners. It is
likely that financial and operational considerations, as well as laws that
limit foreign equity positions, will require International to continue to make
future investments in its operating companies with strategic and local
partners. Many foreign countries limit foreign investment to a minority equity
position or require the board of directors to be largely independent, which,
can result in International having diminished ability to implement strategies
that International may favor, or cause dividends or distributions to be paid.
(continued)
V-194
<PAGE> 416
"TCI VENTURES GROUP"
(a combination of certain assets)
Several of the TCI Ventures Group entities, including Teleport,
International and Sprint PCS, are holding companies. As such, the ability of
such holding companies to meet their respective financial obligations and their
funding and other commitments to their respective subsidiaries and affiliates,
is dependent upon the cash provided by operating activities of such
subsidiaries and affiliates and the distribution or other payment of such
amounts to such holding companies in the form of dividends, loans or other
advances, payment or reimbursement for management fees and expenses from their
respective subsidiaries and affiliates, or repayment of loans and advances from
such holding companies. Accordingly, such holding companies' ability to meet
their respective liquidity requirements is severely limited as a result of
their dependence upon the distribution and advances of funds by their
respective subsidiaries and affiliates. The payment of dividends or the making
of loans or advances to such holding companies by their respective subsidiaries
and affiliates may be subject to statutory, regulatory or contractual
restrictions, are contingent upon the earnings of those subsidiaries and
affiliates , and are subject to various business considerations. Distributions
or other payments from foreign subsidiaries and affiliates to International may
also be subject to restrictions on expatriation of funds or adverse currency
exchange rates and, in the case of subsidiaries or affiliates that are located
in countries where United States does not have a tax treaty, to increased
withholding taxes. Moreover, in certain cases, such holding companies do not
have voting control over many of the entities in which they have ownership
interests and such entities will have no obligation, contingent or otherwise,
to make any funds available to such holding companies, whether by dividends,
advances, loans or other payments. Certain of the subsidiaries or affiliates of
such holding companies are, or may in the future be, subject to loan agreements
that prohibit or limit the transfer of funds to such holding companies in the
form of dividends, loans, or advances and/or require that any indebtedness of
such subsidiaries or affiliates to such holding companies be subordinate to the
indebtedness under such loan agreements. Further, any right of each of such
holding companies as an equity holder to participate in the distribution of the
assets of any of its subsidiaries upon liquidation or reorganization will be
subject to the prior claims of the creditors (including trade creditors) of
such subsidiary. To date, neither Sprint PCS, Teleport, nor International has
received any significant distributions or advances from any of its subsidiaries
or affiliates. Accordingly, each of such entities has had to rely on outside
sources for financing.
Many of the TCI Ventures Group entities operate in industries,
primarily the telecommunications industry, which have experienced and are
expected to continue to experience rapid and significant changes in technology.
The degree to which these changes will affect such entities and the ability of
such entities to compete in their respective businesses cannot be predicted.
Also, alternative technologies may develop for the provision of services
similar to those provided by such entities. Such entities may be required to
select in advance one technology over another, but it will be impossible to
predict with any certainty, at the time such entity is required to make its
investment, which technology will prove to be the most economic, efficient or
capable of attracting customer usage.
The TCI Ventures Group is exposed to unfavorable and potentially
volatile fluctuations of the U.S. dollar (the functional currency of TCI
Ventures Group) against the UK pound sterling, the Japanese yen ("(Y)"), the
Argentine peso and various other foreign currencies that are the functional
currencies of certain of the TCI Ventures Group's operating subsidiaries and
affiliates. Since the enactment of a convertibility plan in April 1991, the
Argentine government has maintained an exchange rate of one Argentine peso to
one U.S. dollar. No assurance can be given that such an exchange rate will be
maintained in future periods.
(continued)
V-195
<PAGE> 417
"TCI VENTURES GROUP"
(a combination of certain assets)
Because the TCI Ventures Group's functional currency is the U.S.
dollar, any increase or decrease in the value of the U.S. dollar against any
foreign currency in which the TCI Ventures Group has funding commitments
effectively reduces or increases the U.S. dollar equivalent of such funding
commitments. At the same time, any increase or decrease in the value of the
U.S. dollar against any foreign currency that is the functional currency of an
operating subsidiary or affiliate of TCI Ventures Group will cause the TCI
Ventures Group to experience unrealized foreign currency translation losses or
gains with respect to amounts already invested in such foreign currencies.
The TCI Ventures Group and certain of its operating subsidiaries and
affiliates are also exposed to foreign currency risk to the extent that they
enter into transactions denominated in currencies other than their respective
functional currencies. In this regard, the TCI Ventures Group has experienced
realized and unrealized currency gains and losses with respect to (i) the UK
pound sterling denominated loans made by an indirect subsidiary of TCI Ventures
Group to Flextech and (ii) the MultiThematiques Obligation. In addition,
Telewest has experienced realized and unrealized foreign currency transaction
gains and losses with respect to the Telewest Debentures.
Because TCI Ventures Group generally views its foreign operating
subsidiaries and affiliates as long-term investments, the TCI Ventures Group
generally does not attempt to hedge existing investments in its foreign
affiliates and subsidiaries. With respect to funding commitments that are
denominated in currencies other than the U.S. dollar, the TCI Ventures Group
historically has sought to reduce its exposure to short-term (generally no more
than 90 days) movements in the applicable exchange rates once the timing and
amount of such funding commitments become fixed. Although the TCI Ventures
Group monitors foreign currency exchange rates with the objective of mitigating
its exposure to unfavorable fluctuations in such rates, the TCI Ventures Group
believes that, given the nature of its business, it is not possible or
practical to eliminate the TCI Ventures Group's exposure to unfavorable
fluctuations in foreign currency exchange rates.
In April 1997, (i) Flextech and BBC Worldwide formed the two BBC Joint
Ventures and (ii) Flextech acquired from the other shareholders of UKLL and
UKGL all of the share capital in those two companies not already owned by
Flextech and the TCI Ventures Group through the issuance of new Flextech
Ordinary Shares.
Flextech's outstanding Flextech Non-Preference Shares had been issued
in connection with previous acquisition transactions by Flextech due to the TCI
Ventures Group's requirement that it maintain specified voting interests in
Flextech. With the issuance of the Special Voting Share, the purpose for the
Flextech Non-Preference Shares was eliminated. Accordingly, and in order to
simplify the capital structure of Flextech, upon the issuance of the Special
Voting Share, the Flextech Non-Preference Shares were converted into Flextech
Ordinary Shares. Immediately following such conversion, and the issuance of
additional Flextech Ordinary Shares in connection with the UKGL and UKLL
transactions described above, (i) the TCI Ventures Group's interest in the
equity share capital of Flextech was 35.9% and (ii) the TCI Ventures Group's
voting interest was approximately 50%.
(continued)
V-196
<PAGE> 418
"TCI VENTURES GROUP"
(a combination of certain assets)
Flextech has undertaken to finance the working capital requirements of
one of the BBC Joint Ventures (the "Principal Joint Venture"). Flextech has
also agreed to make available to the other BBC Joint Venture (the "Second Joint
Venture"), if required, funding of up to (pound)10 million ($16 million). To
support its funding obligations, Flextech has obtained a revolving credit
facility with current borrowing availability of up to (pound)85 million ($139
million), and with a term of up to 5 years, from a syndicate of banks (the
"Flextech Revolving Credit Facility"). If Flextech defaults in its funding
obligation to the Principal Joint Venture and fails to cure within 42 days
after receipt of notice from BBC Worldwide, BBC Worldwide is entitled, within
the following 90 days, to require that the TCI Ventures Group assume all of
Flextech's funding obligations to the Principal Joint Venture (the "Standby
Commitment"). In addition to Flextech's April 1997 purchase of (pound)22
million ($36 million) of ordinary shares in the Principal Joint Venture,
Flextech is obligated to provide the Principal Joint Venture with a primary
credit facility of (pound)88 million ($144 million) and, subject to certain
restrictions, a standby credit facility of (pound)30 million ($49 million).
Borrowings under the primary and standby credit facility would be represented
by shares of loan stock of the Principal Joint Venture, bearing interest at 2%
above LIBOR, which interest would be capitalized quarterly.
If BBC Worldwide requires the TCI Ventures Group to perform Flextech's
funding obligations pursuant to the Standby Commitment, then the TCI Ventures
Group will acquire Flextech's entire equity interest in the Principal Joint
Venture for (pound)1.00, and will replace Flextech's directors on the board of
the Principal Joint Venture with representatives of the TCI Ventures Group.
Flextech will pay commitment and standby fees to the TCI Ventures Group for its
undertaking under the Standby Commitment. If Flextech repays to the TCI
Ventures Group all loans it makes to the Principal Joint Venture (plus interest
at International's marginal cost of funds plus 2% per annum) within 180 days
after the TCI Ventures Group first becomes obligated to perform Flextech's
financial obligations, it may reacquire its interest in the Principal Joint
Venture for (pound)1.00. The TCI Ventures Group may also, within the same
period, require Flextech to reacquire its interest on the same terms. The
Standby Commitment will terminate on the earliest of (i) the date on which
Flextech has met all of its required financial obligations to the Principal
Joint Venture under the primary and standby credit facilities, or (ii) the date
on which Flextech delivers a bank guarantee of all of its funding obligations
to the Principal Joint Venture.
The TCI Ventures Group has significant contingent obligations with
respect to Flextech's funding obligations to one of the BBC Joint Ventures (the
"Principal Joint Venture") provided by the TCI Ventures Group to the Principal
Joint Venture in April 1997. For additional information concerning the effects
of the formation of the BBC Joint Ventures and related transactions on the
liquidity and capital resources of the TCI Ventures Group and Flextech, see
note 4 to the accompanying combined financial statements.
On November 20, 1995, International announced its intention to form
strategic partnerships with News Corp., Organizacoes Globo and Grupo Televisa
S.A. for the development and operation of a direct-to-home satellite service
for Latin America, Mexico, and various Central and South American countries
(collectively, the "DTH Ventures"). Through December 31, 1996, TCI Ventures
Group had contributed $17.9 million to the DTH Ventures. It is anticipated that
TCI Ventures Group could be required to make cash contributions totaling $46
million over the next three years in connection with the DTH Ventures.
(continued)
V-197
<PAGE> 419
"TCI VENTURES GROUP"
(a combination of certain assets)
On April 19, 1996, International, Torneos y Competencias S.A.
("Torneos") and the Torneos stockholders from whom International previously
acquired its 35% interest entered into an agreement (the "International/Torneos
Sports Agreement") whereby International agreed to make minimum periodic
payments from 1996 through 2004 aggregating $235.2 million to acquire certain
rights and considerations, including the exploitation rights to all sports
rights owned by Torneos with the exception of any rights which at that time had
been contractually committed to any third party.
Pending the assignment of the rights under the International/Torneos
Sports Agreement which fit within the geographic area and business plan of a
joint venture ("Sports Venture") formed among TCI Ventures Group, Liberty Media
Group and News Corporation Limited ("News Corp.") (the "Sports Venture Rights")
to the Sports Venture, TCI Ventures Group, News Corp. and Liberty Media Group
have paid their respective portion of any payments made with respect to the
Sports Venture Rights. Through March 31, 1997, payments made under the
International/Torneos Sports Agreement totaled $20.1 million.
The TCI Ventures Group and/or other subsidiaries of TCI have
guaranteed notes payable and other obligations of certain of the TCI Ventures
Group's affiliates (the "Guaranteed Obligations"). At December 31, 1996, the
U.S. dollar equivalent of the amounts borrowed pursuant to the Guaranteed
Obligations was $39.3 million. Certain of the Guaranteed Obligations allow for
additional borrowings in future periods. The TCI Ventures Group also has
guaranteed the obligation of an affiliate ("The Premium Movie Partnership") to
pay fees for the license to exhibit certain films through the year 2000. If the
TCI Ventures Group were to fail to fulfill its obligations under the
guarantees, the beneficiaries have the right to demand an aggregate payment of
approximately $58 million at December 31, 1996. Although the TCI Ventures Group
has not had to perform under such guarantee to date, the TCI Ventures Group
cannot be certain that it will not be required to perform under such guarantee
in the future.
On January 10, 1997, the TCI Ventures Group signed an agreement to pay
cash consideration of approximately $12.7 million, and to assume certain
indebtedness, to acquire the 50% ownership interest in Caguas/Humacao Cable
Systems which the TCI Ventures Group did not already own (the "Caguas
Acquisition"). At December 31, 1996, the indebtedness to be assumed had a
principal balance of $32 million.
Certain of the agreements underlying the Flextech Transactions and the
IFE Acquisitions required the TCI Ventures Group to repurchase an aggregate of
10,467,090 Flextech Non-Preference Shares at fair value (or in the case of the
IFE Consideration Shares, at the greater of fair value or (pound)3.64 ($6.23
per share) if such shares have not become convertible into Flextech Ordinary
Shares by June 1, 1997. In connection with the closing of the BBC Joint Venture
and the issuance to the TCI Ventures Group of the Special Voting Share, all of
the Flextech Non-Preference Shares are to be converted into Flextech Ordinary
Shares, thereby eliminating TCI Ventures Group's put obligations with respect
to such shares, insofar as such obligations are based on the convertibility of
such shares.
(continued)
V-198
<PAGE> 420
"TCI VENTURES GROUP"
(a combination of certain assets)
If at any time (x) the aggregate of the amount of (i) Flextech
securities held by the TCI Ventures Group (ii) the Hallmark and U S WEST
subsidiaries' interests in Flextech acquired under the Hallmark Subscription
and the U S WEST Subscription, respectively, and (iii) Flextech securities
acquired by IFE pursuant to the IFE Acquisitions exceeds 75% of Flextech's
issued and outstanding share capital, or (y) subject to certain exceptions, the
Flextech Ordinary Shares cease to be admitted to trading on the Official List
of the London Stock Exchange as a result of the exercise by the TCI Ventures
Group of any of its rights as a Flextech shareholder, the TCI Ventures Group
shall be obligated to offer to purchase from the Hallmark and U S WEST
subsidiaries, and IFE any Flextech Ordinary Shares or Flextech Non-Preference
Shares held by them and which were originally acquired pursuant to the Hallmark
Subscription, the U S WEST Subscription, or the IFE Acquisitions, as
applicable. Under such circumstances, the offer price for such shares shall be
the higher of (i) the then current market price for the Flextech Ordinary
Shares and (ii) the highest price paid to any third party by the TCI Ventures
Group for any Flextech Ordinary Shares or Flextech Non-Preference Shares during
the preceding 12 month period. In the event the TCI Ventures Group is required
to purchase any Flextech Non-Preference Shares or Flextech Ordinary Shares, as
described above, it may elect, subject to certain limited exceptions, to pay
the purchase price thereof in cash or in shares of International Series A
common stock, or in certain securities of TCI.
On December 13, 1995, International invested in MultiThematiques with
two French media companies, CANAL + S.A. ("Canal +") and General d'Images S.A.
("GDI"). Canal + and GDI have contributed to MultiThematiques their combined
equity interests in four French thematic channels and Canal + has also
contributed its equity interest in a Spanish classic movie channel. The TCI
Ventures Group contributed 123.1 million French Francs ("FF") ($24.7 million at
the applicable exchange rate), FF105.0 million ($20.2 million) and FF100.00
million ($19.3 million) to MultiThematiques in December 1995, December 1996 and
February 1997, respectively. The TCI Ventures Group is obligated to contribute
an additional FF164.0 million ($31.6 million) no later than December 13, 1997.
In order to manage the TCI Ventures Group's foreign exchange currency risk with
respect to its December 13, 1997 contribution obligation, the TCI Ventures
Group entered into a foreign currency option contract that allows the TCI
Ventures Group to purchase FF 164.0 million at a price of FF 5.5367 per U.S.
dollar through December 13, 1997. Each of International, Canal + and GDI own a
one-third interest in MultiThematiques.
On January 27, 1997, International announced that it was instituting
a stock repurchase program. Under the stock repurchase program, International
may repurchase from time to time up to 5% (approximately 5.3 million shares) of
its outstanding Series A common stock. As of March 31, 1997, International had
repurchased 492,000 shares under such program for an aggregate purchase price
of $6.8 million.
(continued)
V-199
<PAGE> 421
"TCI VENTURES GROUP"
(a combination of certain assets)
The board of directors of UVSG has authorized it to repurchase from
time to time up to an aggregate of 1,000,000 shares of its Class A common stock
using existing cash resources. No shares of stock were repurchased during 1996;
however, through March 20, 1997, UVSG had repurchased 124,000 shares of stock.
If the TCI Ventures Group Stock Proposal is approved by stockholders,
all debt incurred or preferred stock issued by the Company and its subsidiaries
following the issuance of TCI Ventures Group Stock would (unless the Board
otherwise provides) be specifically attributed to and reflected in the combined
financial statements of the Group that includes the entity which incurred the
debt or issued the preferred stock or, in case the entity incurring the debt or
issuing the preferred stock is Tele-Communications, Inc., the TCI Group. The
Board could, however, determine from time to time that debt incurred or
preferred stock issued by entities included in a Group should be specifically
attributed to and reflected in the combined financial statements of one of the
other Groups to the extent that the debt is incurred or the preferred stock is
issued for the benefit of such other Group.
To the extent cash needs of one Group exceed cash provided by such
Group, one of the other Groups may transfer funds to such Group. The TCI Group
has provided and will continue to provide centralized cash management functions
under which cash receipts of certain entities included in the other Groups are
remitted to the TCI Group and certain cash disbursements of the other Groups
will be funded by the TCI Group on a daily basis. Such transfers of funds
between the Groups will be reflected as borrowings or, if determined by the
Board, in the case of a transfer from the TCI Group to either the Liberty Media
Group or the TCI Ventures Group, reflected as the creation of, or increase in,
the TCI Group's Inter-Group Interest in such Group or, in the case of a
transfer from either the Liberty Media Group or the TCI Ventures Group to the
TCI Group, reflected as a reduction in the TCI Group's Inter-Group Interest in
such Group. There are no specific criteria for determining when a transfer will
be reflected as a borrowing or as an increase or reduction in an Inter-Group
Interest. The Board expects to make such determinations, either in specific
instances or by setting generally applicable policies from time to time, after
consideration of such factors as it deems relevant, including, without
limitation, the needs of the Company, the financing needs and objectives of the
Groups, the investment objectives of the Groups, the availability, cost and
time associated with alternative financing sources, prevailing interest rates
and general economic conditions.
Except as described with respect to the Credit Facility, loans from
one Group to another Group would bear interest at such rates and have such
repayment schedules and other terms as are established from time to time by, or
pursuant to procedures established by, the Board. The Board expects to make
such determinations, either in specific instances or by setting generally
applicable polices from time to time, after consideration of such factors as it
deems relevant, including, without limitation, the needs of the Company, the
use of proceeds by and creditworthiness of the recipient Group, the capital
expenditure plans and investment opportunities available to each Group and the
availability, cost and time associated with alternative financing sources.
(continued)
V-200
<PAGE> 422
"TCI VENTURES GROUP"
(a combination of certain assets)
The combined balance sheets of a Group would reflect its net loans to
or borrowings from the other Groups. Similarly, the respective combined
statements of operations of the Groups would reflect interest income or
expense, as the case may be, associated with such loans or borrowings and the
respective combined statements of cash flows of the Groups would reflect
changes in the amounts of loans or borrowings deemed outstanding. In the
historical financial statements, net borrowings of the TCI Ventures Group have
been included as a component of the TCI Ventures Group's combined equity. Such
net borrowings will continue to be reflected as a component of the TCI Ventures
Group's combined equity. Amounts borrowed by the TCI Ventures Group from
another Group on and subsequent to the consummation of the Exchange Offers
(including pursuant to the Credit Facility), will be reflected on the TCI
Ventures Group's financial statements as indebtedness to the applicable lender.
Although any increase in the TCI Group's Inter-Group Interest in the
TCI Ventures Group resulting from an equity contribution by the TCI Group to
the TCI Ventures Group or any decrease in such Inter-Group Interest resulting
from a transfer of funds from the TCI Ventures Group to the TCI Group would be
determined by reference to the market value of the Series A TCI Ventures Group
Stock as of the date of such transfer, such an increase could occur at a time
when such shares could be considered undervalued and such a decrease could
occur at a time when such shares could be considered overvalued.
All financial impacts of issuances of shares of TCI Ventures Group
Stock the proceeds of which are attributed to the TCI Ventures Group will be to
such extent reflected in the combined financial statements of the TCI Ventures
Group, and all financial impacts of issuances of shares of TCI Ventures Group
Stock the proceeds of which are attributed to the TCI Group in respect of a
reduction in the TCI Group's Inter-Group Interest in the TCI Ventures Group
will be to such extent reflected in the combined financial statements of the
TCI Group. Financial impacts of dividends or other distributions on, and
purchases of, TCI Group Stock will be attributed entirely to the TCI Group, and
financial impacts of dividends or other distributions on TCI Ventures Group
Stock will be attributed entirely to the TCI Ventures Group, except that
dividends or other distributions on the TCI Ventures Group Stock will (if at
the time there is an Inter-Group Interest in the TCI Ventures Group) result in
the TCI Group being credited, and the TCI Ventures Group being charged (in
addition to the charge for the dividend or other distribution paid), with an
amount equal to the product of the aggregate amount of such dividend or other
distribution paid or distributed in respect of outstanding shares of TCI
Ventures Group Stock and a fraction the numerator of which is the TCI Ventures
Group Inter-Group Interest Fraction and the denominator of which is the TCI
Ventures Group Outstanding Interest Fraction (both as defined). Financial
impacts of repurchases of TCI Ventures Group Stock the consideration for which
is charged to the TCI Ventures Group will be to such extent reflected in the
combined financial statements of the TCI Ventures Group, and financial impacts
of repurchases of TCI Ventures Group Stock the consideration for which is
charged to the TCI Group will be to such extent reflected in the combined
financial statements of the TCI Group and will result in an increase in the TCI
Group's Inter-Group Interest in the TCI Ventures Group.
Dividends on the TCI Ventures Group Stock will be payable at the sole
discretion of the Board out of the lesser of the assets of TCI legally
available for dividends or the available dividend amount with respect to TCI
Ventures Group, as defined. Determinations to pay dividends on TCI Ventures
Group Stock will be based primarily upon the financial condition, results of
operations and business requirements of TCI Ventures Group and TCI as a whole.
(continued)
V-201
<PAGE> 423
"TCI VENTURES GROUP"
(a combination of certain assets)
The Board expects to determine, either in specific instances or by
setting generally applicable policies from time to time, whether to allocate
resources and financial support to or pursue business opportunities or
operational strategies through one Group or one or more of the other Groups,
after consideration of such factors as it deems relevant. TCI had advised
International that TCI intends (a) to make available to International any
opportunity to acquire, develop, own and/or manage cable and/or telephony
operations outside the United States that is presented to TCI or any of its
controlled affiliates and (b) except as provided below, to make available to
International any opportunity to acquire, develop, manage and/or operate
programming services outside of the United States (an "International
Programming Opportunity") that is presented to TCI or any of its controlled
affiliates, including those that are a part of the Liberty Media Group. The
foregoing does not apply to (1) international programming services owned or
managed, directly or indirectly (in whole or in part), by TCI or any of its
controlled affiliates other than International as of July 12, 1995 (the date of
the prospectus for International's initial public offering), (2) International
Programming Opportunities under development by TCI or any of its controlled
affiliates other than International that were the subject of a signed letter of
intent or other agreement in principle as of July 12, 1995, (3) an
International Programming Opportunity in respect of foreign sports programming,
which may be pursued either through International or Liberty Media Group, (4)
an International Programming Opportunity presented to a public company that is
a controlled affiliate of either TCI or any of TCI's controlled affiliates
(other than International), (5) an International Programming Opportunity
presented to, or cable television or cable telephony services provided by, any
company or other entity in which TCI or any of its controlled affiliates has an
interest but which is not itself a controlled affiliate of either TCI or any of
TCI's controlled affiliates and (6) the distribution outside the United States
of a programming service initially distributed within the United States and
owned and/or managed by TCI or any of its controlled affiliates (other than
International). If International determines not to pursue an International
Programming Opportunity, subsidiaries or controlled affiliates of TCI other
than International may pursue such International Programming Opportunity or
International and another subsidiary of TCI (or any of its other controlled
affiliates) may pursue such opportunity jointly. To the extent that TCI or any
of its controlled affiliates (other than International) owns rights to
worldwide or regional sporting events, TCI or such affiliates may also utilize
those rights worldwide, including to provide "backdrop" services. Neither TCI
nor any of its controlled affiliates will be obligated to make available to
International any International Programming Opportunity to the extent TCI or
such controlled affiliate is legally (for example, by a fiduciary duty owned to
others) or contractually prohibited from doing so. The foregoing arrangement
concerning International Programming Opportunities will, in any event, be
terminable at such time as TCI ceases to beneficially own at least a majority
in voting power of the outstanding shares of common stock of International.
V-202
<PAGE> 424
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Tele-Communications, Inc.:
We have audited and reported separately herein on the consolidated financial
statements of Tele-Communications, Inc. and subsidiaries as of December 31,
1996 and 1995 and for each of the years in the three-year period ended December
31, 1996.
We have also audited the accompanying combined balance sheets of TCI Ventures
Group (a combination of certain assets of Tele-Communications, Inc., as defined
in note 1) as of December 31, 1996 and 1995, and the related combined
statements of operations, equity, and cash flows for each of the years in the
three-year period ended December 31, 1996. These combined financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
The combined financial statements of TCI Ventures Group are presented for
purposes of additional analysis of the consolidated financial statements of
Tele-Communications, Inc. and subsidiaries. As more fully described in note 1,
the combined financial statements of TCI Ventures Group are intended to reflect
the performance of the businesses of Tele-Communications, Inc. consisting of
Tele-Communications, Inc.'s principal international assets and substantially
all of Tele-Communications, Inc.'s domestic non-cable and non-programming
assets. The combined financial statements of TCI Ventures Group should be read
in conjunction with the consolidated financial statements of
Tele-Communications, Inc. and subsidiaries.
In our opinion, the financial statements referred to in the second paragraph
above present fairly, in all material respects, the combined financial position
of TCI Ventures Group as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Denver, Colorado
May 30, 1997
V-203
<PAGE> 425
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Combined Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
amounts in thousands
<S> <C> <C>
Assets
Cash and cash equivalents $ 105,527 141,754
Trade and other receivables, net 115,491 32,600
Film inventory and other prepaid expenses 85,998 45,451
Investment in Telewest Communications plc
("Telewest"), accounted for under the equity method (note 8)
488,495 550,216
Investments in Sprint Spectrum Holding Company, L.P. and MinorCo, L.P.
(and their respective predecessor) and PhillieCo (collectively, the
"PCS Ventures"), accounted for under the equity method (note 9)
829,651 689,062
Investments in Teleport Communications Group, Inc., TCG Partners and certain
local market partnerships ("Teleport"), accounted for under the equity
method, and related receivables (note 10)
276,112 244,012
Investments in other affiliates, accounted for
under the equity method, and related
receivables (note 11) 474,599 391,649
Property and equipment, at cost:
Land 7,837 3,950
Distribution systems 761,191 470,449
Support equipment and buildings 208,294 120,455
---------- ----------
977,322 594,854
Less accumulated depreciation 240,322 146,312
---------- ----------
737,000 448,542
---------- ----------
Franchise costs and other intangible assets 1,029,842 620,914
Less accumulated amortization 103,631 47,585
---------- ----------
926,211 573,329
---------- ----------
Other assets, net of amortization 220,619 330,554
---------- ----------
$4,259,703 3,447,169
========== ==========
</TABLE>
(continued)
V-204
<PAGE> 426
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Combined Balance Sheets, continued
December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
amounts in thousands
<S> <C> <C>
Liabilities and Combined Equity
Accounts payable $ 71,776 28,766
Accrued liabilities 148,962 60,927
Customer prepayments 100,670 2,407
MultiThematiques Obligation (note 11) 47,902 65,876
Capital lease obligations (note 15) 199,961 116,872
Debt (note 12) 526,254 204,189
Deferred income taxes (note 14) 220,306 254,816
Other liabilities 21,477 8,434
----------- -----------
Total liabilities 1,337,308 742,287
----------- -----------
Minority interests in equity of subsidiaries
(notes 4 and 5)
370,879 326,160
Combined equity (notes 4, 5 and 13):
Combined equity 2,686,794 2,326,106
Cumulative foreign currency translation
adjustment, net of taxes 26,146 (8,555)
Unrealized holding gains for available-
for-sale securities, net of taxes 15,077 61,171
----------- -----------
2,728,017 2,378,722
Due from Tele-Communications, Inc. ("TCI"
or the "Company") ("TCI Note Receivable")
(note 13) (176,501) --
----------- -----------
Total combined equity 2,551,516 2,378,722
----------- -----------
Commitments and contingencies
(notes 4, 5, 9, 11 and 15)
$ 4,259,703 3,447,169
=========== ===========
</TABLE>
See accompanying notes to combined financial statements.
V-205
<PAGE> 427
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Combined Statements of Operations
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
amounts in thousands
<S> <C> <C> <C>
Revenue (note 13) $ 925,676 325,991 103,844
Operating costs and expenses:
Operating (note 13) 536,457 137,038 75,045
Programming rights provision 8,706 -- --
General and administrative (note 13) 288,735 142,183 26,428
Stock compensation (note 15) (6,954) 4,614 (756)
Depreciation 90,411 49,125 22,674
Amortization 58,878 25,972 5,996
--------- --------- ---------
976,233 358,932 129,387
--------- --------- ---------
Operating loss (50,557) (32,941) (25,543)
Other income (expense):
Share of losses of Telewest (note 8) (109,357) (70,274) (42,520)
Share of losses of the PCS Ventures (note 9) (133,497) (33,890) (992)
Share of losses of Teleport (note 10) (50,543) (29,975) (19,366)
Share of losses of other affiliates (note 11) (74,941) (60,951) (35,791)
Interest income (note 13) 30,040 15,267 3,290
Interest expense (51,128) (41,730) (12,979)
Gain on sale of subsidiary stock (note 7) -- 122,660 --
Gain on issuance of stock by equity investees
(notes 8 and 10) 12,668 164,900 161,481
Gain (loss) on disposition of assets, net 12,225 48,710 (6,133)
Recognized holding gain for available-for-sale
securities, net 8,048 -- --
Minority interests' share of losses (earnings) 28,177 (14,924) 10,279
Foreign currency transaction gains (losses) 6,994 (2,649) 1,389
Other, net 3,104 (5,960) 500
--------- --------- ---------
(318,210) 91,184 59,158
--------- --------- ---------
Earnings (loss) before income taxes (368,767) 58,243 33,615
Income tax benefit (expense) (note 14) 110,345 1,797 (20,965)
--------- --------- ---------
Net earnings (loss) $(258,422) 60,040 12,650
========= ========= =========
Pro forma net loss per common share (note 2) $ (1.39)
=========
</TABLE>
See accompanying notes to combined financial statements.
V-206
<PAGE> 428
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Statements of Combined Equity
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Unrealized
Cumulative holding
foreign gains for
currency available-
translation for-sale Total
Combined adjustment, securities, TCI Note combined
equity net of taxes net of taxes Receivable equity
------------- ---------------- --------------- ------------ ----------
amounts in thousands
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $ 634,009 (13,504) -- -- 620,505
Net earnings 12,650 -- -- -- 12,650
Foreign currency translation adjustment -- 9,851 -- -- 9,851
Change in unrealized holding gains for
available-for-sale securities -- -- 575 -- 575
Stock compensation (756) -- -- -- (756)
Revenue from TCI Group and Liberty Media
Group (7,274) -- -- -- (7,274)
Operating costs to TCI Group 2,600 -- -- -- 2,600
Corporate general and administrative cost
allocations 445 -- -- -- 445
Intergroup tax allocation 31,909 -- -- -- 31,909
Other intercompany transfers 498,277 -- -- -- 498,277
------------- ---------------- --------------- ------------ ----------
Balance at December 31, 1994 1,171,860 (3,653) 575 -- 1,168,782
Net earnings 60,040 -- -- -- 60,040
Foreign currency translation adjustment -- (4,902) -- -- (4,902)
Change in unrealized holding gains for
available-for-sale securities -- -- 60,596 -- 60,596
Adjustment in connection with the
issuance of ordinary shares by
Flextech p.l.c. (note 4) 50,900 -- -- -- 50,900
Issuance of International common stock in
1995 initial public offering 301,343 -- -- -- 301,343
Issuance of International common stock as
partial consideration for investment 11,000 -- -- -- 11,000
Stock compensation 4,614 -- -- -- 4,614
Revenue from TCI Group and Liberty Media
Group (20,881) -- -- -- (20,881)
Operating costs to TCI Group 3,400 -- -- -- 3,400
Corporate general and administrative cost
allocations 4,120 -- -- -- 4,120
Intergroup tax allocation (55,941) -- -- -- (55,941)
Other intercompany transfers 795,651 -- -- -- 795,651
------------- ---------------- --------------- ------------ ----------
Balance at December 31, 1995 $ 2,326,106 (8,555) 61,171 -- 2,378,722
------------- ---------------- --------------- ------------ ----------
(continued)
</TABLE>
V-207
<PAGE> 429
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Statements of Combined Equity, (continued)
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Unrealized
Cumulative holding
foreign gains for
currency available-
translation for-sale Total
Combined adjustment, securities, TCI Note combined
equity net of taxes net of taxes Receivable equity
------------- ---------------- --------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
amounts in thousands
Balance at December 31, 1995 $ 2,326,106 (8,555) 61,171 -- 2,378,722
Net loss (258,422) -- -- -- (258,422)
Issuance of International common stock 9,990 -- -- -- 9,990
Minority interest deficit in Satellite
Joint Venture at formation (49,169) -- -- -- (49,169)
Excess of earnings over distributions to
minority interest in Satellite Joint
Venture 8,454 -- -- -- 8,454
Foreign currency translation adjustment -- 34,701 -- -- 34,701
Recognition of unrealized gain for
available-for-sale securities, net -- -- (8,048) -- (8,048)
Change in unrealized holding gain for
available-for-sale securities -- -- (38,046) -- (38,046)
TCI Note Receivable -- -- -- (336,375) (336,375)
Repayment on TCI Note Receivable -- -- -- 159,874 159,874
Stock compensation (6,954) -- -- -- (6,954)
Revenue from TCI Group and Liberty Media
Group (38,292) -- -- -- (38,292)
Operating costs to TCI Group 38,400 -- -- -- 38,400
Corporate general and administrative cost
allocations 7,918 -- -- -- 7,918
Interest income on TCI Note Receivable (14,000) -- -- -- (14,000)
Intergroup tax allocation (52,660) -- -- -- (52,660)
Other intercompany transfers 715,423 -- -- -- 715,423
------------- ---------------- --------------- ------------ ----------
Balance at December 31, 1996 $ 2,686,794 26,146 15,077 (176,501) 2,551,516
============= ================ =============== ============ ==========
</TABLE>
See accompanying notes to combined financial statements.
V-208
<PAGE> 430
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Combined Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
amounts in thousands
(see note 3)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $(258,422) 60,040 12,650
Adjustments to reconcile net earnings (loss) to
net cash provided (used) by operating
activities:
Depreciation and amortization 149,289 75,097 28,670
Programming rights provision 8,706 -- --
Stock compensation (6,954) 4,614 (756)
Payment of stock compensation -- (3,270) --
Share of losses of Telewest 109,357 70,274 42,520
Share of losses of PCS Ventures 133,497 33,890 992
Share of losses of Teleport 50,543 29,975 19,366
Share of losses of other affiliates 74,941 60,951 35,791
Gain on sale of subsidiary stock -- (122,660) --
Gain on issuance of stock by equity
investees (12,668) (164,900) (161,481)
Loss (gain) on disposition of assets (12,225) (48,710) 6,133
Recognized holding gain for available-
for-sale securities (8,048) -- --
Minority interests' share of earnings (losses) (28,177) 14,924 (10,279)
Foreign currency transaction losses (gains) (6,287) 1,761 (1,389)
Accretion of discount on MultiThematiques
Obligation 5,751 271 --
Other noncash charges (credits) 6,445 (1,259) 8
Deferred income tax expense (benefit) (71,643) 45,063 (10,949)
Intergroup tax allocation (52,660) (55,941) 31,909
Changes in operating assets and liabilities,
net of the effect of acquisitions:
Change in receivables (13,394) (4,147) (9,810)
Change in film inventory and other
prepaid expenses (16,667) (31,199) (2,272)
Change in payables and accruals 34,471 42,124 (6,602)
--------- --------- ---------
Net cash provided (used) by operating
activities $ 85,855 6,898 (25,499)
--------- --------- ---------
</TABLE>
(continued)
V-209
<PAGE> 431
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Combined Statements of Cash Flows, continued
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
amounts in thousands
(see note 3)
<S> <C> <C> <C>
Cash flows from investing activities:
Investments in and loans to affiliates and others $ (499,685) (1,040,896) (393,137)
Cash paid for acquisitions, net (108,790) (189,752) --
Payment of deposit on pending acquisition -- -- (20,000)
Capital expended for property and equipment (209,378) (141,569) (76,050)
Cash paid to purchase minority interests (4,636) (24,735) --
Proceeds from repayment of loans by affiliates
and others 21,628 12,062 1,640
Proceeds from dispositions of assets 142,854 99,335 63
Other, net 3,304 (47,931) (56)
----------- ----------- -----------
Net cash used in investing activities (654,703) (1,333,486) (487,540)
----------- ----------- -----------
Cash flows from financing activities:
Issuance of debentures 345,000 -- --
TCI Note Receivable (336,375) -- --
Repayments on TCI Note Receivable 159,874 -- --
Net proceeds from initial public offering -- 301,343 --
Borrowings of debt 191,219 314,815 12,772
Repayments of debt (282,541) (310,216) (9,282)
Repayments of capital lease obligations (11,724) (5,742) (1,394)
Net proceeds from issuance of common stock 9,990 -- --
Cash proceeds from issuance of shares by
Flextech plc -- 74,779 --
Payment of deferred financing costs (9,524) (2,105) --
Change in cash transfers from other Groups 457,954 1,081,757 497,285
Contributions from minority interest owners 4,822 -- 16,162
Other, net -- 8,707 --
----------- ----------- -----------
Net cash provided by financing
activities 528,695 1,463,338 515,543
----------- ----------- -----------
Effect of exchange rate changes on cash 3,926 (3,142) 224
----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents (36,227) 133,608 2,728
Cash and cash equivalents:
Beginning of year 141,754 8,146 5,418
----------- ----------- -----------
End of year $ 105,527 $ 141,754 8,146
=========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
V-210
<PAGE> 432
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
December 31, 1996, 1995 and 1994
(1) Basis of Presentation
On May 14, 1997, the Board of Directors of TCI (the "Board") authorized,
subject to shareholder approval (the "TCI Ventures Group Stock Proposal"),
the issuance of two new series of stock ("TCI Ventures Group Stock") which
are intended to reflect the separate performance of the TCI Ventures
Group.
The TCI Ventures Group Stock, if issued, will be intended to reflect the
separate performance of the TCI Ventures Group. The TCI Ventures Group
would initially consist principally of the following assets and their
related liabilities: (i) TCI's 85% equity interest (representing a 92%
voting interest) in Tele-Communications International, Inc.
("International"), which is the Company's primary vehicle for the conduct
of its international cable, telephony and programming businesses (other
than those international programming businesses attributed to the Liberty
Media Group), (ii) TCI's principal interests in the telephony business
("TCI Telephony") consisting primarily of the Company's investment in a
series of partnerships formed to engage in the business of providing
wireless communications services, using the radio spectrum for broadband
personal communications services ("PCS"), to residential and business
customers nationwide under the Sprint(R) brand (a registered trademark of
Sprint Communications Company, L.P.) (the "PCS Ventures"), the Company's
30% equity interest (representing a 37% voting interest) in Teleport
Communications Group Inc. ("Teleport" or "TCG"), a competitive local
exchange carrier, and Western Tele-Communications, Inc. ("WTCI"), a wholly
owned subsidiary of the Company that provides long distance transport of
video, voice and data traffic and other telecommunications services to
interexchange carriers on a wholesale basis using primarily a digital
broadband microwave network located throughout a 12 state region, (iii)
TCI's 40% equity interest (representing a 85% voting interest) in United
Video Satellite Group, Inc. ("UVSG"), which provides satellite-delivered
video, audio, data and program promotion services to cable television
systems, satellite dish owners, radio stations and private network users,
primarily throughout North America, (iv) TCI's 43% equity interest
(representing a 75% voting interest) in At Home Corporation ("@Home"), a
provider of high speed multimedia Internet services, and TCI's interest in
other Internet-related assets and (v) other assets, including ETC w/tci,
Inc. ("ETC w/tci"), an 80% owned subsidiary of the Company which is a
developer and distributor of for-profit education, training and
communications services and products, National Digital Television Center,
Inc. ("NDTC"), which provides digital compression and authorization
services to programming suppliers and to video distribution outlets and
TCI Summitrak of Texas, Inc. and TCI Summitrak L.L.C., ("Summitrak"),
wholly owned subsidiaries of the Company that provide an integrated
network-based information management system currently to certain of TCI's
cable systems with plans to expand the service to include third parties.
The stocks of International, TCG and UVSG are traded on the National
Market tier of The Nasdaq Stock Market.
The TCI Ventures Group will not include any other business that uses TCI's
domestic cable network to distribute services to customers (e.g., cable,
telephony and Internet services). Such domestic "distribution" businesses
will continue to be attributed to the TCI Group.
(continued)
V-211
<PAGE> 433
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
The TCI Ventures Group would also include such other assets and
liabilities of the TCI Group as the Board may in the future determine to
attribute or sell to the TCI Ventures Group and such other businesses,
assets and liabilities as the Company or any of its subsidiaries may in
the future acquire for the TCI Ventures Group, as determined by the Board.
It is currently the intention of the Company that any businesses, assets
and liabilities so attributed to the TCI Ventures Group in the future
would not include assets and liabilities of the Company's domestic
programming businesses and investments or its domestic cable operations
(including its businesses which utilize its cable network to distribute
telephony and Internet services).
The TCI Group is intended to reflect the performance of those businesses
of TCI not attributed to the Liberty Media Group (which is intended to
reflect the performance of TCI's business which produces and distributes
programming services) and the TCI Ventures Group. Collectively, the TCI
Group, the Liberty Media Group and the TCI Ventures Group are referred to
as the "Groups" and individually may be referred to herein as a "Group".
The common stockholders' equity value of TCI attributable to the TCI
Ventures Group that, at any relevant time, is attributed to the TCI Group,
and accordingly, not represented by outstanding TCI Ventures Group Stock
is referred to as "Inter-Group Interest". Prior to the issuance of any
shares of TCI Ventures Group Stock, the Inter-Group Interest of the TCI
Group in the TCI Ventures Group is 100%. As any shares of TCI Ventures
Group Stock are issued and distributed or sold, the TCI Group's
Inter-Group Interest in the TCI Ventures Group will be reduced
accordingly.
While the TCI Ventures Group Stock constitutes common stock of TCI,
issuance of the TCI Ventures Group Stock will not result in any transfer
of assets or liabilities of TCI or any of its subsidiaries or affect the
rights of holders of TCI's or any of its subsidiaries' debt.
Holders of Series A TCI Group and Series B TCI Group common stock ("TCI
Group Stock"), Series A Liberty Media Group and Series B Liberty Media
Group common stock ("Liberty Media Group Stock") and TCI Ventures Group
Stock (when issued) will be common stockholders of TCI and will be subject
to risks associated with an investment in TCI and all of its businesses,
assets and liabilities.
Contemporaneously with the mailing of a proxy statement to shareholders
for the shareholder approval of the TCI Ventures Group Stock Proposal, the
Company is commencing offers (the "Exchange Offers") to exchange shares of
Series A TCI Ventures Group Stock and Series B TCI Ventures Group Stock
for shares of Series A TCI Group Stock and shares of Series B TCI Group
Stock, respectively, (representing approximately 28-35% of the outstanding
shares of each such series) in the ratio of one share of the applicable
series of TCI Ventures Group Stock in exchange for each share of the
corresponding series of TCI Group Stock properly tendered. The Exchange
Offers are subject, among other conditions, to the approval by
stockholders of the TCI Ventures Group Stock Proposal. If such approval is
obtained, the Company would consummate the Exchange Offers promptly
following the annual meeting.
(continued)
V-212
<PAGE> 434
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
The aggregate number of shares of TCI Ventures Group Stock being offered
in the Exchange Offers is intended initially to represent 100% of the
common stockholders' equity value of the Company attributable to the TCI
Ventures Group. Accordingly, if all of such shares were issued in the
Exchange Offers the Inter-Group Interest of the TCI Group would be reduced
to zero. If immediately following the consummation of the Exchange Offers
the TCI Group has any remaining Inter-Group Interest in the TCI Ventures
Group, the Company will extinguish such Inter-Group Interest in
consideration of the attribution to the TCI Group of a preferred equity
interest in the TCI Ventures Group with a face amount equal to the market
value of the shares of TCI Ventures Group Stock not issued in the Exchange
Offers (which shall be deemed to be the same, on a per share basis, as the
market value of the Series A TCI Group Stock on the last trading day
preceding the closing of the Exchange Offers), a dividend rate of 5% per
annum (with dividends being payable in kind until the fifth anniversary of
the closing of the Exchange Offers and a mandatory redemption obligation
on the 15th anniversary of the closing of the Exchange Offers.
In addition to the shares of TCI Ventures Group Stock to be issued in the
Exchange Offers, shares of Series A TCI Ventures Group Stock are being
reserved for issuance upon exchange subsequent to the closing of the
Exchange Offers of certain outstanding convertible notes issued by a
subsidiary of the Company. In lieu of a number of shares of Series A TCI
Group Stock equal to 28%-35% of the number of shares of Series A TCI Group
Stock currently issuable upon exchange of such convertible notes, an equal
number of shares of TCI Ventures Group Common Stock would be issued upon
such exchange.
Notwithstanding the attribution of assets and liabilities, equity and
items of income and expense among the TCI Group, the Liberty Media Group
and the TCI Ventures Group for the purpose of preparing the combined
financial statements of the TCI Group, the Liberty Media Group and the TCI
Ventures Group, the change in the capital structure of the Company
contemplated by the TCI Ventures Group Stock Proposal will not affect
legal title to such assets or responsibility for such liabilities of the
Company or any of its subsidiaries. Holders of TCI Group Stock, Liberty
Media Group Stock and TCI Ventures Group Stock will be common stockholders
of the Company and will be subject to risks associated with an investment
in the Company and all of its businesses, assets and liabilities.
Financial effects arising from one Group that affect the Company's
consolidated results of operations or financial condition could affect the
combined results of operations or financial condition of the other Groups
and the market price of the TCI Group Stock, the Liberty Media Group Stock
and the TCI Ventures Group Stock. In addition, any net losses of any
Group, dividends or distributions on, or repurchases of, the TCI Group
Stock, the Liberty Media Group Stock or the TCI Ventures Group Stock, and
dividends on, or certain repurchases of, preferred stock, will reduce
funds of the Company legally available for the payment of dividends on the
TCI Group Stock, the Liberty Media Group Stock and the TCI Ventures Group
Stock. The combined financial statements of the TCI Group, the Liberty
Media Group and the TCI Ventures Group should be read in conjunction with
the consolidated financial statements of the Company.
(continued)
V-213
<PAGE> 435
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Dividends on the TCI Ventures Group Stock will be payable at the sole
discretion of the Board out of the lesser of the assets of TCI legally
available for dividends or the available dividend amount with respect to
TCI Ventures Group, as defined. Determinations to pay dividends on TCI
Ventures Group Stock are based primarily upon the financial condition,
results of operations and business requirements of TCI Ventures Group and
TCI as a whole.
(2) Summary of Significant Accounting Policies
Cash and Cash Equivalents
TCI Ventures Group considers all highly liquid investments purchased with
a maturity of three months or less to be cash equivalents.
Receivables
Receivables are reflected net of an allowance for doubtful accounts. Such
allowance at December 31, 1996 and 1995 was not material.
Investments
For those investments in affiliates in which the TCI Ventures Group's
voting interest is 20% to 50%, the equity method of accounting is
generally used. Under this method, the investment, originally recorded at
cost, is adjusted to recognize the TCI Ventures Group's share of the net
earnings or losses of affiliates as they occur rather than as dividends or
other distributions are received. The TCI Ventures Group's share of net
earnings or losses of affiliates includes the amortization of purchase
adjustments.
Investments in debt securities and marketable equity securities in which
the TCI Ventures Group's voting interest is less than 20% are classified
as available-for-sale and are carried at fair value. Any unrealized
holding gains and losses (net of the related deferred income tax effect)
are carried as a separate component of combined equity. Any unrealized
holding losses which are deemed to be other than temporary are charged to
operations. Other investments in which the TCI Ventures Group's ownership
interest is less than 20% are generally carried at cost.
Changes in the TCI Ventures Group's proportionate share of the underlying
equity of a subsidiary or equity method investee, which result from the
issuance of additional equity by such subsidiary or equity method
investee, are generally recognized as gains or losses in the TCI Ventures
Group's statements of operations.
Film Inventory
Film inventory includes exhibition and other exploitation rights acquired
under license agreements or through production and output agreements. Such
rights, along with the related obligation, are recorded at the face amount
of the contract at the time the programming becomes available.
(continued)
V-214
<PAGE> 436
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Film inventory is carried at the lower of unamortized cost or net
realizable value. Exhibition rights are amortized on a straight-line basis
over the available runs in the contract period. Other exploitation rights
are amortized based on the percentage that current year revenues bear to
estimated future revenues on a program-by-program basis. Estimates of
future revenues are periodically reviewed by management and revised when
warranted by changing conditions, such as changes in the distribution
marketplace or changes in the expected usage of a program.
Long-Lived Assets
(a) Property and Equipment
Property and equipment is stated at cost, including acquisition costs
allocated to tangible assets acquired. Equipment acquired under
capital leases are stated at the present value of minimum lease
payments, not to exceed the fair value of the leased asset.
Construction and initial subscriber installation costs, including
interest during construction, material, labor and applicable overhead,
are capitalized. Interest capitalized during 1996, 1995 and 1994 was
not material.
Depreciation is computed on a straight-line basis using estimated
useful lives of 3 to 20 years for distribution systems (3 to 5 years
for converters and in-home wiring and 10 to 20 years for the
remaining components of the distribution system) and 3 to 40 years
for support equipment and buildings (3 to 5 years for support
equipment and 10 to 40 years for buildings and improvements).
Equipment held under capital leases are depreciated on a
straight-line basis over the shorter of the lease term or estimated
useful life of the asset.
Repairs and maintenance are charged to operations, and additions are
capitalized. At the time of ordinary retirements, sales or other
dispositions of cable property, the original cost and cost of removal
of such property are charged to accumulated depreciation, and salvage,
if any, is credited thereto. Gains and losses relating to cable are
only recognized in connection with sales of properties in their
entirety. Gains and losses relating to all other assets are
recognized at the time of disposal.
(b) Franchise Costs and Other Intangible Assets
Franchise costs and other intangible assets generally include the
difference between the cost of acquiring cable, telephony and
programming companies and amounts allocated to their tangible assets.
Such amounts are amortized on a straight-line basis over their useful
lives (10 to 40 years).
(continued)
V-215
<PAGE> 437
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
In March of 1995, the Financial Accounting Standards Board (the "FASB")
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. The TCI Ventures Group adopted Statement
No. 121 effective January 1, 1996. Such adoption did not have a
significant effect on the financial position or results of operations of
the TCI Ventures Group. In accordance with Statement No. 121, the TCI
Ventures Group 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. The TCI Ventures Group 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"). The TCI Ventures
Group deems Assets to be impaired if the TCI Ventures Group is unable to
recover the carrying value of its 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 values. The TCI Ventures Group 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.
Foreign Currency Translation
The functional currency of TCI Ventures Group is the United States
("U.S.") dollar. The functional currency of the TCI Ventures Group's
foreign operations generally is the applicable local currency for each
foreign subsidiary and foreign equity method investee. In this regard, the
functional currency of Cablevision S.A. and certain affiliated companies
("Cablevision"), Flextech p.l.c. ("Flextech") and the multi-channel video
and telecommunications distribution business in Puerto Rico (the
"Consolidated Puerto Rico Entities") is the Argentine peso, the United
Kingdom ("UK") pound sterling ("(pound)" or "pounds") and the U.S. dollar,
respectively. All amounts presented herein with respect to Cablevision are
stated in U.S. dollars because the Argentine government has maintained an
exchange rate of one U.S. dollar to one Argentine peso since April of
1991. However, no assurance can be given that the Argentine government
will maintain such an exchange rate in future periods. Assets and
liabilities of foreign subsidiaries and foreign equity investees are
translated at the spot rate in effect at the applicable reporting date,
and the combined statements of operations and the TCI Ventures Group's
share of the results of operations of its foreign equity affiliates are
translated at the average exchange rates in effect during the applicable
period. The resulting unrealized cumulative translation adjustment, net of
applicable income taxes, is recorded as a separate component of combined
equity.
(continued)
V-216
<PAGE> 438
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Transactions denominated in currencies other than the functional currency
are recorded based on exchange rates at the time such transactions arise.
Subsequent changes in exchange rates result in transaction gains and
losses which are reflected in the combined statements of operations as
unrealized (based on the applicable period end translation) or realized
upon settlement of the transactions.
Cash flows from the TCI Ventures Group's consolidated foreign subsidiaries
are calculated in their functional currencies. The effect of exchange rate
changes on cash balances held in foreign currencies is reported as a
separate line item in the accompanying statements of cash flows.
Foreign Currency Derivatives
From time to time, the TCI Ventures Group uses certain derivative
financial instruments to manage its foreign currency risks. Amounts
receivable or payable pursuant to derivative financial instruments that
qualify as hedges of existing assets, liabilities and firm commitments are
deferred and reflected as an adjustment of the carrying amount of the
hedged item. Market value changes in all other derivative financial
instruments are recognized currently in the combined statements of
operations. At December 31, 1996 and 1995, the TCI Ventures Group had no
material deferred hedging gains or losses.
Proforma Loss Per Common Share
Pro forma loss attributable to common shareholders for the year ended
December 31, 1996 assumes, solely for the purpose of this calculation,
that the Exchange Offers were consummated prior to January 1, 1996 and
that, in connection with such Exchange Offers, shares representing 28% of
the TCI Group Stock which were issued and outstanding on December 31, 1996
were exchanged for TCI Ventures Group Stock on a share for share basis.
Stock Based Compensation
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("Statement No. 123") was issued by the FASB in
October 1995. Statement No. 123 establishes financial accounting and
reporting standards for stock-based employee compensation plans as well as
transactions in which an entity issues its equity instruments to acquire
goods or services from non-employees. As allowed by Statement No. 123, the
TCI Ventures Group continues to account for stock-based employee
compensation pursuant to Accounting Principles Board Opinion No. 25 ("APB
Opinion No. 25"). For the year ending December 31, 1996, the TCI Ventures
Group estimates that compensation expense would not be materially
different under Statement No. 123.
(continued)
V-217
<PAGE> 439
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined 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.
(3) Supplemental Disclosures to Statements of Cash Flows
Cash paid for interest was $36.3 million, $38.0 million and $12.7 million
for years ended December 31, 1996, 1995 and 1994, respectively. Cash paid
for income taxes was $12.5 million during the year ended December 31, 1996
and was not material during the years ended December 31, 1995 and 1994.
The net cash paid by the TCI Ventures Group for acquisitions is as follows
(amounts in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Fair value of assets acquired $ 632,768 589,193 92,536
Issuance of notes payable (51,727) (86,755) --
Liabilities assumed (including deferred
income tax liabilities of $36.6 million
and $177.7 million in 1996 and 1995,
respectively), net of current assets (151,273) (310,022) (33,857)
Historical cost of contributed net assets -- -- (40,017)
Increase in minority interests in equity
of subsidiaries due to issuance of
shares by Flextech (43,223) -- --
Minority interest in equity of
acquired entity (81,751) (2,664) (18,662)
Increase in combined equity resulting
from preferred stock issued in
acquisition (196,004) -- --
--------- --------- ---------
Cash paid for acquisitions $ 108,790 189,752 --
========= ========= =========
Property and equipment purchased
under capital leases $ 63,656 77,076 34,058
========= ========= =========
</TABLE>
(4) Flextech Transactions
On February 2, 1994, the TCI Ventures Group contributed its 100% ownership
interests in Flextech Television Limited ("FTV") and Bravo Classic Movies
Limited ("Bravo Ltd."), together with its equity method investments in UK
Gold Television Limited ("UKGL"), UK Living Limited ("UKLL") and
Starstream Limited ("Starstream") (collectively, the "International UK
Programming Assets") to Flextech in exchange for 60.4% of Flextech's
issued and outstanding ordinary shares.
The TCI Ventures Group owned, at December 31, 1996, 56,340,598 Flextech
Ordinary Shares representing 46.5% of the issued and outstanding Flextech
share capital and 50.9% of the aggregate voting interests attributable to
such Flextech share capital.
(continued)
V-218
<PAGE> 440
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
On June 5, 1995, Flextech completed the sale of newly issued Flextech
Ordinary Shares and newly issued convertible non-preference shares
("Flextech Non-Preference Shares") to subsidiaries of Hallmark Cards
Incorporated ("Hallmark") (the "Hallmark Subscription") and U S WEST, Inc.
("U S WEST") (the "U S WEST Subscription") in exchange for (pound)48.4
million ($77.2 million using the applicable exchange rate) in cash and
convertible redeemable preferred shares of Thomson Directories Limited,
respectively. The Hallmark Subscription and the U S WEST Subscription are
collectively referred to herein as the "Flextech Transactions."
In connection with the Flextech Transactions, the TCI Ventures Group
recorded a $50.9 million increase to combined equity and a $93.2 million
increase to minority interests in equity of subsidiaries. No gain was
recognized due primarily to the existence of the TCI Ventures Group's
contingent obligations to purchase Flextech Non-Preference Shares and/or
Flextech Ordinary Shares from U S WEST (UK) and Hallmark.
On April 22, 1996, Flextech acquired from International Family
Entertainment, Inc. ("IFE") (i) the 61% ownership interest in Maidstone
Broadcasting ("Maidstone"), which Flextech did not already own and (ii) a
100% ownership interest in TVS Television Limited. Excluding liabilities
assumed, the total consideration paid by Flextech to acquire such
ownership interests was (pound)31.4 million ($47.8 million using the
applicable exchange rate), of which (pound)3.0 million ($4.5 million using
the applicable exchange rate) was paid in cash and the remaining balance
was satisfied by Flextech's issuance of convertible non-preference shares
(the "IFE Consideration Shares"). In connection with the above-described
transactions (collectively, the "IFE Acquisitions"), the TCI Ventures
Group granted to IFE the right to put the IFE Consideration Shares to the
TCI Ventures Group under certain circumstances. Due primarily to the TCI
Ventures Group's contingent purchase obligations under the above-described
put option, the TCI Ventures Group recognized no gain in connection with
the dilution of the TCI Ventures Group's ownership interest in Flextech
that resulted from the issuance of the IFE Consideration Shares.
Accordingly, the full value ascribed to the IFE Consideration Shares has
been reflected as an increase to minority interests in equity of
subsidiaries as set forth in the accompanying December 31, 1996 combined
balance sheet. In connection with the BBC Joint Ventures, as defined
below, and certain related transactions, all of the IFE Consideration
Shares were converted into Flextech Ordinary Shares thereby eliminating
the TCI Ventures Group's put obligation with respect to such shares.
(continued)
V-219
<PAGE> 441
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
In January 1997, the TCI Ventures Group reduced its voting interest in
Flextech to 50% by issuing to a nominee an irrevocable proxy (the "Proxy")
to vote 960,850 Flextech Ordinary Shares at any shareholder meeting to be
held through December 31, 1997. In April 1997, Flextech and BBC Worldwide
Limited ("BBC Worldwide") formed two separate joint ventures (the "BBC
Joint Ventures") and entered into certain related transactions. The
consummation of the BBC Joint Ventures and related transactions resulted
in, among other things, a reduction of TCI Ventures Group's ownership
interest in Flextech to 35.9% and the issuance to the TCI Ventures Group
by Flextech of a special voting share (the "Special Voting Share"). The
Special Voting Share when combined with TCI Ventures Group's other share
capital in Flextech, allows TCI Ventures Group to cast 50% of the votes on
most matters brought to the shareholders of Flextech for vote. So long as
the Proxy remains outstanding, TCI Ventures Group's 50% voting interest
will be reduced by the 960,850 votes represented by the Proxy. The Special
Voting Share will terminate upon the occurrence of the earlier of (i) the
third anniversary of issuance or (ii) any transfer of Flextech shares by
the TCI Ventures Group outside a specified affiliated group. In light of
the TCI Ventures Group's decreased voting interest in Flextech, the TCI
Ventures Group, effective January 1, 1997, ceased to consolidate Flextech
and began to account for Flextech using the equity method of accounting.
In connection with the Flextech Combination, the TCI Ventures Group
purchased (pound)9.4 million ($14.2 million using the applicable exchange
rate) of certain unsecured convertible debt of Flextech (the "Flextech
Convertible Debt"). The Flextech Convertible Debt may be converted into
Flextech ordinary shares ("Flextech Ordinary Shares") at the rate of
(pound)3.00 ($5.14) per Flextech Ordinary Share for a period of 180 days
commencing in September 1997. The conversion of such debt, however, would
not increase the TCI Ventures Group's voting interest attributable to
Flextech share capital so long as the Proxy remains outstanding.
In April 1997, (i) Flextech and BBC Worldwide formed the two BBC Joint
Ventures and (ii) Flextech acquired from the other shareholders of UKLL
and UKGL all of the share capital in those two companies not already owned
by Flextech and the TCI Ventures Group through the issuance of new
Flextech Ordinary Shares.
Flextech's outstanding Flextech Non-Preference Shares had been issued in
connection with previous acquisition transactions by Flextech due to the
TCI Ventures Group's requirement that it maintain specified voting
interests in Flextech. With the issuance of the Special Voting Share, the
purpose for the Flextech Non-Preference Shares was eliminated.
Accordingly, and in order to simplify the capital structure of Flextech,
upon the issuance of the Special Voting Share, the Flextech Non-Preference
Shares were converted into Flextech Ordinary Shares. Immediately following
such conversion, and the issuance of additional Flextech Ordinary Shares
in connection with the UKGL and UKLL transactions described above, (i) the
TCI Ventures Group's interest in the equity share capital of Flextech was
35.9% and (ii) the TCI Ventures Group's voting interest was 50%.
(continued)
V-220
<PAGE> 442
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Flextech has undertaken to finance the working capital requirements of one
of the BBC Joint Ventures (the "Principal Joint Venture"). Flextech has
also agreed to make available to the other BBC Joint Venture (the "Second
Joint Venture"), if required, funding of up to (pound)10 million ($16
million). If Flextech defaults in its funding obligation to the Principal
Joint Venture and fails to cure within 42 days after receipt of notice
from BBC Worldwide, BBC Worldwide is entitled, within the following 90
days, to require that the TCI Ventures Group assume all of Flextech's
funding obligations to the Principal Joint Venture (the "Standby
Commitment"). In addition to Flextech's April 1997 purchase of (pound)22
million ($36 million) of ordinary shares in the Principal Joint Venture,
Flextech is obligated to provide the Principal Joint Venture with a
primary credit facility of (pound)88 million ($144 million) and, subject
to certain restrictions, a standby credit facility of (pound)30 million
($49 million).
If BBC Worldwide requires the TCI Ventures Group to perform Flextech's
funding obligations pursuant to the Standby Commitment, then the TCI
Ventures Group will acquire Flextech's entire equity interest in the
Principal Joint Venture for (pound)1.00, and will replace Flextech's
directors on the board of the Principal Joint Venture with representatives
of the TCI Ventures Group. Flextech will pay commitment and standby fees
to the TCI Ventures Group for its undertaking under the Standby
Commitment. If Flextech repays to the TCI Ventures Group all loans it
makes to the Principal Joint Venture (plus interest at International's
marginal cost of funds plus 2% per annum) within 180 days after the TCI
Ventures Group first becomes obligated to perform Flextech's financial
obligations, it may reacquire its interest in the Principal Joint Venture
for (pound)1.00. The TCI Ventures Group may also, within the same period,
require Flextech to reacquire its interest on the same terms. The Standby
Commitment will terminate on the earliest of (i) the date on which
Flextech has met all of its required financial obligations to the
Principal Joint Venture under the primary and standby credit facilities,
or (ii) the date on which Flextech delivers a bank guarantee of all of its
funding obligations to the Principal Joint Venture.
So long as the TCI Ventures Group is contingently obligated under the
Standby Commitment, it has been agreed that (i) Flextech will not sell any
of its direct or indirect interests in the Principal Joint Venture, (ii)
Flextech will not conduct its business in such a way as is likely to cause
it to be in material breach of any material contracts or to have
insufficient working capital to meet its funding obligation to the
Principal Joint Venture, and (iii) Flextech will use its available
resources to subscribe for any outstanding loan stock of the Principal
Joint Venture, if and to the extent required by TCI Ventures Group at any
time after December 31, 2011.
(continued)
V-221
<PAGE> 443
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(5) Acquisitions
(a) OCC Acquisition
On October 1, 1996, Cablevision S.A. ("Cablevision") acquired 99.99%
of the issued and outstanding capital stock of Oeste Cable Color S.A.
("OCC"), a cable television operation, for a purchase price of $112.2
million (the "OCC Acquisition"). Cash consideration of $43.7 million
was paid at closing and an additional cash payment of $22.1 million
was paid on December 1, 1996. The remaining purchase price was
satisfied by Cablevision's issuance of $46.4 million principal amount
of secured negotiable promissory notes (the "OCC Notes"). The OCC
Acquisition has been accounted for by the purchase method.
Accordingly, the results of operations of OCC have been consolidated
with those of the TCI Ventures Group since the date of acquisition
and the TCI Ventures Group recorded OCC's assets and liabilities at
fair value.
(b) UVSG Merger
On January 25, 1996, the stockholders of UVSG adopted the Agreement
and Plan of Merger dated as of July 10, 1995, as amended (the "UVSG
Merger Agreement"), among UVSG, TCI and TCI Merger Sub, Inc. ("Merger
Sub"), pursuant to which Merger Sub was merged into UVSG, with UVSG
as the surviving corporation (the "UVSG Merger"). TCI Ventures Group
acquired 12,373,294 shares of UVSG Class B common stock and 2,145,466
shares of UVSG Class A common stock, together representing
approximately 40% of the issued and outstanding common stock of UVSG
and approximately 86% of the total voting power of UVSG common stock
immediately after the UVSG Merger, resulting in UVSG becoming a
majority-controlled subsidiary of TCI Ventures Group. The UVSG Merger
has been accounted for by the purchase method. Accordingly, the
results of operations of UVSG have been consolidated with those of
the TCI Ventures Group since the date of acquisition and the TCI
Ventures Group recorded UVSG's assets and liabilities at fair value.
(c) Satellite Joint Venture
On August 9, 1996, the TCI Ventures Group and Liberty Media Group
executed an amended and restated agreement under which UVSG and
Liberty Media Group contributed their retail C-band home satellite
dish business' assets, obligations and operations, effective April 1,
1996, to Superstar/Netlink Group LLC, a new entity owned 50% each by
TCI Ventures Group and Liberty Media Group (the "Satellite Joint
Venture"). The combination was accounted for as a merger of
businesses under common control, whereby the assets and obligations
of both UVSG and Liberty Media Group which were contributed to the
venture were reflected at their historical cost. The operations of
the Satellite Joint Venture have been consolidated, effective April 1,
1996, with the operating results of the TCI Ventures Group.
(continued)
V-222
<PAGE> 444
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Assets contributed by Liberty Media Group to the Satellite Joint
Venture totaled $14.7 million and consisted primarily of $14.3
million of accounts receivable. These assets were subject to
liabilities of $64.0 million, consisting of $50.9 million of customer
prepayments and $13.1 million of accounts payable and accrued
liabilities and resulted in Liberty Media Group contributing net
liabilities to the venture. UVSG contributed net liabilities in the
same amount to the venture. UVSG has classified the capital deficit
of Liberty Media Group in the venture as a reduction to combined
equity.
Unaudited pro forma summarized operating results of the TCI Ventures Group
assuming the OCC Acquisition, IFE Acquisitions, the UVSG Merger and the
Satellite Joint Venture had been, in each case, consummated on January 1,
1995, are as follows (amounts in thousands):
<TABLE>
<CAPTION>
Years ended
December 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Revenue $ 1,017,447 763,001
=========== ===========
Net earnings (loss) $ (259,359) 66,679
=========== ===========
</TABLE>
The foregoing unaudited pro forma information is based upon historical
results of operations and is not necessarily indicative of the results
that would have been obtained had the OCC Acquisition, IFE Acquisitions,
the UVSG Merger and the Satellite Joint Venture actually occurred on
January 1, 1995.
On April 25, 1995, the TCI Ventures Group acquired a 51% ownership
interest in Cablevision for an adjusted purchase price of $282.0 million,
before liabilities assumed (the "Cablevision Acquisition"). The purchase
price was paid with cash consideration of $195.2 million (including a
previously paid $20 million deposit) and the TCI Ventures Group's issuance
of $86.8 million principal amount of secured negotiable promissory notes
payable (the "Cablevision Notes") to the selling shareholders. The
Cablevision Acquisition has been accounted for by the purchase method.
Accordingly, the results of operations of Cablevision have been
consolidated with those of the TCI Ventures Group since the date of
acquisition and the TCI Ventures Group recorded Cablevision's assets and
liabilities at fair value.
None of Cablevision's $65.0 million of net liabilities at the April 25,
1995 acquisition date, and none of Cablevision's post-acquisition
operating results have been allocated to Cablevision's 49% minority
interest because (i) the minority interest has no obligation to provide
any funding to Cablevision and (ii) the minority interest continued to
have a negative historical cost basis in Cablevision's net assets at
December 31, 1996. To the extent that Cablevision's post-acquisition net
earnings (exclusive of the effects of purchase accounting) cause the
minority interest's historical cost basis in Cablevision's net assets to
become positive, the TCI Ventures Group would begin to allocate 49% of
such net earnings to the minority interest. If the minority interest's
historical cost basis had been positive for the periods ended December 31,
1996 and 1995, the TCI Ventures Group would have allocated $15.9 million
and $11.7 million, respectively, of Cablevision's net earnings (exclusive
of the effects of purchase accounting) to the minority interest.
(continued)
V-223
<PAGE> 445
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(6) Disposition
On October 17, 1995, IVS Cable Holdings Limited ("IVS"), a consolidated
subsidiary of Flextech, completed the sale of a group of cable television
subsidiaries to an unaffiliated third party for aggregate cash proceeds of
(pound)62.6 million ($98.9 million using the applicable exchange rate)
(the "IVS Subsidiary Sale"). Flextech, which, at the time, indirectly
owned 91.7% of IVS, received (pound)59.3 million ($93.7 million using the
applicable exchange rate) of the cash proceeds from the IVS Subsidiary
Sale.
(7) Sale of Subsidiary Stock
On July 18, 1995, International completed an initial public offering (the
"IPO") in which it sold 20 million shares of International Series A common
stock to the public for consideration of $16.00 per share aggregating $320
million, before deducting related expenses (approximately $19 million).
The shares sold to the public represented 17% of International's total
issued and outstanding common stock. As a result of the IPO, the TCI
Ventures Group recognized a gain amounting to $123 million.
(8) Investment in Telewest
From December 18, 1991 through November 22, 1994, the TCI Ventures Group
and certain affiliates of U S WEST, Inc. (the "U S WEST Affiliates") each
held a 50% ownership interest in the TCI/U S WEST Cable Communications
Group (the "Telewest UK Joint Venture").
On November 22, 1994, the TCI Ventures Group and the U S WEST UK
Affiliates each entered into a series of transactions that resulted in the
conversion of their respective 50% ownership interests in the Telewest UK
Joint Venture into 302,250,000 ordinary shares and 76,500,000 convertible
preference shares of Telewest's predecessor ("Old Telewest") (the "Old
Telewest Exchange"). In connection with the Old Telewest Exchange, the TCI
Ventures Group and the U S WEST Affiliates entered into an agreement to
vote their shares together in such a manner as may be mutually agreed, or
in the absence of such agreement, to vote their shares together in such a
manner that would be most likely to continue the status quo, without
materially increasing Old Telewest's financial obligations, or materially
deviating from its approved business plan.
Following the completion of the Old Telewest Exchange, Old Telewest
conducted an initial public offering on November 30, 1994 in which it sold
243,740,000 ordinary shares for aggregate net proceeds of approximately
(pound)401.3 million ($627.8 million using the applicable exchange rate)
(the "Old Telewest IPO"). Upon completion of the Old Telewest Exchange and
the Old Telewest IPO, TCI and the U S WEST Affiliates each indirectly held
approximately 36% of the ordinary shares (assuming no conversion of the
convertible preference shares) and approximately 38% of the total
outstanding ordinary and convertible preference shares of Old Telewest. As
a result of the Old Telewest IPO, and the associated dilution of the TCI
Ventures Group's ownership interest in Old Telewest, the TCI Ventures
Group recognized a $161.5 million non-cash gain (before deducting the
related tax expense of $56.5 million) during 1994.
(continued)
V-224
<PAGE> 446
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
During the second quarter of 1995, the Old Telewest shares owned by the
TCI Ventures Group and the U S WEST Affiliates were contributed to TW
Holdings, L.L.C. ("TW Holdings"), an entity in which the TCI Ventures
Group and the U S WEST Affiliates each hold an indirect 50% ownership
interest.
On October 3, 1995, the merger of Old Telewest and SBC CableComms (UK)
("SBCC") was consummated whereby a new entity, Telewest (formerly Telewest
plc), acquired all of the outstanding share capital of Old Telewest and
SBCC (the "SBCC Transaction"). The SBCC Transaction effectively resulted
in the conversion of the TCI Ventures Group's 37.8% indirect ownership
interest in Old Telewest into a 26.8% indirect ownership interest in
Telewest. As a result of the SBCC Transaction, and the associated dilution
of the TCI Ventures Group's ownership interest in Telewest, the TCI
Ventures Group recognized a non-cash gain of $164.9 million (before
deducting estimated deferred income taxes of $57.7 million) during the
fourth quarter of 1995. In connection with the SBCC Transaction, Telewest
received $1.2 billion of net cash proceeds from the issuance of U.S.
dollar denominated senior debentures having an aggregate principal amount
of $1.8 billion at maturity (the "Telewest Debentures"). As a result of
Telewest's issuance of the Telewest Debentures, changes in the exchange
rate used to translate the U.S. dollar into the UK pound sterling will
cause Telewest to experience realized and unrealized foreign currency
transaction gains and losses throughout the term of the Telewest
Debentures, which mature in 2006 and 2007, if not redeemed earlier. During
the year ended December 31, 1996 and the period in 1995 following the
issuance of the Telewest Debentures, Telewest experienced unrealized
foreign currency transaction gains (losses) of $1.7 million and $(23.0
million) respectively, with respect to the Telewest Debentures.
At December 31, 1996, the TCI Ventures Group indirectly owned through TW
Holdings, 132,638,250 or 26.7% of Telewest's convertible preference
shares, 246,111,750 or 26.5% (assuming no conversion of the Telewest
convertible preference shares) of Telewest's ordinary shares, and 26.6% of
Telewest's aggregate convertible preference and ordinary share capital.
The rights and privileges of Telewest's convertible preference shares are
similar to those of the Telewest ordinary shares except that the Telewest
convertible preference shares may only be voted upon resolutions involving
the winding up of Telewest or resolutions involving any modification of
the rights or privileges of the Telewest convertible preference shares. In
accordance with the requirements of the London Stock Exchange, the
Telewest convertible preference shares are convertible into Telewest
ordinary shares on a one-for-one basis only to the extent that, following
conversion, at least 25% of the Telewest ordinary shares remain publicly
held. In connection with the formation of TW Holdings, the TCI Ventures
Group and the U S WEST Affiliates entered into certain agreements which
contain provisions regarding, among other matters, the voting and
disposition of the Telewest ordinary and convertible preference shares,
which shares represent the only assets of TW Holdings.
On December 31, 1996, the reported closing price on the London Stock
Exchange of the Telewest ordinary shares was (pound)1.24 per share ($2.12
per share).
Unless the context indicates otherwise, references herein to "Telewest"
include Telewest and its predecessor entities (Old Telewest and the
Telewest UK Joint Venture). (continued)
(continued)
V-225
<PAGE> 447
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
The functional currency of Telewest is the UK pound sterling. The average
exchange rate used to translate the TCI Ventures Group's share of
Telewest's operating results from UK pounds to U.S. dollars was 1.5718 to
1, 1.5799 to 1 and 1.5393 to 1 during the years ended December 31, 1996,
1995 and 1994, respectively. The spot rate used to translate the TCI
Ventures Group's share of Telewest's net assets from UK pounds to U.S.
dollars was 1.7125 to 1 and 1.5530 to 1 at December 31, 1996 and 1995,
respectively.
Summarized financial information for Telewest is as follows :
<TABLE>
<CAPTION>
December 31,
-----------------------
1996 1995
---------- ----------
amounts in thousands
<S> <C> <C>
Consolidated Financial Position
Cash and receivables, net $ 241,117 797,618
Investments 162,816 157,426
Property and equipment, net 2,478,030 1,652,094
Franchise costs and other assets, net 956,910 948,797
---------- ----------
Total assets $3,838,873 3,555,935
========== ==========
Debt $1,505,713 1,277,465
Other liabilities 499,635 224,242
Shareholders' equity 1,833,525 2,054,228
---------- ----------
Total liabilities and equity $3,838,873 3,555,935
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------
1996 1995 1994
--------- --------- ---------
Consolidated Operations amounts in thousands
<S> <C> <C> <C>
Revenue $ 455,923 228,744 110,871
Operating, selling, general and
administrative expenses (454,458) (264,014) (139,504)
Depreciation and amortization (245,566) (107,233) (49,484)
--------- --------- ---------
Operating loss (244,101) (142,503) (78,117)
Interest expense (164,757) (42,101) (15,499)
Interest income 26,163 24,718 3,527
Share of losses of affiliates (25,076) (20,186) (13,032)
Foreign exchange gain (loss) 1,670 (23,029) (32)
Other, net (including realized loss on
interest rate swap of $13,601,000 in
1995 and extraordinary gain of
$11,217,000 in 1994) 242 (14,184) 13,797
--------- --------- ---------
Net loss $(405,859) (217,285) (89,356)
========= ========= =========
</TABLE>
(continued)
V-226
<PAGE> 448
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(9) Investments in the PCS Ventures
Summarized financial information for the PCS Ventures, accounted for under
the equity method, is as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------
Combined Financial Position 1996 1995
---------- ----------
amounts in thousands
<S> <C> <C>
Cash $ 14,427 1,149
Investments and related receivables 2,611,088 2,296,130
Other assets, net 2,028,530 31,972
---------- ----------
Total assets $4,654,045 2,329,251
========== ==========
Debt $ 686,192 --
Other liabilities 1,407,929 53,436
Owners' equity 2,559,924 2,275,815
---------- ----------
Total liabilities and equity $4,654,045 2,329,251
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------
Combined Operations 1996 1995 1994
--------- --------- ---------
amounts in thousands
<S> <C> <C> <C>
Revenue $ 12,647 -- --
Operating expenses (354,593) (66,720) (3,295)
Depreciation and amortization (11,297) (211) (38)
--------- --------- ---------
Operating loss (353,243) (66,931) (3,333)
Other, net (91,327) (45,749) 24
--------- --------- ---------
Net loss $(444,570) (112,680) (3,309)
========= ========= =========
</TABLE>
TCI Ventures Group is a partner in a series of partnerships formed to
engage in the business of providing wireless communications services,
using the radio spectrum for broadband personal communications services
("PCS"), to residential and business customers nationwide, using the
"Sprint" brand. The PCS Ventures include Sprint Spectrum Holding Company,
L. P. ("Sprint Spectrum") and MinorCo, L.P. (collectively, the "Sprint PCS
Partnerships") and PhillieCo, L.P. ("PhillieCo"). The partners of each of
the Sprint PCS Partnerships are subsidiaries of Sprint Corporation,
Comcast Corporation, Cox Communications, Inc. and the TCI Ventures Group.
The partners of PhillieCo are subsidiaries of Sprint, Cox and the TCI
Ventures Group.
(continued)
V-227
<PAGE> 449
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
From inception through March 1997, the four partners have contributed
approximately $3.0 billion to the Sprint PCS Partnerships (of which the
TCI Ventures Group contributed an aggregate of approximately $0.9
billion). The remaining capital that the Sprint PCS Partnerships will
require to fund the construction of the PCS systems and the commitments
made to APC and Cox-California will be substantial. The partners had
agreed in forming the Sprint PCS Partnerships to contribute up to an
aggregate of approximately $4.2 billion of equity thereto, from inception
through fiscal 1999, subject to certain requirements. The TCI Ventures
Group expects that the remaining approximately $1.2 billion of such amount
(of which the TCI Ventures Group's share is approximately $0.4 billion)
will be contributed by the end of the second quarter of 1998 (although
there can be no assurance that any additional capital will be
contributed). The TCI Ventures Group expects that the Sprint PCS
Partnerships will require additional equity thereafter.
Pursuant to an agreement entered into in connection with certain
financings by Sprint Spectrum, under certain circumstances the partners in
Sprint Spectrum may be required to make additional contributions to Sprint
Spectrum to fund projected cash shortfalls to the extent that the amount
of the partners' aggregate contributions to Sprint Spectrum (exclusive of
certain amounts, including amounts invested in certain affiliates of
Sprint Spectrum), following December 31, 1995 are less than $1.0 billion;
however, based on the currently expected timing and use of the partners'
contributions to Sprint Spectrum, the TCI Ventures Group currently
believes that such agreement will not result in the TCI Ventures Group's
being required to make any incremental capital contributions in addition
to its pro rata portion of the aforementioned $4.2 billion amount.
(10) Investment in Teleport
Teleport is a competitive local exchange carrier which provides integrated
local telecommunications services in major metropolitan markets
nationwide. TCG's customers are principally telecommunications intensive
businesses, long distance carriers and resellers of wireless
communications companies.
During 1992, the TCI Ventures Group acquired a 30% ownership interest in
Teleport. Subsequent to the acquisition, the TCI Ventures Group advanced
funds to Teleport in the form of notes receivable. Such notes receivable
bore interest at a variable rate and amounted to (including accrued
interest) $87,511,000 and $61,372,000 at December 31, 1995 and 1994,
respectively. In conjunction with the Reorganization (as defined below),
$57.8 million of such receivables were converted to equity of Teleport.
The remaining note receivable of $26 million was exchanged for a new note
which bears interest at 7.5% and is due in 2001.
Also during 1992, Teleport, with Cox, Comcast and Continental Cablevision
("Continental"), (collectively the "Cable Stockholders"), formed TCG
Partners to invest, with Teleport, the Cable Stockholders and other cable
operators, in 14 partnerships (the "Local Market Partnership") to develop
and operate local telecommunications networks.
The TCI Ventures Group's investment in Teleport is accounted for under the
equity method of accounting.
(continued)
V-228
<PAGE> 450
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Summarized financial information for Teleport, accounted for under the
equity method, is as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------
Combined Financial Position 1996 1995
---------- ----------
amounts in thousands
<S> <C> <C>
Cash $ 277,540 32,835
Investments and related receivables 124,891 99,299
Other assets, net 1,655,054 931,297
---------- ----------
Total assets $2,057,485 1,063,431
========== ==========
Debt $ 985,567 356,500
Other liabilities 275,048 236,421
Minority interest -- 4,409
Owners' equity 796,870 466,101
---------- ----------
Total liabilities and equity $2,057,485 1,063,431
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------
Combined Operations 1996 1995 1994
--------- --------- ---------
amounts in thousands
<S> <C> <C> <C>
Revenue $ 267,669 216,445 144,426
Operating expenses (242,615) (215,861) (160,233)
Depreciation and amortization (78,416) (61,482) (30,149)
--------- --------- ---------
Operating loss (53,362) (60,898) (45,956)
Interest expense (73,633) (28,953) (9,862)
Other, net 12,146 (12,819) (7,182)
--------- --------- ---------
Net loss $(114,849) $(102,670) (63,000)
========= ========= =========
</TABLE>
In June 1996, Teleport and the Cable Stockholders agreed to simplify the
Teleport capital structure by consolidating the ownership of TCG Partners
and the Local Market Partnerships as wholly owned subsidiaries of
Teleport. As part of this process, certain of the other cable operators
agreed to exchange their interests in the Local Market Partnerships with
Teleport directly or through a Cable Stockholder for Teleport common
stock.
Teleport and the Cable Stockholders entered into a reorganization
agreement pursuant to which Teleport, TCG Partners and the Local Market
Partnerships were reorganized (the "Reorganization"). The principal
transactions comprising the Reorganization include:
The acquisition by Teleport of TCG Partners in exchange for Teleport
Class B common stock issued to the Cable Stockholders.
(continued)
V-229
<PAGE> 451
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
The acquisition by Teleport of all interests in 12 of the 14 Local
Market Partnerships in exchange for Teleport Class B common stock
issued to the Cable Stockholders and Teleport Class A common stock
issued to other cable operators.
The contribution to Teleport of $269 million in aggregate principal
amount of indebtedness, plus accrued interest from May 1995, owed by
Teleport to the Cable Stockholders (except that the TCI Ventures
Group retained a $26 million subordinated note due from Teleport) in
exchange for Teleport Class B common stock issued to the Cable
Stockholders.
Teleport conducted an initial public offering (the "Teleport IPO") on July
2, 1996 in which it sold 27,025,000 shares of Class A common stock at
$16.00 per share to the public for aggregate net proceeds of approximately
$410,000,000. As a result of the Teleport IPO, the TCI Ventures Group's
ownership interest in Teleport was reduced from approximately 35% to
approximately 31%. Accordingly, the TCI Venture Group recognized a gain
amounting to $12 million (before deducting deferred income tax expense of
approximately $5 million).
In consideration of the transfer by each of the Cable Stockholders of its
respective interests in TCG Partners and the Local Market Partnerships and
the contribution to Teleport of the indebtedness described above, Teleport
issued immediately prior to the Teleport IPO approximately 69 million
additional shares of Class B common stock to the Cable Stockholders.
The issuance of shares received by the TCI Ventures Group in the
Reorganization assumed that subsequent to the Teleport IPO, the TCI
Ventures Group would contribute its partnership interests in TCG San
Francisco and TCG Seattle to Teleport. The transfer of such interests
occurred in the fourth quarter of 1996.
Additionally as part of the Reorganization, the TCI Ventures Group was
issued 638,862 shares of Teleport Class A common stock in consideration
for the transfer to Teleport of the partnership interest which the TCI
Ventures Group acquired from MicroNet, Inc. in TCG San Francisco. The TCI
Ventures Group also has acquired a 4.2% interest in TCG San Francisco from
InterMedia Partners. The TCI Ventures Group was issued 372,666 shares of
Teleport Class A common stock for the transfer to Teleport of such
acquired partnership interest. These transfers also occurred in the fourth
quarter of 1996.
(continued)
V-230
<PAGE> 452
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
On December 31, 1996, the reported closing price on the Nasdaq financial
market for Teleport's Class A common stock was $30.50 per share.
(11) Investments in Other Affiliates
The TCI Ventures Group's affiliates other than Telewest, PCS Ventures and
Teleport (the "Other Affiliates") generally are engaged in the cable
and/or programming businesses in the U.S. and in various foreign
countries.
The TCI Ventures Group and/or other subsidiaries of TCI have guaranteed
notes payable and other obligations of certain of the Other Affiliates
(the "Guaranteed Obligations"). At December 31, 1996, the U.S. dollar
equivalent of the amounts borrowed pursuant to the Guaranteed Obligations
aggregated $39.3 million. Certain of the Guaranteed Obligations allow for
additional borrowings in future periods.
Certain of the Other Affiliates are general partnerships and any
subsidiary of the TCI Ventures Group that is a general partner in a
general partnership could be liable, depending upon the applicable
partnership law, for all debts of that partnership to the extent
liabilities of that partnership were to exceed its assets.
Agreements governing the TCI Ventures Group's investment in certain of the
Other Affiliates contain (i) buy-sell and other exit arrangements whereby
the TCI Ventures Group could be required to purchase another investor's
ownership interest and (ii) performance guarantees whereby the TCI
Ventures Group and/or other subsidiaries of TCI have guaranteed the
performance of the TCI Ventures Group's subsidiary that directly holds the
related investment.
The following table reflects the TCI Ventures Group's carrying value
(including receivables) of the Other Affiliates:
<TABLE>
<CAPTION>
December 31,
----------------------
1996 1995
--------- ---------
amounts in thousands
<S> <C> <C>
Flextech Affiliates (a) $ 129,563 123,156
MultiThematiques S.A.
("MultiThematiques") (b) 84,007 89,705
Liberty/TINTA LLC (c) 63,227 29,118
Jupiter Telecommunications
Co., Ltd. ("Jupiter") (d) 47,251 16,268
Bresnan International Partners
(Chile), L.P. 34,408 59,286
Bresnan International Partners
(Poland), L.P. 27,951 16,739
DMX, Inc. -- 6,981
Telewest Europe Group
("Telewest Europe") (e) -- (16,800)
Other 88,192 67,196
--------- ---------
$ 474,599 391,649
========= =========
</TABLE>
(continued)
V-231
<PAGE> 453
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(a) Flextech Affiliates
At December 31, 1996, the "Flextech Affiliates" were comprised of
European Business News Partners (30%-owned by Flextech), HIT
Entertainment plc (23%-owned by Flextech), Preview Investments B.V.
("Preview") (33%-owned by Flextech), Scottish Television plc ("STV")
(20%-owned by Flextech), UKGL (25%-owned by Flextech) and UKLL
(31%-owned by Flextech). Prior to the Maidstone acquisition described
in note 4, the "Flextech Affiliates" also included Flextech's 39%
interest in Maidstone. The functional currency of Preview is the
Netherlands guilder. The functional currency of all other Flextech
Affiliates is the UK pound sterling. In connection with the April
1997 formation of the BBC Joint Ventures, Flextech acquired all of
the equity share capital of UKGL and UKLL (75% and 68.75%,
respectively) that Flextech did not already own.
The aggregate excess cost over Flextech's proportionate share of the
net assets of the Flextech Affiliates is being amortized over
estimated useful lives ranging from 10 to 20 years. At December 31,
1996, such aggregate excess cost was approximately $61 million.
(b) MultiThematiques
On December 13, 1995, International invested in MultiThematiques, a
newly formed European programming company that is one-third-owned by
each of the TCI Ventures Group and two French media companies, CANAL
+ S.A. ("Canal +") and Generale d'Images S.A. ("GDI"). On December
13, 1995, (i) International contributed to MultiThematiques 123.1
million French francs ("FF") ($24.7 million at the applicable
exchange rate), (ii) Canal + and GDI contributed to MultiThematiques
a combined 70% interest in Planete (a French documentary channel), a
combined 85% interest in Canal Jimmy (a lifestyle and entertainment
channel) and a combined 60% interest in each of two movie services,
Cine Cinema and Cine Cinefil, and (iii) Canal + contributed to
MultiThematiques a 50% ownership interest in Cine Classics, a
start-up classic movie service. In addition, International
contributed FF105.0 million ($20.2 million) and FF100.0 million
($19.3 million) on December 13, 1996 and February 13, 1997,
respectively, to MultiThematiques. International also has agreed to
contribute FF164.0 million ($31.6 million) no later than December 13,
1997. In order to manage the TCI Ventures Group's foreign currency
exchange risk with respect to its December 13, 1997 contribution
obligation, the TCI Ventures Group entered into a forward currency
option contract that allows the TCI Ventures Group to purchase FF
164.0 million at a price of FF 5.5367 per U.S. dollar through
December 31, 1997.
(continued)
V-232
<PAGE> 454
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Whereas Canal + and GDI were not required to make additional
contributions on a pro rata basis, International's obligation to make
the above-described additional FF 369.1 million ($71.1 million)
payment was viewed as additional consideration to be paid by
International to acquire its one-third interest in MultiThematiques.
Accordingly, the U.S. dollar equivalent of the estimated net present
value (using a discount rate of 10%) of the remaining future
contributions at December 31, 1996 and 1995 has been reflected as a
liability (the "MultiThematiques Obligation") in the accompanying
combined balance sheets. The $58.6 million excess of the TCI Ventures
Group's investment in MultiThematiques over the TCI Ventures Group's
proportionate share of MultiThematiques' net assets is being
amortized over an estimated useful life of twenty years. The majority
of such excess was created in connection with the recognition of the
MultiThematiques Obligation.
TCI Ventures Group, Canal + and GDI have each agreed not to dispose
of any shares in MultiThematiques prior to November 21, 1999.
Thereafter, each shareholder may sell all (but not less than all) of
its shares to a third party subject to a pro rata right of first
refusal by the non-selling shareholders. In the event that any two
shareholders propose to sell their shares of MultiThematiques or
jointly receive an offer to purchase such shares, the other
shareholder has the right to participate in such sale by selling its
shares to the prospective buyer on the same terms.
(c) Liberty/TINTA LLC
Effective April 29, 1996, TCI Ventures Group, Liberty Media Group and
News Corporation Limited ("News Corp.") formed a joint venture
including a number of partnerships or other entities under common
ownership, (the "Sports Venture"), to operate currently existing
sports services in Latin America and Australia and a variety of new
sports services throughout the world, excluding the United States,
Canada and certain other defined geographic areas. News Corp. owns a
50% interest in the Sports Venture with the remaining 50% owned by
Liberty/TINTA LLC, a limited liability company owned in equal parts
by subsidiaries of TCI Ventures Group and Liberty Media Group (the
"LLC"). As of December 31, 1996, TCI Ventures Group had contributed
to the LLC $49.0 million in cash and its 35% equity interest in
Torneos y Competencias S.A. ("Torneos"), an Argentinean sports
programming production company, and Liberty Media Group had
contributed to the LLC its interests in Latin American and Australian
Sports programming services and its rights under various television
sports programming agreements. The LLC contributed the non-cash
assets contributed to it by TCI Ventures Group and Liberty Media
Group to the Sports Venture. News Corp. contributed various
international sports rights and certain trademark rights in exchange
for its 50% interest in the Sports Venture. The carrying value and
the TCI Ventures Group's share of earnings (losses) of Torneos prior
to its contribution to the LLC have been included with the LLC in the
above table.
(continued)
V-233
<PAGE> 455
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
TCI Ventures Group may make additional cash contributions totaling
$29.0 million to the LLC to fund the operations of the Sports
Venture. As part of the formation of the Sports Venture, the LLC is
entitled to receive from News Corp. 7.5% of the outstanding stock of
STAR Television Limited. Upon the delivery of such stock to the LLC,
News Corp. is entitled to receive from the LLC up to $20.0 million
and rights under various Asian sports programming agreements. STAR
Television Limited operates a satellite-delivered television platform
in Asia.
On April 19, 1996, International, Torneos y Competencias S.A.
("Torneos") and the Torneos stockholders from whom International
previously acquired its 35% interest entered into an agreement (the
"International/Torneos Sports Agreement") whereby International
agreed to make minimum periodic payments from 1996 through 2004
aggregating $235.2 million to acquire certain rights and
considerations, including the exploitation rights to all sports
rights owned by Torneos with the exception of any rights which at
that time had been contractually committed to any third party.
Pending the assignment of the rights under the International/Torneos
Sports Agreement which fit within the geographic area and business
plan of the Sports Venture (the "Sports Venture Rights") to the
Sports Venture, TCI Ventures Group, News Corp. and Liberty Group have
paid their respective portion of any payments made with respect to
the Sports Venture Rights. Through December 31, 1996, payments made
under the International/Torneos Sports Agreement totaled $9.4
million.
The $33.0 million excess of the TCI Ventures Group's aggregate
historical cost basis in the LLC over the TCI Ventures Group's 50%
proportionate share of the LLC's net assets is being amortized over
an estimated useful life of 20 years.
(d) Jupiter
On January 18, 1995, the TCI Ventures Group and Sumitomo Corporation
("Sumitomo"), a company incorporated in Japan, formed Jupiter for the
purpose of owning and operating cable television and telephony
businesses in Japan and other parts of Asia. The TCI Ventures Group
and Sumitomo own 40% and 60%, respectively of Jupiter. The functional
currency of Jupiter is the Japanese yen ("(Y)").
The TCI Ventures Group has entered into an option agreement whereby
the TCI Ventures Group is entitled to sell(Y)1.6 billion in exchange
for $17.5 million through April 4, 2002. The option is treated as a
hedge of the TCI Ventures Group's foreign currency risk with respect
to its existing investment in Jupiter.
(e) TeleWest Europe
U S WEST Cable Europe, Inc. ("U S WEST Europe"), an indirect
wholly-owned subsidiary of U S WEST, and the TCI Ventures Group each
owned 50% of TeleWest Europe. TeleWest Europe owned a 91.7% paid-in
interest in United Communications International ("UCI"). UCI is a
general partnership between TeleWest Europe and UPC.
(continued)
V-234
<PAGE> 456
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
During the first quarter of 1996, the TCI Ventures Group and U S WEST
Europe agreed to initiate a course of action designed to result in
the liquidation and dissolution of TeleWest Europe. During the fourth
quarter of 1996, the TCI Ventures Group received a cash distribution
of $2.6 million and recognized a gain of $13.0 million in connection
with the dissolution of TeleWest Europe.
Summarized financial information of the Other Affiliates by geographic
region for the periods in which they were owned by the TCI Ventures Group
are as follows:
<TABLE>
<CAPTION>
December 31, 1996
---------------------------------------------------------
Latin
America
Asia and and The United
Europe Australia Caribbean States Total
--------- --------- --------- --------- ---------
Combined Financial Position amounts in thousands
<S> <C> <C> <C> <C> <C>
Property and equipment, net $ 101,612 158,924 13,019 23,317 296,872
Intangible assets, net 293,061 118,083 6,413 -- 417,557
Other assets 336,102 132,997 103,498 96,338 668,935
--------- --------- --------- --------- ---------
Total assets $ 730,775 410,004 122,930 119,655 1,383,364
========= ========= ========= ========= =========
Debt $ 162,814 171,248 99,496 35,858 469,416
Other liabilities 200,069 107,653 7,807 43,435 358,964
Owners' equity 367,892 131,103 15,627 40,362 554,984
--------- --------- --------- --------- ---------
Total liabilities and equity $ 730,775 410,004 122,930 119,655 1,383,364
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
---------------------------------------------------------
Latin
America
Asia and and The United
Europe Australia Caribbean States Total
--------- --------- --------- --------- ---------
Combined Financial Position amounts in thousands
<S> <C> <C> <C> <C> <C>
Property and equipment, net $ 200,132 126,109 14,672 14,027 354,940
Intangible assets, net 134,624 30,365 34,735 -- 199,724
Other assets 260,535 60,090 80,956 70,910 472,491
--------- --------- --------- --------- ---------
Total assets $ 595,291 216,564 130,363 84,937 1,027,155
========= ========= ========= ========= =========
Debt $ 176,188 87,828 140,778 21,078 425,872
Other liabilities 146,482 78,643 17,297 30,282 272,704
Owners' equity (deficit) 272,621 50,093 (27,712) 33,577 328,579
--------- --------- --------- --------- ---------
Total liabilities and equity $ 595,291 216,564 130,363 84,937 1,027,155
========= ========= ========= ========= =========
</TABLE>
(continued)
V-235
<PAGE> 457
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
<TABLE>
<CAPTION>
Year ended December 31, 1996
-------------------------------------------------------------
Latin
America
Asia and and The United
Europe Australia Caribbean States Total
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Combined Operations amounts in thousands
Revenue $ 418,874 165,925 24,262 88,362 697,423
Operating expenses (437,048) (190,836) (16,882) (86,933) (731,699)
Depreciation and amortization (18,330) (32,365) (3,411) (6,168) (60,274)
--------- --------- --------- --------- ---------
Operating income (loss) (36,504) (57,276) 3,969 (4,739) (94,550)
Interest expense, net (7,623) (11,885) (11,199) (2,328) (33,035)
Other, net 25,706 (86) (31,866) (504) (6,750)
--------- --------- --------- --------- ---------
Net loss $ (18,421) (69,247) (39,096) (7,571) (134,335)
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31, 1995
-------------------------------------------------------------
Latin
America
Asia and and The United
Europe Australia Caribbean States Total
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Combined Operations amounts in thousands
Revenue $ 333,487 84,445 28,911 90,117 536,960
Operating expenses (347,204) (90,817) (22,369) (88,927) (549,317)
Depreciation and amortization (19,851) (26,861) (3,617) (2,172) (52,501)
--------- --------- --------- --------- ---------
Operating income (loss) (33,568) (33,233) 2,925 (982) (64,858)
Interest expense, net (20,966) (9,065) (11,148) (342) (41,521)
Other, net 995 (1,672) (4,426) (6,813) (11,916)
--------- --------- --------- --------- ---------
Net loss $ (53,539) (43,970) (12,649) (8,137) (118,295)
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31, 1994
-------------------------------------------------------------
Latin
America
Asia and and The United
Europe Australia Caribbean States Total
--------- --------- --------- --------- ---------
Combined Operations amounts in thousands
<S> <C> <C> <C> <C> <C>
Revenue $ 233,723 46,475 21,612 57,381 359,191
Operating expenses (233,443) (70,622) (15,226) (57,296) (376,587)
Depreciation and amortization (35,269) (3,521) (6,759) (2,056) (47,605)
--------- --------- --------- --------- ---------
Operating loss (34,989) (27,668) (373) (1,971) (65,001)
Interest expense, net (15,971) (4,909) (3,939) (823) (25,642)
Other, net (3,122) (19) 5,874 (2,595) 138
--------- --------- --------- --------- ---------
Net income (loss) $ (54,082) (32,596) 1,562 (5,389) (90,505)
========= ========= ========= ========= =========
</TABLE>
(continued)
V-236
<PAGE> 458
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(12) Debt
The components of debt are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------
1996 1995
-------- --------
amounts in thousands
<S> <C> <C>
Debentures (a) $345,000 --
Cablevision Notes(b) 13,013 65,066
Cablevision bank loans(c) 104,556 58,166
OCC Notes (d) 46,418 --
Flextech Bank Facility -- 67,794
Other 17,267 13,163
-------- --------
$526,254 204,189
======== ========
</TABLE>
(a) On February 8, 1996, International received net cash proceeds of
approximately $336 million from the issuance of 4-1/2% Convertible
Subordinated Debentures (the "Debentures") due 2006 having an
aggregate principal amount of $345 million. The Debentures are
convertible into shares of International Series A common stock at a
price of $27.30 per share of International Series A common stock,
subject to anti-dilution adjustments. Interest on the Debentures is
payable on February 15 and August 15 of each year, commencing August
15, 1996. The Debentures may be redeemed by International in whole or
in part, at any time on or after February 15, 1999. Pending its use
by International, the net proceeds from the sale of the Debentures
were loaned to TCI pursuant to an unsecured promissory note. See note
13.
(b) The Cablevision Notes are secured by the TCI Ventures Group's pledge
of the stock representing its 51% interest in Cablevision. The
Cablevision Notes bore interest at 10% until May 1, 1996, when
interest began to accrue at a bank's prime rate plus 1% (9.25% at
December 31, 1996). The Cablevision Notes were paid during the three
months ended March 31, 1997.
(c) Cablevision's bank debt, which is denominated in U.S. dollars, bears
interest at fixed rates. Including value added tax, the weighted
average interest rate of Cablevision's bank debt at December 31, 1996
was 7.81%.
(d) In connection with the OCC Acquisition, Cablevision issued $46.4
million principal amount of secured negotiable promissory notes. The
OCC Notes will be repaid in 21 consecutive equal monthly installments
commencing on January 10, 1997 and will accrue interest at 9.25%. The
OCC Notes are secured by the pledge of 51% of the stock of OCC.
(continued)
V-237
<PAGE> 459
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
The U.S. dollar equivalent of the annual maturities of the TCI Ventures
Group's debt for each of the next five years are as follows (amounts in
thousands):
<TABLE>
<S> <C>
1997 $ 199,692
1998 24,798
1999 2,786
2000 940
2001 940
</TABLE>
With the exception of the Debentures, which had a fair value of $259.6
million at December 31, 1996, the TCI Ventures Group believes that the
fair value and the carrying value of the TCI Ventures Group's debt were
approximately equal at December 31, 1996.
(13) Combined Equity
General
If the TCI Ventures Group Stock Proposal is approved by stockholders, the
Series A TCI Ventures Group Stock will have one vote per share and the
Series B TCI Ventures Group Stock will have ten votes per share.
Shares of Series B TCI Ventures Group Stock will be convertible at any
time at the option of the holder only into the same number of shares of
Series A TCI Ventures Group Stock.
The rights of holders of the TCI Ventures Group Stock upon liquidation of
TCI will be based upon the ratio of the aggregate market capitalization,
as defined, of the TCI Ventures Group Stock to the aggregate market
capitalization, as defined, of the TCI Group Stock, the TCI Ventures Group
Stock and the Liberty Media Group Stock.
Transactions with TCI Group, Liberty Media Group and Other Related Parties
Certain TCI corporate general and administrative costs are charged to TCI
Ventures Group at rates set at the beginning of the year based on
projected utilization for that year. The utilization-based charges are set
at levels that management believes to be reasonable and that approximate
the costs TCI Ventures Group would incur for comparable services on a
stand alone basis. During the years ended December 31, 1996, 1995 and
1994, TCI Ventures Group was allocated $7,918,000, $4,120,000 and
$445,000, respectively, in corporate general and administrative costs by
TCI Group.
(continued)
V-238
<PAGE> 460
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Certain of the companies with domestic operations that are attributed to
the TCI Ventures Group provide services to companies attributed to one or
more of the other Groups, and certain of the companies attributed to the
other Groups provide services and the use of facilities to companies
attributed to the TCI Ventures Group. Generally, services and rights to
use facilities provided pursuant to contractual arrangements to which a
member of the TCI Ventures Group that is not a wholly owned subsidiary of
the Company is a party will continue to be provided in accordance with the
terms of such arrangements following the consummation of the Exchange
Offers. For example, Teleport has the indefeasible right to use certain
fiber optic and cable transmission facilities of the Company for
compensation based on the cost of construction of such facilities. In
general, such arrangements were entered into with Teleport by the Company
and other multiple cable system operators ("MSOs") that are stockholders
of Teleport several years ago when Teleport was a privately owned company.
Similarly, @Home has entered into arrangements for the distribution of its
@Home service with its stockholders that are MSO's. The TCI Group has
agreements with UVSG for, among other things, the carriage of UVSG's
Prevue Networks and superstation programming on certain of the cable
systems attributed to the TCI Group, and UVSG purchases programming from
companies attributed to the Liberty Media Group. Many of these contracts
were entered into prior to the UVSG Merger. Because of the presence in
each of TCG, @Home and UVSG of other stockholders not affiliated with the
Company and the independent management teams at each of these companies,
the Company anticipates that future contractual arrangements between these
companies and entities attributed to the other Groups will be negotiated
on an arm's-length basis.
In addition to the foregoing entities, WTCI, NDTC, and Summitrak, each of
which is a wholly owned subsidiary of the Company, provide or may provide
services to the other Groups. WTCI provides video transport services to
the TCI Group (in addition to service provided to third parties) based on
published tariffed rates. NDTC provides digital television services which
include digital compression of programming, satellite uplinking, and
transponder management primarily to programming suppliers, many of which
are affiliated with the Liberty Media Group. Such services provided to
affiliated companies are governed by agreements which have been negotiated
on an arm's-length basis and the material terms of which are substantially
the same as those governing relationships with third parties, except as
appropriate to take into account volume differences. NDTC has also
recently begun offering on a commercial basis its newly developed service
of authorization of addressable set-top boxes and transmission of
compressed and encrypted digital programming signals, and is currently
negotiating a long term contract with the TCI Group, for such services.
Such negotiations are being carried out on an arm's-length basis and it is
expected that the material terms made available to the TCI Group will be
substantially the same as those provided to unaffiliated third parties, but
will include pricing on a most favored nations basis due to the importance
to NDTC of the TCI Group's large customer base. Summitrak has been funded
by the TCI Group during its development and test phases, which are
substantially complete. Currently, the TCI Group is only utilizing
Summitrak's services on a test basis and has no agreement with Summitrak
for commercial deployment. If Summitrak's services are used by the TCI
Group on a commercial basis, such use will be at commercial rates and on
arm's length terms.
(continued)
V-239
<PAGE> 461
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
During the year ended December 31, 1996, revenue earned by UVSG from TCI
Group was $8.1 million. Additionally, TCI Group purchased system
integration services from UVSG totaling $3.1 million during 1996. UVSG
purchases programming from Liberty Media Group and certain affiliates.
These purchases totaled $34.1 million for the year ended December 31,
1996.
Amounts included in revenue for services provided to the other Groups by
WTCI and NDTC are $27,092,000, $20,881,000 and $7,274,000 for the years
ended December 31, 1996, 1995 and 1994, respectively.
The Consolidated Puerto Rico Entities purchase programming services from
the TCI Group. The charges, which approximate the TCI Group's cost and are
based on the aggregate number of subscribers served by the Consolidated
Puerto Rico Entities, aggregated $4.3 million, $3.4 million and $2.6
million during the years ended December 31, 1996, 1995 and 1994,
respectively. Through December 31, 1995, the Consolidated Puerto Rico
Entities also had management arrangements with certain subsidiaries of the
TCI Group whereby such subsidiaries' management provided administrative
services. As compensation for these services, the Consolidated Puerto Rico
Entities paid a monthly fee calculated on a per-subscriber basis. Charges
for such services were $680,000 and $676,000 during the years ended
December 31, 1995 and 1994, respectively. The above-described programming
and management fee charges are included in operating costs in the
accompanying combined statements of operations.
Amounts outstanding under the TCI Note Receivable bear interest at
variable rates based on TCI's weighted average cost of bank borrowings of
similar maturities (6.25% at December 31, 1996). Principal and interest is
due and payable as mutually agreed from time to time by TCI and TINTA.
During the year ended December 31, 1996, interest income related to the
TCI Note Receivable aggregated $14.0 million.
If the TCI Ventures Group Stock Proposal is approved by stockholders, all
debt incurred or preferred stock issued by the Company and its
subsidiaries following the issuance of TCI Ventures Group Stock would
(unless the Board otherwise provides) be specifically attributed to and
reflected on the combined financial statements of the Group that includes
the entity which incurred the debt or issued the preferred stock or, in
case the entity incurring the debt or issuing the preferred stock is
Tele-Communications, Inc., the TCI Group. The Board could, however,
determine from time to time that debt incurred or preferred stock issued
by entities included in a Group should be specifically attributed to and
reflected on the combined financial statements of one of the other Groups
to the extent that the debt is incurred or the preferred stock is issued
for the benefit of such other Group.
(continued)
V-240
<PAGE> 462
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
To the extent cash needs of one Group exceed cash provided by such Group,
one of the other Groups may transfer funds to such Group. The TCI Group
has provided and will continue to provide centralized cash management
functions under which cash receipts of certain entities included in the
other Groups are remitted to the TCI Group and certain cash disbursements
of the other Groups will be funded by the TCI Group on a daily basis. Such
transfers of funds between the Groups will be reflected as borrowings or,
if determined by the Board, in the case of a transfer from the TCI Group
to either the Liberty Media Group or the TCI Ventures Group, reflected as
the creation of, or increase in, the TCI Group's Inter-Group Interest in
such Group or, in the case of a transfer from either the Liberty Media
Group or the TCI Ventures Group to the TCI Group, reflected as a reduction
in the TCI Group's Inter-Group Interest in such Group. There are no
specific criteria for determining when a transfer will be reflected as a
borrowing or as an increase or reduction in an Inter-Group Interest. The
Board expects to make such determinations, either in specific instances or
by setting generally applicable policies from time to time, after
consideration of such factors as it deems relevant, including, without
limitation, the needs of the Company, the financing needs and objectives
of the Groups, the investment objectives of the Groups, the availability,
cost and time associated with alternative financing sources, prevailing
interest rates and general economic conditions.
The TCI Ventures Group is expected to require additional advances from the
TCI Group for some period of time. To satisfy this need, the Company has
agreed to provide a revolving loan facility (the "Credit Facility") to TCI
Ventures Group for a five-year period commencing on the closing of the
Exchange Offers. Such facility would permit aggregate borrowings at any
one time outstanding of up to $500 million (subject to reduction or
increase as provided below), which borrowings would bear interest at a
rate per annum equal to The Bank of New York's prime rate (as in effect
from time to time) plus 1% per annum, payable quarterly. A commitment fee
equal to 3/8% per annum of the average unborrowed availability under the
Revolving Credit Facility would be payable by the TCI Ventures Group to
the TCI Group on a quarterly basis. The maximum amount of borrowings
permitted under the Credit Facility will be reduced on a dollar-for-dollar
basis by up to $300 million if and to the extent that the aggregate amount
of any additional capital that TCI Ventures Group is required to
contribute to Sprint PCS Partnerships subsequent to the closing of the
Exchange Offers is less than $300 million.
Except as described above with respect to the Credit Facility, loans from
one Group to another Group would bear interest at such rates and have such
repayment schedules and other terms as are established from time to time
by, or pursuant to procedures established by, the Board. The Board expects
to make such determinations, either in specific instances or by setting
generally applicable polices from time to time, after consideration of
such factors as it deems relevant, including, without limitation, the
needs of the Company, the use of proceeds by and creditworthiness of the
recipient Group, the capital expenditure plans and investment
opportunities available to each Group and the availability, cost and time
associated with alternative financing sources.
(continued)
V-241
<PAGE> 463
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
The combined balance sheets of a Group would reflect its net loans to or
borrowings from the other Groups. Similarly, the respective combined
statements of operations of the Groups would reflect interest income or
expense, as the case may be, associated with such loans or borrowings and
the respective combined statements of cash flows of the Groups would
reflect changes in the amounts of loans or borrowings deemed outstanding.
In the historical financial statements, net borrowings of the TCI Ventures
Group have been included as a component of the TCI Ventures Group's
combined equity. Such net borrowings will continue to be reflected as a
component of the TCI Ventures Group's combined equity. Amounts borrowed by
the TCI Ventures Group from another Group on and subsequent to the
consummation of the Exchange Offers (including pursuant to the Credit
Facility), will be reflected on the TCI Ventures Group's financial
statements as indebtedness to the applicable lender.
Although any increase in the TCI Group's Inter-Group Interest in the TCI
Ventures Group resulting from an equity contribution by the TCI Group to
the TCI Ventures Group or any decrease in such Inter-Group Interest
resulting from a transfer of funds from the TCI Ventures Group to the TCI
Group would be determined by reference to the market value of the Series A
TCI Ventures Group Stock as of the date of such transfer, such an increase
could occur at a time when such shares could be considered undervalued and
such a decrease could occur at a time when such shares could be considered
overvalued.
All financial impacts of issuances of shares of TCI Ventures Group Stock
the proceeds of which are attributed to the TCI Ventures Group will be to
such extent reflected in the combined financial statements of the TCI
Ventures Group, and all financial impacts of issuances of shares of TCI
Ventures Group Stock the proceeds of which are attributed to the TCI Group
in respect of a reduction in the TCI Group's Inter-Group Interest in the
TCI Ventures Group will be to such extent reflected in the combined
financial statements of the TCI Group. Financial impacts of dividends or
other distributions on, and purchases of, TCI Group Stock will be
attributed entirely to the TCI Group, and financial impacts of dividends
or other distributions on TCI Ventures Group Stock will be attributed
entirely to the TCI Ventures Group, except that dividends or other
distributions on the TCI Ventures Group Stock will (if at the time there
is an Inter-Group Interest in the TCI Ventures Group) result in the TCI
Group being credited, and the TCI Ventures Group being charged (in
addition to the charge for the dividend or other distribution paid), with
an amount equal to the product of the aggregate amount of such dividend or
other distribution paid or distributed in respect of outstanding shares of
TCI Ventures Group Stock and a fraction the numerator of which is the TCI
Ventures Group Inter-Group Interest Fraction and the denominator of which
is the TCI Ventures Group Outstanding Interest Fraction (both as defined).
Financial impacts of repurchases of TCI Ventures Group Stock the
consideration for which is charged to the TCI Ventures Group will be to
such extent reflected in the combined financial statements of the TCI
Ventures Group, and financial impacts of repurchases of TCI Ventures Group
Stock the consideration for which is charged to the TCI Group will be to
such extent reflected in the combined financial statements of the TCI
Group and will result in an increase in the TCI Group's Inter-Group
Interest in the TCI Ventures Group.
(continued)
V-242
<PAGE> 464
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
The Board expects to determine, either in specific instances or by setting
generally applicable policies from time to time, whether to allocate
resources and financial support to or pursue business opportunities or
operational strategies through one Group or one or more of the other
Groups, after consideration of such factors as it deems relevant. TCI had
advised International that TCI intends (a) to make available to
International any opportunity to acquire, develop, own and/or manage cable
and/or telephony operations outside the United States that is presented to
TCI or any of its controlled affiliates and (b) except as provided below,
to make available to International any opportunity to acquire, develop,
manager and/or operate programming services outside of the United States
(an "International Programming Opportunity") that is presented to TCI or
any of its controlled affiliates, including those that are a part of the
Liberty Media Group. The foregoing does not apply to (1) international
programming services owned or managed, directly or indirectly (in whole or
in part), by TCI or any of its controlled affiliates other than
International as of July 12, 1995 (the date of the prospectus for
International's initial public offering), (2) International Programming
Opportunities under development by TCI or any of its controlled affiliates
other than International that were the subject of a signed letter of
intent or other agreement in principle as of July 12, 1995, (3) an
International Programming Opportunity in respect of foreign sports
programming, which may be pursued either through International or Liberty
Media Group, (4) an International Programming Opportunity presented to a
public company that is a controlled affiliate of either TCI or any of
TCI's controlled affiliates (other than International), (5) an
International Programming Opportunity presented to, or cable television or
cable telephony services provided by, any company or other entity in which
TCI or any of its controlled affiliates has an interest but which is not
itself a controlled affiliate of either TCI or any of TCI's controlled
affiliates and (6) the distribution outside the United States of a
programming service initially distributed within the United States and
owned and/or managed by TCI or any of its controlled affiliates (other
than International). If International determines not to pursue an
International Programming Opportunity, subsidiaries or controlled
affiliates of TCI other than International may pursue such International
Programming Opportunity or International and another subsidiary of TCI (or
any of its other controlled affiliates) may pursue such opportunity
jointly. To the extent that TCI or any of its controlled affiliates (other
than International) owns rights to worldwide or regional sporting events,
TCI or such affiliates may also utilize those rights worldwide, including
to provide "backdrop" services. Neither TCI nor any of its controlled
affiliates will be obligated to make available to International any
International Programming Opportunity to the extent TCI or such controlled
affiliate is legally (for example, by a fiduciary duty owned to others) or
contractually prohibited from doing so. The foregoing arrangement
concerning International Programming Opportunities will, in any event, be
terminable at such time as TCI ceases to beneficially own at least a
majority in voting power of the outstanding shares of common stock of
International.
(continued)
V-243
<PAGE> 465
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Certain subsidiaries of TCI Group have provided guarantees and other
credit enhancements on the TCI Ventures Group's behalf. In this respect,
the TCI Ventures Group has entered into an indemnification agreement with
TCI Group whereby the TCI Ventures Group will indemnify TCI Group for any
loss, claim or liability that TCI Group may incur by reason of certain
guarantees and credit enhancements made by TCI Group on the TCI Ventures
Group's behalf.
(14) Income Taxes
The TCI Ventures Group and its 80%-or-more-owned domestic subsidiaries are
included in the consolidated federal and state income tax returns of TCI.
The TCI Ventures Group's income taxes include those items in the
consolidated calculation applicable to the TCI Ventures Group
("intercompany tax allocation") and any income taxes of TCI Ventures
Group's consolidated foreign or domestic subsidiaries that are excluded
from the consolidated federal and state income tax returns of TCI.
Intercompany tax allocation represents an apportionment of tax expense or
benefit (other than deferred taxes) among subsidiaries of TCI in relation
to their respective amounts of taxable earnings or losses. The payable
arising from the intercompany tax allocation was recorded as an increase
in equity through March 31, 1997.
A tax sharing agreement (the "Tax Sharing Agreement") among entities
attributed to TCI Ventures Group, Liberty Media Group, TCI and certain
subsidiaries of TCI was implemented effective July 1, 1995. The Tax
Sharing Agreement formalizes certain of the elements of a pre-existing tax
sharing arrangement and contains additional 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 to the date hereof (the
"Code"), and any applicable state, local and foreign tax law and related
regulations. Beginning on the July 1, 1995 effective date, TCI Ventures
Group is responsible to TCI for its share of current consolidated income
tax liabilities. TCI is responsible to TCI Ventures Group to the extent
that TCI Ventures Group's income tax attributes generated after July 1,
1995 are utilized by TCI to reduce its consolidated income tax
liabilities. Accordingly, all tax attributes generated by TCI Ventures
Group's operations after such July 1, 1995 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 TCI Ventures Group.
(continued)
V-244
<PAGE> 466
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
For periods from and after the effective date of the Exchange Offers,
income taxes will be computed pursuant to an amended tax sharing agreement
based upon the type of tax paid by the Company (regular tax or alternative
minimum tax) on a separate return basis for each Group (applying
provisions of the Code, and related regulations as if such Group filed a
separate consolidated return for federal income tax purposes but was
subject to the same type of tax as the Company). Based upon these separate
calculations, an allocation of tax liabilities and benefits will be made
such that each Group will be required to make cash payments to the Company
for its gross share of the Company's consolidated federal income tax
liabilities (on a regular tax or alternative minimum tax basis, as
applicable), such gross share being determined without regard to (a) tax
benefits that are attributable to the Company or the other Groups or (b)
certain tax benefits that are attributable to such Group but are not
utilized by the Company in determining its consolidated federal income tax
liability. Similarly, the Company will be required to make cash payments
to each Group for tax benefits (on a regular tax or alternative minimum
tax basis, as applicable) attributable to such Group and actually used by
the Company in reducing its consolidated federal income tax liability. Tax
attributes, including but not limited to net operating losses, foreign tax
credits, investment tax credits, alternative minimum tax net operating
losses, alternative minimum tax credits, deferred intercompany gains, and
tax basis in assets would be inventoried and tracked for ultimate credit
to or charge against each Group. Similarly, in each taxable period that
the Company pays alternative minimum tax, the federal income tax
liabilities and benefits of each Group, computed as if such Group were
subject to regular tax, would be inventoried and tracked for ultimate cash
payment (at the tax rate differential between the regular tax and the
alternative minimum tax) in years that the Company is subject to regular
tax. Amounts credited or debited to intercompany accounts existing under
the existing Tax Sharing Agreement in effect prior to the closing of the
Exchange Offers that are attributable to any Group or any member thereof
shall be settled in cash upon deconsolidation. In addition, pursuant to
the amended tax sharing agreement, state and local income taxes are
calculated on a separate return basis for each Group (applying provisions
of state and local tax law and related regulations as if the Group were a
separate unitary or combined group for tax purposes), and the Company's
combined or unitary tax liability is allocated among the Groups based upon
such separate calculation. The Company has retained the right to file all
returns, make all elections and control all audits and contests.
(continued)
V-245
<PAGE> 467
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Income tax benefit (expense) attributable to the TCI Ventures Group's
pre-tax earnings (loss) for the years ended December 31, 1996, 1995 and
1994 consists of (amounts in thousands):
<TABLE>
<CAPTION>
Current Deferred Total
-------- -------- --------
<S> <C> <C> <C>
December 31, 1996:
Intercompany tax allocation $ 52,660 -- 52,660
Federal -- 76,120 76,120
State and local (1,721) 3,464 1,743
Foreign (12,237) (7,941) (20,178)
-------- -------- --------
$ 38,702 71,643 110,345
======== ======== ========
December 31, 1995:
Intercompany tax allocation $ 55,941 -- 55,941
Federal -- (27,689) (27,689)
State and local -- (2,715) (2,715)
Foreign (9,080) (14,659) (23,739)
-------- -------- --------
$ 46,861 (45,063) 1,798
======== ======== ========
December 31, 1994:
Intercompany tax allocation $(31,909) -- (31,909)
Federal -- 10,018 10,018
State and local (5) 931 926
Foreign -- -- --
-------- -------- --------
$(31,914) 10,949 (20,965)
======== ======== ========
</TABLE>
Income tax benefit (expense) attributable to the TCI Ventures Group's
pre-tax earnings (loss) differs from the amounts computed by applying the
U.S. federal income tax rate of 35%, as a result of the following (amounts
in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Computed "expected" tax benefit
(expense) $ 129,069 (20,385) (11,766)
Effect of foreign tax rate differential on
earnings of foreign subsidiary 1,051 4,516 --
Minority interest in earnings
of consolidated subsidiaries 4,657 (8,130) --
Increase in valuation allowance
for deferred tax assets resulting
from certain unused tax loss carryforwards (23,552) (7,935) (5,197)
Adjustment to deferred tax assets and
liabilities for enacted change in foreign
income tax rate (952) -- --
Amortization not deductible for tax purposes (6,232) (5,150) (217)
Gain of sale of subsidiary stock -- 42,931 --
State taxes, net of federal tax effect 1,116 (1,743) 4
Other, net 5,188 (2,306) (3,789)
--------- --------- ---------
$ 110,345 1,798 (20,965)
========= ========= =========
</TABLE>
(continued)
V-246
<PAGE> 468
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined 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 (amounts in thousands):
<TABLE>
<CAPTION>
December 31,
----------------------
1996 1995
--------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 98,633 57,204
Less-valuation allowance (62,288) (42,154)
Investments in affiliates, due principally
to losses of affiliates recognized for
financial statement purposes in excess of
losses recognized for tax purposes 35,556 --
Foreign currency translation adjustments
included in equity but not recognized
for income tax purposes -- 2,637
Future deductible amounts, principally
due to accruals not currently deductible 15,732 7,066
Other -- 812
--------- ---------
Net deferred tax assets 87,633 25,565
--------- ---------
Deferred tax liabilities:
Property and equipment, principally
due to differences in depreciation (91,626) (61,506)
Franchise costs, not deductible for income
tax purposes (188,635) (162,732)
Foreign currency translation adjustments
included in equity but not recognized
for income tax purposes (13,328) --
Unrecognized gain on sale of assets (14,128) (12,812)
Investments in affiliates, due principally to
losses of affiliates recognized for tax in
excess of losses recognized for financial
statement purposes -- (43,330)
Other (222) --
--------- ---------
Total gross deferred tax liabilities (307,939) (280,380)
--------- ---------
Net deferred tax liability $(220,306) (254,815)
========= =========
</TABLE>
(continued)
V-247
<PAGE> 469
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
At December 31, 1996, the TCI Ventures Group had federal net operating
loss carryforwards for income tax purposes aggregating approximately $100
million which, if not utilized to reduce taxable income in future periods,
will begin to expire at various dates beginning in the year 2004.
The TCI Ventures Group has net operating loss carryforwards of
approximately $130.1 million available in certain foreign tax
jurisdictions. These foreign net operating loss carryforwards may be
utilized to reduce taxable income in the applicable foreign tax
jurisdictions indefinitely.
In addition, the TCI Ventures Group has net operating loss carryforwards
of approximately $14.4 million available in the Puerto Rico tax
jurisdiction. If unused, these net operating loss carryforwards expire at
various dates over the next 7 years.
(15) Commitments and Contingencies
As a partner in certain partnerships, from time to time, the TCI Ventures
Group is obligated to make cash payments, either in the form of equity or
loans, the most significant of which is the funding of Sprint Spectrum. As
previously described, the Partners are obligated to make cash capital
contributions to Sprint Spectrum in the aggregate amount of approximately
$1.9 billion during the two-year period that commenced January 1, 1996.
Pursuant to an agreement entered into in connection with certain
financings by Sprint Spectrum, under certain circumstances the Partners
may be required to make additional contributions to Sprint Spectrum to
fund projected cash shortfalls to the extent that the amount of the
Partners' aggregate contributions to Sprint Spectrum (exclusive of certain
amounts, including amounts invested in certain affiliates of Sprint
Spectrum), following December 31, 1995 are less than $1.0 billion;
however, based on the currently expected timing and use of the Partners'
contributions to Sprint Spectrum, the TCI Ventures Group currently
believes that such agreement will not result in the TCI Ventures Group's
being required to make any incremental capital contributions in addition
to its pro rata portion of such $1.9 billion amount.
The TCI Ventures Group has guaranteed the obligation of an affiliate ("The
Premium Movie Partnership") to pay fees for the license to exhibit certain
films through 2000. Although the aggregate amount of The Premium Movie
Partnership's license fee obligations is not currently estimable, the TCI
Ventures Group believes that the aggregate payments pursuant to such
obligations could be significant. If the TCI Ventures Group were to fail
to fulfill its obligations under the guarantee, the beneficiaries have the
right to demand an aggregate payment from the TCI Ventures Group of
approximately $58 million. Although the TCI Ventures Group has not had to
perform under such guarantee to date, the TCI Ventures Group cannot be
certain that it will not be required to perform under such guarantee in
the future.
(continued)
V-248
<PAGE> 470
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
If at any time (x) the aggregate of the amount of (i) Flextech securities
held by the TCI Ventures Group, (ii) Hallmark's and U S WEST's interest in
Flextech acquired under the Hallmark Subscription and the U S WEST
Subscription, respectively, and (iii) Flextech securities acquired by IFE
pursuant to the IFE Acquisitions exceeds 75% of Flextech's issued and
outstanding share capital, or (y) subject to certain exceptions, the
Flextech Ordinary Shares cease to be admitted to trading on the Official
List of the London Stock Exchange as a result of the exercise by the TCI
Ventures Group of any of its rights as a Flextech shareholder, the TCI
Ventures Group shall be obligated to offer to purchase from Hallmark, U S
WEST and IFE any Flextech Ordinary Shares or Flextech Non-Preference
Shares held by them and which were originally acquired pursuant to the
Hallmark Subscription, the U S WEST Subscription, or the IFE Acquisitions,
as applicable. Under such circumstances, the offer price for such shares
shall be the higher of (i) the then current market price for the Flextech
Ordinary Shares and (ii) the highest price paid to any third party by the
TCI Ventures Group for any Flextech Ordinary Shares or Flextech
Non-Preference Shares during the preceding 12 month period. In the event
the TCI Ventures Group is required to purchase any Flextech Non-Preference
Shares or Flextech Ordinary Shares, it may elect, subject to certain
limited exceptions, to pay the purchase price thereof in cash or in shares
of International Series A common stock, or in certain securities of TCI.
In light of certain change of control provisions contained in the articles
of association of UKGL and UKLL, TCI has agreed to maintain an indirect
voting interest of at least 50.01% in a wholly-owned subsidiary of
Flextech so long as Flextech continues to hold its ownership interests in
UKGL and UKLL. Under Flextech's Articles of Association, if the TCI
Ventures Group becomes obligated to purchase any of the Flextech
Non-Preference Shares (as described above) and fails to complete such
purchase within 12 months from the date such purchase is required to be
completed, such Flextech Non-Preference Shares shall become convertible
into Flextech Ordinary Shares whether or not the TCI Ventures Group ceases
to own at least 50.01% of the voting interest attributable to Flextech's
then outstanding ordinary share capital.
On November 20, 1995, International announced its intention to form
strategic partnerships with News Corp., Organizacoes Globo and Grupo
Televisa S.A. for the development and operation of a direct-to-home
satellite service for Latin America, Mexico, and various Central and South
American countries (collectively, the "DTH Ventures"). It is anticipated
that International could be required to make cash contributions totaling
$46 million over the next three years in connection with the DTH Ventures.
The TCI Ventures Group leases business offices, has entered into pole
rental and transponder lease agreements, and uses certain equipment under
lease arrangements. Rental costs under such arrangements amounted to $62
million, $41 million and $27 million for the years ended December 31,
1996, 1995 and 1994, respectively.
(continued)
V-249
<PAGE> 471
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
A summary of future minimum lease payments under noncancellable operating
and capital leases as of December 31, 1996 follows (amounts in thousands):
<TABLE>
<CAPTION>
Years ending December 31: Operating Capital
-------- --------
<S> <C> <C>
1997 $ 64,979 31,354
1998 57,679 31,376
1999 51,641 31,487
2000 32,416 31,716
2001 25,464 30,164
Thereafter 105,427 128,169
-------- --------
$337,606 284,266
========
Less amounts representing interest
84,305
Capital lease obligations $199,961
========
</TABLE>
It is expected that in the normal course of business, leases that expire
generally 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 1996.
Flextech has commitments to acquire distribution and exhibition rights for
a variety of programming under license agreements with Hallmark
Entertainment Inc. ("Hallmark Entertainment"). The rights are limited to
the United Kingdom and certain other European markets and have a term for
a period of ten years once the license period commences. Through December
31, 1996, programming with an aggregate contractual value of (pound)19.8
million ($33.9 million) had been delivered to Flextech under such
agreements. It is estimated that Flextech's remaining commitments to
acquire programming will be (pound)10.5 million ($18.0 million). Hallmark
Entertainment has provided Flextech a guarantee that it will recover at
least (pound)14.6 million ($25.0 million) from the exploitation of such
rights. Flextech also agreed to purchase certain programming from STV
during the next two years. Flextech's aggregate remaining obligations at
December 31, 1996 under such STV programming agreements were expected to
range from (pound)1.4 million ($2.4 million) to (pound)6.5 million ($11.1
million).
Flextech's programming commitments will not be included in TCI Ventures
Group's disclosure of its consolidated commitments and contingencies upon
the January 1, 1997 deconsolidation of Flextech.
Certain key employees of TCI involved with TCI Ventures Group matters hold
options with tandem stock appreciation rights to acquire Series A TCI
Group Stock, Series A Liberty Media Group Stock and International Series A
common stock as well as restricted stock awards of Series A TCI Group
Stock and International Series A common stock. Additionally, in December
of 1996, certain employees of TCI involved with TCI Ventures Group were
each granted options representing 1.0% of the common equity of TCI
Telephony Services, Inc., TCI Wireline, Inc., and TCI.NET, Inc. The
exercise price of each such option will be adjusted for a 6% per annum
interest factor to the date of exercise. Additionally, in December of
1996, an employee involved with TCI Ventures Group was granted options
representing 1.0% of TCI Satellite Entertainment, Inc.
(continued)
V-250
<PAGE> 472
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Estimates of the compensation relating to the options and/or stock
appreciation rights as well as restricted stock awards granted to
employees involved with TCI Ventures Group have been recorded in the
accompanying combined financial statements, but are subject to future
adjustment based upon the market value of the underlying equity and,
ultimately, on the final determination of market value when the options or
rights are exercised or the restricted shares are vested.
Estimated compensation relating to the aforementioned restricted stock
award and options has been recorded through December 31, 1996 pursuant to
APB Opinion No. 25. Such estimate is subject to future adjustment based
upon market value, and ultimately, on the final determination of market
value when the rights are exercised or the restricted stock awards are
vested. Had TCI Group accounted for its stock based compensation pursuant
to the fair value based accounting method in Statement No. 123, the amount
of compensation would not have been materially different from what has
been reflected in the accompanying combined financial statements.
V-251
<PAGE> 473
[Form of proxy for the following classes: (i) Class B 6%
Cumulative Redeemable Exchangeable
Junior Preferred Stock; (ii) Redeemable Convertible TCI
Group Preferred Stock, Series G;
and (iii)Redeemable Convertible Liberty Media
Group Preferred Stock, Series H]
TELE-COMMUNICATIONS, INC.
Post Office Box 5630
Denver, CO 80217
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints John C. Malone and Stephen M. Brett as
Proxies, with full power to act without the other and each with the power to
appoint his substitute, and hereby authorizes them to represent and to vote, as
designated on the reverse side hereof, all shares of common stock of
Tele-Communications, Inc. held of record by the undersigned on [date], at the
Annual Meeting of stockholders to be held on [date] or any adjournment thereof.
This Proxy when properly executed will be voted in the manner
directed herein by the undersigned stockholder.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ALL NOMINEES
FOR DIRECTORS.
(Continued, and to be signed and dated on reverse side)
- - --------------------------------------------------------------------------------
1. ELECTION OF THREE DIRECTORS (Nominees: Donne F. Fisher, Kim Magness
and J.C. Sparkman).
FOR all nominees [ ] WITHHOLD AUTHORITY to vote for all
nominees [ ]
To vote for fewer than all nominees, print the name(s) of the
nominee(s) you wish to VOTE FOR below:
2. In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the Annual Meeting.
Class B 6% Cumulative Redeemable Exchangeable Junior Preferred Stock
Address Change and/or
Comments Mark Here [ ]
Please sign exactly as name appears hereon. When shares
are held by joint tenants, both should sign. When
signing as attorney, as executor, administrator, trustee
or guardian, please give full title as such. If a
corporation, please sign in full corporate name by
President or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
Dated: , 1997
Signature
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY Votes MUST be Indicated
CARD PROMPTLY USING THE ENCLOSED ENVELOPE (X) In Black or Blue ink. [x]
<PAGE> 474
[Form of proxy for the following classes: (i) Series A TCI Group Common Stock;
(ii) Series B TCI Group Common Stock; (iii) Series A Liberty Media Group
Common Stock; (iv) Series B Liberty Media Group Common Stock; and (v)
Series C Preferred Stock]
TELE-COMMUNICATIONS, INC.
Post Office Box 5630
Denver, CO 80217
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints John C. Malone and Stephen M. Brett as
Proxies, with full power to act without the other and each with the power to
appoint his substitute, and hereby authorizes them to represent and to vote, as
designated on the reverse side hereof, all shares of common stock of
Tele-Communications, Inc. held of record by the undersigned on [date], at the
Annual Meeting of stockholders to be held on [date] or any adjournment thereof.
This Proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ALL NOMINEES FOR
DIRECTORS AND FOR THE TWO PROPOSALS TO AMEND THE RESTATED CERTIFICATE OF
INCORPORATION OF TELE-COMMUNICATIONS, INC. (PROPOSALS NO. 2 AND NO. 3) AND
AGAINST THE PROPOSAL OF TWO STOCKHOLDERS (IF SUCH PROPOSAL IS PRESENTED AT THE
ANNUAL MEETING) (PROPOSAL NO. 4), EACH OF WHICH PROPOSALS IS DESCRIBED ON THE
REVERSE SIDE.
(Continued, and to be signed and dated on reverse side)
-2-
<PAGE> 475
1. ELECTION OF THREE DIRECTORS (Nominees: Donne F. Fisher, Kim Magness
and J.C. Sparkman).
FOR all nominees [ ] WITHHOLD AUTHORITY to vote for all
nominees [ ]
To vote for fewer than all nominees, print the name(s) of the
nominee(s) you wish to VOTE FOR below:
2. PROPOSAL TO APPROVE the adoption of an amendment to the Restated
Certificate of Incorporation of Tele-Communications, Inc. which would,
among other things, (a) redesignate the Tele-Communications, Inc.
Series A Telephony Group Common Stock and the Tele-Communications, Inc.
Series B Telephony Group Common Stock as Tele- Communications, Inc. Series
A TCI Ventures Group Common Stock and Tele-Communications, Inc. Series B
TCI Ventures Group Common Stock, respectively, (b) change the name of the
Telephony Group to the TCI Ventures Group and redefine the assets and
liabilities attributed to the TCI Ventures Group, (c) make corresponding
changes to the terms of the Tele-Communications, Inc. Series A TCI Group
Common Stock, the Tele-Communications, Inc. Series B TCI Group Common
Stock, the Tele-Communications, Inc. Series A Liberty Media Group Common
Stock and the Tele-Communications, Inc. Series B Liberty Media Group Common
Stock to reflect the redesignation of the Telephony Group Common Stock as
TCI Ventures Group Common Stock, and (d) provide for the reservation of
shares of Series A TCI Ventures Group Common Stock for issuance upon
exercise or exchange of certain options and convertible notes.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. PROPOSAL TO APPROVE the adoption of amendments to the Restated Certificate
of Incorporation of Tele-Communications, Inc. which would expand
Tele-Communications, Inc.'s right to redeem the Liberty Media Group Common
Stock for stock of a subsidiary that holds, directly or indirectly,
all the assets and liabilities of the Liberty Media Group, by permitting
redemption for the stock of a less than wholly owned subsidiary of
Tele-Communications, Inc. if Tele- Communications, Inc.'s ownership of and
voting interest in such subsidiary is sufficient to satisfy the
requirements of the Internal Revenue Service for a distribution of
Tele-Communications, Inc's interest in such subsidiary to the holders of
Liberty Media Group Common Stock to be tax free to such holders.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. PROPOSAL TO ACT UPON, if presented by two stockholders of
Tele-Communications, Inc. at the Annual Meeting, a proposal of such
stockholders to request the elimination of election of directors by
classes.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
5. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Annual Meeting.
Address Change and/or
Series A TCI Group Common Stock Comments Mark Here [ ]
Please sign exactly as name appears hereon.
When shares are held by joint tenants, both
should sign. When signing as attorney, as
executor, administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full corporate
name by President or other authorized
officer. If a partnership, please sign in
partnership name by authorized person.
Dated: , 1997
Signature
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY Votes MUST be Indicated
CARD PROMPTLY USING THE ENCLOSED ENVELOPE (X) In Black or Blue ink. [x]